SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
Commission File Number 0-25364
ANICOM, INC.
(Name of small business issuer in its charter)
Delaware 36-3885212
(State of incorporation) (IRS Employer Identification No.)
6133 North River Road, Suite 1000, Rosemont, Illinois 60018-5171
(Address of principal executive offices, including zip code)
(847) 518-8700
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
The issuer's revenues for the fiscal year ended December 31, 1996: $115,993,079
The aggregate market value of the voting stock held by non-affiliates, based on
the closing price of the registrant's Common Stock on March 14, 1997:
$137,998,275
The number of shares outstanding of the registrant's Common Stock as of
March 14, 1997: 15,811,105
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the issuer's Notice of Annual Meeting of Stockholders and
Proxy Statement for its Annual Meeting of Stockholders to be held on May 21 1997
are incorporated by reference into Part III of this report.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS....................................................................... 1
ITEM 2. DESCRIPTION OF PROPERTY....................................................................... 7
ITEM 3. LEGAL PROCEEDINGS............................................................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................... 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 9
ITEM 7. FINANCIAL STATEMENTS.......................................................................... 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......... 13
PART II
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT............................................................ 14
ITEM 10. EXECUTIVE COMPENSATION........................................................................ 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................ 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................................................. 15
SIGNATURES...................................................................................................... 16
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Anicom, Inc. ("Anicom" or the "Company") specializes in the sale and
distribution of communications related wire, cable, fiber optics and computer
network and connectivity products. The products offered by Anicom generally fall
into four categories: (i) voice and data communications and fiber optics, (ii)
sound, security, fire, alarm and energy management systems, (iii) electronic
cable and (iv) industrial cable, wiring and assemblies for automation, computers
and robotics. The fastest growing products for the Company are in voice and data
communications and fiber optics, including an assortment of transmission media
(copper and fiber optic cable), components (blocks, brackets, jacks, patch
cords, patch panels, connectors and stackable hubs), related hardware and cable
assemblies.
Since its inception in 1993, the Company has grown very rapidly through internal
expansion and acquisitions. From its initial public offering in February 1995,
the Company has grown from 7 to 41 locations.
In 1995, the Company successfully acquired two companies: Pinnacle Wire and
Cable, Inc., in July, 1995 and Morgan Hill Supply Company, Inc., in October,
1995. During 1996, the Company successfully completed five acquisitions:
Medisco, Inc., acquired in February 1996, Northern Wire & Cable, Inc., acquired
in mid-March 1996, Southern Alarm Supply, Inc., acquired in May 1996, and
Norfolk Wire & Electronics, Inc., and Western Wire & Alarm Products, Inc., both
acquired in September 1996. In February 1997, the Company acquired Carolina
Cable & Connector, Inc. Since July 1995, Anicom has successfully consummated
eight corporate acquisitions with aggregate sales of approximately $126.4
million based on the acquired companies operating results for their last fiscal
year.
Anicom is a national leader in the sale and distribution of multimedia wiring
products. The Company has assembled an experienced management team and has
invested in the development of an information technology and distribution system
which management believes can support substantial growth. The five person
management team that formed Anicom collectively has more than 100 years of
experience in the sale and distribution of multimedia wiring products. The
Company's Chairman of the Board, Alan B. Anixter, and Board member William R.
Anixter, were the co-founders of Anixter Bros., Inc., an international
specialist in the distribution of wire, cable and related products. Alan B.
Anixter served as the Chairman and Chief Executive Officer of Anixter Bros.,
Inc., until 1988. During his career at Anixter Bros., Inc., that company
consummated more than 40 corporate acquisitions and by 1988, had grown to over
$1.0 billion in annual net sales. In addition, the Company's Chairman and Chief
Executive Officer, Scott C. Anixter, previously was a director of Anixter Bros.,
Inc., and the Company's President, Carl E. Putnam, previously was a Regional
Vice President of Anixter Bros., Inc., responsible for a division with
approximately $200 million in annual net sales. The Company believes that the
extensive industry experience of its management team and sales personnel has
enabled it to establish and maintain strong relationships with major vendors and
customers and that such experience will continue to serve as a valuable asset in
the implementation of Anicom's integrated growth strategy.
<PAGE>
Background
Several of the industries serviced by Anicom have experienced significant growth
in recent years and are expected to continue to grow at a rapid pace. As these
industries continue to evolve, management believes that the demand for products
offered by the Company will also continue to grow. Because the Company is not a
manufacturer, management believes that it can readily respond to the changing
demands of the industries it serves and is not reliant upon the success of a
particular product or product category. The products distributed by the Company
are components utilized by contractors and end-users in the installation or
upgrading of highly technical communications systems. As such, the Company's
products often are subject to strict technical specifications. The degree to
which products adhere to these technical specifications, such as class of cable
or specific connector impedance specifications, is a significant factor in
differentiating among products. Accordingly, distributors primarily distinguish
themselves by the depth and breadth of products offered and their knowledge of
these products. Anicom's sales personnel, who average approximately ten years of
experience in the sale and distribution of multimedia wiring products, work with
Anicom's customers and vendors to match products to the technical specifications
supplied by its customers. Management believes that this level of service is
important in attracting and retaining customers as well as distinguishing itself
as a provider of products, service and value.
The growing market for the distribution of communications related wire, cable,
fiber optics and computer network and connectivity products is highly
fragmented, with few companies maintaining greater than $50 million in annual
net sales. Management believes that no company accounts for more than 5% of
total sales of multimedia wiring products and the ten largest distributors of
multimedia wiring products, in the aggregate, represent less than 10% of such
sales. In addition to a few national companies, most of the Company's
competitors are regional distribution companies with less than $50 million in
annual net sales. Anicom's integrated growth strategy focuses on increasing
revenue through acquisitions and internal growth into targeted geographical
markets while continuing to achieve profitability in existing and acquired
operations through the implementation of financial and operational controls.
Voice and Data Communications and Fiber Optics
Anicom's customer base consists of a wide array of businesses, including
contractors, systems integrators, security/fire alarm companies, regional Bell
operating companies, distributors, utilities, telecommunications and sound
contractors, wireless specialists, construction companies, universities and
governmental agencies. These customers utilize the products offered by Anicom in
a multitude of existing applications. In addition, a large number of leading
telecommunications, computer, computer software and entertainment companies have
committed significant resources to developing plans for the delivery of
broadband communications services which are expected to increase the use of
protocols including Ethernet(R) and Fast Ethernet(R) networks, as well as
asynchronous transfer mode ("ATM") technology. New systems and technology such
as these are anticipated to involve the use of fiber optic cable, copper cable
or wires manufactured to specifications different from those currently in use.
At the same time, the proliferation of personal computers and advances in
networking technology have resulted in increased demand for interconnected local
area network ("LAN") and wide area network ("WAN") systems that utilize the
products offered by Anicom. The growth of these types of networks has resulted
in a separate purchasing process for electronic data transmission cable and
components utilized in these networks. Anicom coordinates with end-users,
systems integrators and network cable manufacturers in determining
specifications of the cable required for a particular network.
<PAGE>
Sound, Security, Fire, Alarm and Energy Management Systems
The demand for the multimedia wiring products offered by Anicom for use in these
types of systems has increased in recent years as a result of technological
advances in commercial building automation, greater concern regarding the safety
features of commercial buildings and the increased demand for residential
security systems. The growth in this market generally is regarded as the result
of increased concern about crime, as well as the result of technological
advances that have allowed manufacturers to improve reliability and features
while lowering the installed costs of such systems. Similarly, publicly and
privately owned buildings, such as office buildings, stadiums, hospitals and
correctional facilities, also continue to use more sophisticated computer,
security, communications and sound systems that incorporate the types of
multimedia wiring products offered by Anicom. The systems used by contractors
and systems integrators in these types of facilities not only offer greater
building automation and more sophisticated communication systems but also are
designed to meet the increasingly stringent safety requirements imposed by local
and national building codes.
Electronic and Industrial Cable
Anicom also offers wire and cable products for use in a wide variety of
electrical and electronic systems. Anicom sells these products to contractors,
end-users, systems integrators and original equipment manufacturers ("OEMs").
The wire and cable products are used in the manufacturing of electrical and
electronic equipment, as well as the replacement of wire and cable in existing
systems. Anicom also sells and distributes wire and cable products for
industrial use in the automotive, mining, marine, petro-chemical, paper and pulp
and other natural resource industries.
The Acquisition Strategy Anicom has implemented an integrated growth strategy
focusing on increasing revenues through acquisitions and internal growth in
targeted geographical markets while continuing to achieve profitability in
existing and acquired operations through the implementation of financial and
operational controls. Generally, Anicom seeks to acquire an established,
high-quality company in a targeted geographical market. Anicom also may pursue
companies with substantially greater revenues than those of the Company. Anicom
generally expects to retain the management and sales personnel of the acquired
company while seeking to increase its net sales through the availability of a
greater selection and depth of inventory and to improve its profitability by
achieving economies of scale through the use of the Company's integrated
inventory and information systems. Anicom believes that management's industry
experience and Anicom's inventory and information systems make it an attractive
acquirer, particularly for those companies whose owners desire to remain
involved in day-to-day operations. As consideration for future acquisitions,
Anicom plans to continue to use various combinations of cash, securities and
notes.
The Products and Services
Anicom offers a wide selection of communications related wire, cable, fiber
optics and computer network and connectivity products supplied by over 300
manufacturers. Anicom focuses on carrying quality, name brand products that meet
or exceed industry standards. The products offered by Anicom generally fall into
four categories: (i) voice and data communications and fiber optics, (ii) sound,
security, fire, alarm and energy management systems, (iii) electronic cable and
(iv) industrial cable, wiring and assemblies for automation, computers and
robotics.
<PAGE>
The fastest growing products for Anicom are in voice and data communications and
fiber optics. Management estimates that less than 20% of the voice and data
transmission systems currently in existence utilize fiber optic cable, and
management believes that the replacement of existing cable with fiber optic
cable represents a significant opportunity for the Company. Anicom sells single,
duplex and multifiber cables for internal and external data communication use in
the computer network, computer interconnect and building automation and safety
markets.
The Company also offers custom and standard cables, both shielded and
unshielded, to transmit data for LAN and WAN systems. Anicom offers a wide
variety of electronic multiconductor cables for the computer, security,
instrumentation and interconnection markets, wire and cable constructions (such
as a variety of shielded and unshielded twisted pairs), and ancillary products
such as blocks, brackets, jacks, patch cords, patch panels, connectors,
stackable hubs, and related hardware and cable assemblies.
The Company carries a wide selection of wire, cable, fiber optics and related
computer network and connectivity products used in sound, security, alarm and
energy management systems and signaling equipment for fire and life-safety
systems. These products include many of the same components used in voice and
data communication. Anicom sells these products to low voltage contractors, OEMs
and commercial end-users.
Anicom also sells and distributes wire and cable products for use in a wide
variety of electrical and electronic systems. Anicom sells these products to
contractors, end-users, systems integrators and OEMs. Anicom also sells and
distributes wire and cable products for industrial use, including portable
cords, power cables, control and instrumentation cables, mining and welding
cables, armored and high voltage cables and building wire. In addition, through
certain acquisitions completed during 1996, the Company acquired three assembly
operations. These assembly operations produce two lines of connector cable
products and a line of copper and fiber optic cable cutting and splicing kits.
On December 31, 1996, the splicing kit line and one of the connector cable
product lines were sold. On March 7, 1997, the remaining line of connector cable
products was sold.
In addition to providing multimedia wiring products to customers on a timely
basis, Anicom provides value-added, specialized services to its customers,
including cutting and re-spooling services, technical support and cable
assemblies, in response to specific customer requests. One of Anicom's more
popular value-added features is Exacpac(R), which marks packages of wire or
cable in one foot increments beginning at the base of the package. This feature
allows the end-user to monitor the remaining length of wire or cable in a
package without having to keep track of the length of wire or cable used. Anicom
also has the ability to procure selected specialty items not readily available
to customers, and, through its experienced sales personnel, Anicom is able to
offer its customers technical assistance and support in the selection of
appropriate products. Certain of Anicom's more experienced sales personnel have
developed extensive knowledge in specific product categories (e.g., fiber
optics). Anicom's sales personnel are trained to seek out assistance from those
salespersons who have developed this degree of knowledge in handling their
customers' accounts. Management believes that Anicom more aggressively seeks to
capitalize on this expertise and experience than some of the larger, national
and regional distributors of multimedia wiring products with which it competes.
<PAGE>
Sales and Marketing
Anicom is committed to making it easier and more cost effective for its
customers to acquire wire, cable, fiber optics and computer network and
connectivity products. Anicom has established strong customer relationships
through an extensive and experienced sales and marketing force of approximately
260 people operating nationally out of its 41 locations.
Anicom has seven Regional Vice Presidents with an average of approximately ten
years of experience in the sale and distribution of multimedia wiring products.
The sales and marketing force is responsible for establishing and maintaining
long-term relationships with customers and industry referral sources, soliciting
new business from prospective customers and responding to incoming inquiries and
orders. Anicom monitors customer satisfaction through internal controls and
regular interaction with its customers.
Anicom identifies potential customers through telemarketing efforts, responses
to direct marketing materials, periodic advertisements in trade journals and
industry trade shows. Anicom also receives numerous referrals from customers and
vendors. Anicom periodically provides product and service information to its
customers by distributing promotional literature and product catalogs to
existing and potential customers. Sales and marketing representatives follow-up
on customer inquiries through further distribution of Anicom's informational
materials and on-site visits. Once a customer relationship has been established,
Anicom focuses on identifying opportunities to market a broader array of
products to the customer.
Anicom rewards its sales and marketing force through an incentive-based bonus
program. Under this program, quantifiable performance goals are established each
year by Anicom and each employee. In addition, Anicom seeks to achieve
Company-wide objectives and encourage a "team" concept by rewarding its sales
personnel through supplementary discretionary bonuses based on Company-wide or
location-based goals.
Suppliers and Inventory
Management believes that Anicom is not dependent on any particular supplier.
Anicom offers a large number of products manufactured by a variety of vendors.
Management believes that vendor relationships are critical to Anicom's success,
and Anicom focuses sharply on maintaining such relationships. Purchasing
decisions generally are made at Anicom's headquarters in the Chicago area and
manufacturers are instructed to ship inventory to the sales and warehouse
locations (or, in some cases, directly to customers) specified by Anicom.
Management believes that Anicom has a good working relationship with its
existing suppliers. Management believes that Anicom could obtain competitive
products of comparable quality from other suppliers and does not believe that
the loss of any one supplier would have a material adverse impact on Anicom's
results of operations or financial condition.
Anicom's objective is to provide its customers with a continuity of supply and
delivery scheduling that responds to their needs without requiring excessive
levels of inventory. Anicom's fully integrated on-line computer network enables
it to customarily provide same day shipping on any stock item. Management also
can generate real-time information on inventory levels using this on-line
system. While the depth and breadth of products offered has increased over the
last two years, the emphasis on strict inventory control has allowed the Company
to maintain its order completion rate and to support its increasing sales levels
without increases in relative inventory levels. The Company continues to improve
its inventory management systems, including hiring a Vice President of
Purchasing with 15 years of experience, who reports directly to Anicom's
<PAGE>
President, Carl Putnam, imposing stricter controls on the discretion of Anicom's
sales personnel and improving the forecasting and monitoring capabilities of its
inventory management software. Anicom has not experienced any significant
inventory obsolescence.
The Management Information Systems
Anicom utilizes a custom-designed information technology system which integrates
sales, inventory control and purchasing, financial control and internal
communications while providing real-time monitoring of inventory levels and
shipping status at all of Anicom's sales and distribution centers. This system
enables management to respond quickly and efficiently to customer demands. All
of Anicom's locations are networked into the information technology system and
integrated with Anicom's centralized processing system. This system has allowed
Anicom to quickly integrate the operations of its acquisitions and generally has
helped maximize productivity which management believes translates into a lower
effective cost to customers. This system also contributes to Anicom's ability to
increase sales productivity by enabling the sales force to provide customers
with personalized service drawing on information contained in the database, and
allows non-technically trained personnel to provide technical product
information in marketing the products offered by Anicom.
Customers
Anicom's customer base consists of a wide array of businesses, including auto
manufacturers, contractors, systems integrators, security/fire alarm companies,
regional Bell operating companies, distributors, utilities, telecommunications
and sound contractors, wireless specialists, construction companies,
universities and governmental agencies. No customer accounted for more than 10%
of Anicom's net sales during either of the past two years, and management
believes that Anicom is not dependent on any particular customer. With Anicom's
increasing national presence and inventory selection, management will continue
to focus more of its efforts on the development of sales to a larger number of
national customers.
Competition
The market for multimedia wiring products is highly competitive and fragmented.
To compete successfully, management believes that the Company will need to
continue to distribute a broad range of technologically advanced products,
provide competitive pricing while maintaining its margins, provide prompt
delivery of products, deliver responsive customer service, establish and
maintain strong relationships with suppliers and customers, and attract and
retain highly qualified personnel. Anicom faces substantial competition from
several national and regional distributors that have greater financial,
technical and marketing resources and distribution capabilities than the Company
and from manufacturers who sell directly to end-users for certain large-scale
projects.
Trade Names
Anicom maintains a number of registered trademarks and trade names in connection
with its business activities, including "Anicom(R)", "Exacpac(R)" and
"RAPI-Change(R)." Anicom's policy is to file for trademark and trade name
protection for its trademarks and trade names.
Employees
As of March 14, 1997, Anicom employed approximately 490 persons. None of the
employees are covered by collective bargaining agreements. Anicom believes that
it has good relations with its employees.
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Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
The statements contained in Item 1 (Description of Business) and Item 6
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) that are not historical facts may be forward-looking statements that
are subject to a variety of risks and uncertainties more fully described in
Anicom's filings with the Securities and Exchange Commission including, without
limitation, those described under "Risk Factors" in Anicom's Resale Prospectus
dated November 15, 1996. Anicom cautions readers that these risks and
uncertainties could cause Anicom's actual results in 1997 and beyond to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Anicom. These risks and uncertainties include, without limitation,
Anicom's limited operating history on which expectations regarding its future
performance can be based, general economic and business conditions affecting the
industries of Anicom's customers in existing and new geographical markets,
competition from, among others, national and regional distributors that have
greater financial, technical and marketing resources and distribution
capabilities than Anicom, the availability of sufficient capital, Anicom's
ability to identify the right product mix and to maintain sufficient inventory
to meet customer demand, Anicom's ability to successfully acquire and integrate
the operations of additional businesses and Anicom's ability to operate
effectively in geographical areas in which it has no prior experience.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
As of March 14, 1997, Anicom conducted its operations from 41 different
locations, all of which are leased. Each of its locations consists of a sales
office and a warehouse, except for its locations in Tucson, Arizona; Cerritos,
California; Rosemont, Illinois; Baton Rouge, Louisiana; Framingham,
Massachusetts; and Tinton Falls, New Jersey which do not include any warehouse
space. As of March 14, 1997, Anicom operated out of the following locations:
Baton Rouge, LA Elk Grove Village, IL Plano, TX
Birmingham, AL Framingham, MA Pompano Beach, FL
Bridgeton, MO Gaithersburg, MD Raleigh, NC
Broadview Hts., OH Greensboro, NC Richmond, VA
Cerritos, CA Greenville, SC Rochester, NY
Charleston, SC Houston, TX Rosemont, IL
Charlotte, NC Indianapolis, IN San Diego, CA
Charlottesville, VA Kingston, NY Tampa, FL
Cincinnati, OH Knoxville, TN Tinton Falls, NJ
Columbia, SC Las Vegas, NV Troy, MI
Columbus, OH Nashville, TN Tucson, AZ
Denver, CO Newport News, VA Tukwila, WA
Eagan, MN Norcross, GA Virginia Beach, VA
Phoenix, AZ Washington, PA
Anicom's aggregate executive office and sales office space as of March 14, 1997
is approximately 138,000 square feet and its aggregate warehouse space is
approximately 310,000 square feet. Generally, Anicom maintains short term leases
for its sales offices and warehouses, with options to renew, where possible.
Anicom believes that its facilities are adequate for its current and present
foreseeable needs in these geographical markets; however, the Company will
continue to increase space as the need arises. Management believes that adequate
replacement space is readily available in each market.
ITEM 3. LEGAL PROCEEDINGS
Anicom is not a party to any material legal proceeding nor, to Anicom's
knowledge, is any material legal proceeding threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during Anicom's fiscal
quarter ended December 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 25, 1996, the number of authorized shares of common stock was
increased from 10,000,000 to 30,000,000 following approval of such action by the
Company's stockholders at a special meeting. Following such action, a 2-for-1
stock split effected in the form of a 100% stock dividend was declared for
holders of record as of October 1, 1996, payable October 7, 1996. All periods
and sales prices presented have been restated to retroactively reflect the 100%
stock dividend.
Since November 21, 1995, Anicom's Common Stock has been quoted on the Nasdaq
National Market under the symbol "ANIC". From February 22, 1995, the date of
Anicom's initial public offering, through November 20, 1995, Anicom's Common
Stock was listed on the Nasdaq SmallCap Market under the symbol "ANIC". The
following table sets forth, for the periods indicated, the range of high and low
last sale prices for the Common Stock as reported on the Nasdaq National Market
and on the Nasdaq SmallCap Market:
1996 1995
High Low High Low
1st quarter 7 5/8 4 3/8 4 1/4 3 3/16
2nd quarter 10 1/8 6 3/8 5 5/16 3 7/8
3rd quarter 9 1/8 6 9/16 7 1/4 4 1/16
4th quarter 10 1/8 7 7/8 6 3/8 4 1/2
As of March 14, 1997, the approximate number of record holders of Anicom's
Common Stock was 736.
As an S Corporation, Anicom made annual S Corporation distributions to its
stockholders. During 1995, cash distributions of $163,032 were declared payable
to the S Corporation Stockholders of Anicom to fund their estimated tax payments
due with respect to the taxable income of Anicom.
Except for S Corporation distributions in 1995, Anicom did not pay cash
dividends or distributions on its capital stock during 1995 or 1996. Anicom
anticipates that it will retain any future earnings to finance the continuing
growth and development of its business. Accordingly, Anicom does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The payment
of any future dividends will be at the discretion of Anicom's Board of Directors
and will depend upon, among other things, future earnings, the success of
Anicom's development activities, capital requirements, restrictions in financing
arrangements, the general financial condition of Anicom and general business
conditions. At present, Anicom's ability to declare or pay dividends is limited
under its bank line of credit, which provides that Anicom may not declare or pay
any dividends on its Common Stock if at the time of such declaration or payment,
any event of default shall have occurred or be continuing.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth selected income statement data of Anicom
expressed as a percentage of net sales for the periods indicated:
1996 1995
Income Statement Data:
Net sales........................................ 100.0% 100.0%
Cost of goods sold............................... 75.4 76.3
--------- --------
Gross profit..................................... 24.6 23.7
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Operating expenses and other:
Selling expenses............................... 11.3 10.4
General and administrative expenses............ 10.7 9.6
Gain on sale of product line................... (.8) --
--------- --------
Operating income................................. 3.4 3.7
Interest (expense)............................... (.2) (.2)
Interest income.................................. .5 .9
--------- --------
Income before income taxes....................... 3.7 4.3
Income taxes..................................... 1.4 1.7
--------- --------
Net income....................................... 2.3% 2.6%
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Note: Percentages may not sum due to rounding.
Results of Operations
Year ended December 31, 1996 compared to year ended December 31, 1995
For the year ended December 31, 1996, the Company established record net sales,
net income and earnings per share ("EPS"). On a comparable basis with 1995, net
sales increased by more than 295% to $116.0 million, net income increased
approximately 243% to $2.6 million and EPS increased 43% to $0.20 per share.
These improvements follow record 1995 results of $29.4 million in net sales, net
income of $764,000 and EPS of $0.14 per share (based on 46% fewer weighted
average shares outstanding).
The increase in net sales is primarily attributed to acquisitions completed in
the fourth quarter of 1995 and throughout 1996. The remainder of the improvement
is attributed to the Company's expanding breadth and depth of product offerings
which has lead to increased market share, expanded market penetration and
increased volume with many existing customers.
For the year ended December 31, 1996, Anicom's gross profit as a percentage of
net sales increased to 24.6% compared to the 23.7% level achieved in 1995. The
improvement is principally a result of economic efficiencies achieved from
increased purchasing volume with vendors and centralizing the purchasing
function. These factors, combined with the acquired sales volume, resulted in
gross profit increasing more than fourfold to $28.6 million in 1996 as compared
to $7.0 million in 1995.
<PAGE>
Selling expenses increased from $3.1 million or 10.4% of net sales in 1995 to
$13.1 million or 11.3% of net sales in 1996. The Company's acquisitions in 1996
resulted in an increase in sales headcount and other variable selling expenses.
For 1996, the change in selling expenses as a percentage of net sales resulted
from the historically higher selling expenses of Northern Wire & Cable; however,
selling expense as a percentage of net sales has decreased in each quarter
subsequent to the Northern acquisition.
General and administrative expenses increased from $2.8 million in 1995 to $12.4
million in 1996. The Company's acquisitions in 1996 resulted in an increase in
general and administrative expenses. As a percentage of net sales, general and
administrative expenses increased to 10.7% from 9.6% in 1995 due primarily to
amortization of goodwill resulting from acquisitions, non-recurring acquisition
and integration expenses, increased warehousing and distribution costs primarily
associated with industrial cable (a product line the Company acquired in its
acquisition of Northern Wire & Cable) and increased costs associated with
Anicom's successful implementation of its integrated growth strategy.
On December 31, 1996, the Company sold its copper and fiber optic cutting and
splicing kit product line and its low voltage cable and fiber optic connector
product line, in two separate transactions. Both of these assembled product
lines were acquired as a part of the Norfolk Wire & Electronics, Inc.
acquisition and were sold as the Company continues to maintain its focus as a
distribution specialist. The Company recognized a pre-tax gain of approximately
$878,000, net of transaction expenses on these sales. As a result of
acquisitions in 1996, the Company also incurred approximately $823,000 of
non-recurring, post-acquisition integration costs.
Interest income increased by approximately $308,000 or 120% to $565,000 in 1996
from $256,000 in 1995 as the Company invested the funds raised in its November
1995 follow-on offering and its September 1996 private placement of equity
pending use of such funds to finance acquisitions and working capital
requirements.
In 1996, interest expense rose by $183,000 to $256,000 The increase was a result
of interest incurred on debt issued in certain acquisitions completed during
1996 and other debt assumed in acquisitions.
The provision for income taxes increased to $1.6 million in 1996 from $764,000
in 1995 as a result of the $3.0 million increase in income before taxes. As a
percentage of income before income taxes, the provision decreased to 38.2% in
1996 from 39.2% in 1995. This decrease is primarily attributable to income
earned on tax-exempt securities.
Liquidity and Capital Resources
As of December 31, 1996, Anicom had working capital of approximately $33.4
million as compared to $34.3 million as of December 31, 1995. At December 31,
1995, working capital was favorably impacted by funds raised in the Company's
November 1995 follow-on offering which were not utilized until 1996. The timing
of the use of these amounts accounts for the decrease in working capital.
At December 31, 1996, the Company had cash and cash equivalents of $195,000 and
marketable securities of $4.3 million. In addition, the Company has a $10.0
million unsecured revolving credit facility (the "Facility") with Harris Trust &
Savings Bank which expires on July 31, 1998. The Facility's rate of interest is
LIBOR plus 1.0% or the lender's Domestic Base Rate, as defined, less 0.5%. The
Facility contains customary representations, warranties and covenants. As of
December 31, 1996, the Company had no amount outstanding under the Facility.
<PAGE>
Management believes that existing cash, cash equivalents, marketable securities
and cash flows from operations supplemented, if necessary, by draws on the
Facility will be sufficient to fund current operations, and its planned
integrated growth strategy. The Company does not currently have any significant
long-term capital requirements which it believes can not be funded from the
sources discussed above. However, in connection with its acquisition and
integrated growth strategy, the Company's capital requirements may change based
upon various factors, primarily related to the timing of acquisitions and the
consideration to be used as purchase price. Accordingly, the Company continues
to examine opportunities to raise funds through the issuance of additional
equity or debt securities through private placements or public offerings.
For the year ended December 31, 1996, operating activities generated $9.1
million compared with the use of $30.4 million in 1995. The significant change
between years is principally a result of the accounting required for the
Company's portfolio of marketable securities. In 1996, the Company liquidated a
significant portion of these investments to fund acquisitions and working
capital requirements.
Excluding the impact of these investments, Anicom used $12.1 million in
operating activities in 1996 compared with the use of $4.9 million in 1995. The
use of cash in operations in 1996 is a result of the substantial growth
experienced during the year, primarily replenishing working capital deficiencies
of acquired companies and funding business integration liabilities. This working
capital expansion resulted in a $6.6 million increase in accounts receivable and
a $5.9 million increase in inventory in 1996 as the Company integrated its
acquisitions and expanded the depth of its product offerings. The investment in
these operating assets was partially offset by a $2.4 million increase, after
excluding non-cash transactions, in accounts payable. Finally, the use of cash
attributed to accrued expenses is principally a result of the Company funding
approximately $3.6 million of business integration liabilities established in
connection with the 1996 acquisitions.
Investing activities utilized approximately $15.3 million and $1.8 million in
1996 and 1995, respectively. During 1996, Anicom completed the acquisition of
Medisco, Inc. of Indianapolis, Indiana; Northern Wire & Cable, Inc. of Troy,
Michigan; Southern Alarm Supply, Inc. of Nashville, Tennessee; Norfolk Wire &
Electronics, Inc. of Virginia Beach, Virginia; and Western Wire & Alarm
Products, Inc. of Denver, Colorado. Cash paid for 1996 acquisitions totaled
approximately $14.2 million. During 1995, the acquisition of Pinnacle Wire &
Cable, Inc. of Columbus, Ohio; and Morgan Hill Supply Company of Framingham, New
York used approximately $1.4 million in cash.
For the year ended December 31, 1996, net financing activities generated $6.3
million. Financing activities in 1996 included $15.1 million in net proceeds
generated from the issuance of common stock in a private placement and $4.2
million drawn on its Facility. These proceeds were partially offset by the use
of cash to repay the $4.2 million draw on the Facility and $8.7 million of bank
debt assumed in the Company's 1996 acquisitions. In 1995, the Company raised
approximately $35.6 million in net proceeds from the issuance of common stock in
its initial public offering and its follow-on offering. In addition, the Company
borrowed $727,000 against its previous credit facility prior to its initial
public offering. Uses of cash for financing activities in 1995 included the
repayment of all amounts due under its credit facility and bank debt assumed as
a part of its 1995 acquisitions. Also, during the first quarter of 1995, Anicom
issued distributions to its Subchapter S Stockholders totaling approximately
$163,000. The distribution was used to fund the tax liabilities arising from net
income of the Company prior to the termination of its S corporation election.
<PAGE>
Inflation
Although the operations of Anicom are influenced by general economic conditions,
Anicom does not believe that inflation had a material effect on the results of
the operations during 1996.
Seasonality
In the fourth quarter, Anicom has historically experienced, and expects to
experience in future years, a modest decrease in the level of activity among
many of its customers around the Thanksgiving and Christmas holidays.
Impact of Not Yet Effective Rules
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 specifies the computation, presentation, and disclosure requirements for
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The Company
will adopt SFAS 128 for the year ended December 31, 1997. Management has not yet
determined the impact of implementing this standard.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements appear on pages F-1 through F-21.
Page
----
Report of Independent Accountants...................................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995......... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1996 and 1995......................................... F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996 and 1995..................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................... F-6
Notes to Consolidated Financial Statements........................... F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information with respect to the directors and officers of Anicom is hereby
incorporated herein by reference to "Election of Directors - Nominees",
"Election of Directors - Other Directors" and "Executive Officers and
Significant Employees" in Anicom's Notice of Annual Meeting of Stockholders and
Proxy Statement for its Annual Meeting of Stockholders to be held on May 21,
1997 (the "1997 Proxy Statement"), which is expected to be filed with the
Commission in definitive form no later than April 30, 1997.
Information with respect to required Section 16(a) disclosure is incorporated
herein by reference to the section "Compliance with Section 16(a) of the
Securities Exchange Act of 1934," in the 1997 Proxy Statement, which is expected
to be filed with the Commission in definitive form no later than April 30,
1997.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby incorporated herein
by reference to "Executive Compensation" in the 1997 Proxy Statement, which is
expected to be filed with the Commission in definitive form no later than April
30, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management is hereby incorporated herein by reference to "Security Ownership of
Principal Stockholders and Management" in the 1997 Proxy Statement, which is
expected to be filed with the Commission in definitive form no later than April
30, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
hereby incorporated herein by reference to "Certain Transactions" in the 1997
Proxy Statement, which is expected to be filed with the Commission in definitive
form no later than April 30, 1997.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with the report or incorporated
herein by reference as set forth below.
Exhibit No.
2.1** Agreement and Plan of Merger, dated as of July 18, 1995, among
Anicom, Pinnacle Wire & Cable, Inc., Raymond J. Costello and
Robert A. Holous.
2.2*** Stock Purchase Agreement, dated September 19, 1995, among
Anicom, Morgan Hill, Inc. and Kenneth Jay Burgess.
2.3**** Asset Purchase Agreement, dated as of March 4, 1996, among
Anicom, Inc., Northern Wire & Cable, Inc., and Copperhead
Acquisition Corp.
2.4***** Agreement and Plan of Reorganization, by and among Anicom, Inc.,
Anicom-Southeast, Inc., Norfolk Wire & Electronics, Inc., and
Ronald A. Hurley, Robert H. Jennings, Stephen M. Mobley and
Vonda M. Hall, dated as of August 30, 1996.
3.1* Restated Certificate of Incorporation of Anicom.
3.2* Restated Bylaws of Anicom.
3.3****** Certificate of Amendment of Certificate of Incorporation of
Anicom.
4.1* Specimen Stock Certificate representing Common Stock.
10.1* Credit Agreement, dated June 30, 1993, between Registrant and
Harris Trust and Savings Bank, as amended.
10.2* Commercial Lease Agreement, dated April 30, 1993, between Anicom
and Harris Trust and Savings Bank.
10.3******* Form of 1995 Stock Incentive Plan as Amended and Restated.
10.4******* Credit Agreement, dated as of February 6, 1996, between Anicom
and Harris Trust and Savings Bank.
10.6* Shareholders Agreement
10.8* Form of Tax Indemnification Agreement
10.9* Form of Employment Agreement between Anicom and Scott C. Anixter
10.10* Form of Employment Agreement between Anicom and Carl E. Putnam.
10.11* Form of Employment Agreement between Anicom and Robert L.
Swanson
10.12****** Form of Amended and Restated 1995 Directors Stock Option Plan.
10.13**** Form of Employment Agreement between Anicom and Robert
Brzustewicz.
10.14**** Form of Employment Agreement between Anicom and Glen Nast.
10.15**** Non-Negotiable Note issued to Northern Wire & Cable, Inc.
10.16**** Guaranty by Anicom to Northern Wire & Cable, Inc.
10.18 1996 Stock Incentive Plan
10.17 Form of Employment Agreement between Anicom and Donald Welchko
23.1 Consent of Independent Accountants
21 List of Subsidiaries.
27 Financial Data Schedule
- - ------------------
* Previously filed as an Exhibit to Anicom's Registration
Statement on Form SB-2, registration no. 33-87736C and
incorporated herein by refrence thereto.
** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated August 10, 1995 and incorporated herein by
refrence.
*** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated October 16, 1995 and incorporated herein by
refrence.
**** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated March 12, 1996 and incorporated herein by
reference.
***** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated August 30, 1996 and incorporated herein by
reference.
****** Previously filed as an Exhibit to Anicom's current report on
Form 10-QSB, for the quarter ended September 30, 1996 and
incorporated herein by reference.
******* Previously filed as an Exhibit to Anicom's Annual report on
Form 10-KSB, for the year ended December 31, 1996 and
incorporated herein by reference.
<PAGE>
(b) Reports on Form 8-K. The following Reports on Form 8-K or
Form 8-K/A were filed during the last quarter of 1996.
Form 8-K/A, dated November 1, 1996 (Norfolk Wire & Electronics, Inc.)
Form 8-K, dated November 5, 1996 (Press Release)
Form 8-K/A, dated November 5, 1996 (Norfolk Wire & Electronics, Inc.)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 20th day of March, 1997.
ANICOM, INC.
By: /s/ SCOTT C. ANIXTER
--------------------
Scott C. Anixter
Chairman and Chief Executive Officer
This report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- - ------------------------- ---------------------------- ------------------
Chairman and Chief Executive March 20, 1997
/s/ Scott C. Anixter Officer (Principal Executive
- - ------------------------ Officer)
Scott C. Anixter
/s/ Alan B. Anixter Chairman of the Board March 20, 1997
- - ------------------------
Alan B. Anixter
President and Chief Operating March 20, 1997
/s/ Carl E. Putnam Officer and a Director
- - ------------------------
Carl E. Putnam
Vice President, Chief Financial March 20, 1997
Officer and a Director (Principal
/s/ Donald C. Welchko Financial and Accounting Officer)
- - ------------------------
Donald C. Welchko
/s/ Lee B. Stern Director March 20, 1997
- - ------------------------
Lee B. Stern
/s/ Michael Segal Director March 20, 1997
- - ------------------------
Michael Segal
<PAGE>
ANICOM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants...................................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995......... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1996 and 1995......................................... F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996 and 1995..................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................... F-6
Notes to Consolidated Financial Statements........................... F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and the Board of Directors of ANICOM, Inc.:
We have audited the accompanying consolidated balance sheets of Anicom, Inc. as
of December 31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting policies 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 Anicom,
Inc. as of December 31, 1996 and 1995 and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
January 31, 1997
<PAGE>
ANICOM, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 195,050 $3,250
Marketable securities 4,344,842 25,536,282
Accounts receivable, less allowance for
doubtful accounts of $980,000 and
$120,000, respectively 26,972,035 6,647,632
Inventory 23,452,592 5,245,893
Prepaid expenses 594,113 253,596
Notes receivable, current portion 195,069 --
Deferred income taxes 1,557,150 31,000
Other current assets 227,704 19,794
----------- -----------
Total current assets 57,538,555 37,737,447
----------- -----------
Property and equipment, net 2,819,809 651,900
Notes receivable 800,000 --
Goodwill, net of accumulated amortization of
$478,000 and $23,260, respectively 26,770,603 2,770,541
Other assets 24,890 9,187
----------- -----------
Total assets $87,953,857 $41,169,075
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $20,727,152 $ 2,532,714
Accrued expenses 1,818,283 489,226
Long-term debt, current portion 1,597,616 409,679
----------- -----------
Total current liabilities 24,143,051 3,431,619
----------- -----------
Long-term debt, net of current portion 3,012,784 576,529
Deferred income taxes 164,835 20,000
Other liabilities 773,910 --
----------- -----------
Total liabilities 28,094,580 4,028,148
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.001 per share;
30,000,000 and 20,000,000 shares authorized,
respectively; 15,559,805 and 12,212,728 shares
issued andoutstanding, respectively 7,530 5,906
Preferred stock, par value $.01 per share;
1,000,000 shares authorized;
no shares issued and outstanding -- --
Additional paid-in capital 56,464,954 36,370,738
Retained earnings 3,386,793 764,283
----------- -----------
Total stockholders' equity 59,859,277 37,140,927
----------- -----------
Total liabilities and stockholders' equity $87,953,857 $41,169,075
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ANICOM, INC.
Consolidated Statements of Income
For the Years Ended December 31, 1996 and 1995
1996 1995
Net sales $ 115,993,079 $ 29,357,597
Cost of sales 87,441,698 22,404,331
------------- -------------
Gross profit 28,551,381 6,953,266
------------- -------------
Operating expenses and other:
Selling 13,067,855 3,058,268
General and administrative 12,425,713 2,821,938
Gain on sale of assembly product lines (878,315) --
------------- -------------
Total operating expenses and other 24,615,253 5,880,206
------------- -------------
Income from operations 3,936,128 1,073,060
------------- -------------
Other income (expense):
Interest income 564,560 256,310
Interest expense (256,086) (72,887)
------------- -------------
Total other income (expense) 308,474 183,423
------------- -------------
Income before income taxes 4,244,602 1,256,483
------------- -------------
Provision for income taxes 1,622,092 492,200
------------- -------------
Net income $ 2,622,510 $ 764,283
============= =============
Earnings per common share $ .20 $ 0.14
============= =============
Weighted average common shares outstanding 13,384,251 5,540,140
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ANICOM, INC.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Total
Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
<C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 2,400,000 $1,000 $156,075 $157,075
Distribution to former Subchapter S $ (6,957) (156,075) (163,032)
shareholders
Proceeds from issuance of common stock, net
of offering costs 9,660,000 4,830 35,577,772 35,582,602
Issuance of common stock for acquisitions 152,728 76 799,923 799,999
Net income 764,283 764,283
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 12,212,728 5,906 36,370,738 764,283 37,140,927
Proceeds from issuance of common stock, net
of offering costs 2,423,080 1,212 15,052,920 15,054,132
Issuance of common stock for acquisitions 871,792 435 5,537,026 5,537,461
Exercise of stock options 8,480 4 11,096 11,100
Exercise of warrants to purchase common
stock 98,520 _ _ _
Receipt and cancellation of common stock
received in sale of a business (54,795) (27) (506,826) (506,853)
Net income 2,622,510 2,622,510
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 15,559,805 $ 7,530 $ 56,464,954 $ 3,386,793 $ 59,859,277
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ANICOM, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $2,622,507 $764,283
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 441,341 119,678
Amortization 482,475 26,939
Deferred income taxes 527,500 (11,000)
Gain on sale of product lines (878,315) --
Increase (decrease) in cash attributable to
changes in assets and liabilities
Marketable securities 21,191,440 (25,536,282)
Accounts receivable (6,630,839) (1,729,240)
Inventories (5,912,104) (1,936,649)
Prepaid expenses (205,998) (179,856)
Other current assets (77,620) 14,389
Accounts payable 2,366,149 (1,861,299)
Accrued expenses (4,799,694) (55,614)
------------ -------------
Net cash provided by
(used in) operating activities 9,126,842 (30,384,651)
------------ -------------
Cash flows from investing activities:
Purchase of property and equipment (1,105,689) (394,550)
Cash paid for acquired companies (14,200,545) (1,433,994)
------------ -------------
Net cash used in investing activities (15,306,234) (1,828,544)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of offering costs 15,054,132 35,575,644
Proceeds from long-term debt 4,190,000 727,448
Payment of long-term debt and assumed bank debt (12,884,040) (3,926,365)
Exercise of stock options 11,100 --
Payment of S corporation distribution -- (163,032)
------------ -------------
Net cash provided by financing activities 6,371,192 32,213,695
------------ -------------
Net increase in cash and cash equivalents 191,800 500
Cash and cash equivalents, beginning of year 3,250 2,750
------------ -------------
Cash and cash equivalents, end of year $195,050 $3,250
============ =============
Supplemental Cash Flow Information:
Cash paid for interest $80,885 $54,053
============ =============
Cash paid for income taxes $1,381,893 $591,701
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Anicom, Inc. and Subsidiaries (the "Company") specialize in the sale
and distribution of communications related wire, cable, fiber optics
and computer network and connectivity products.
The Company sells to a wide array of customers, including contractors,
systems integrators, security/fire alarm companies, regional Bell
operating companies, distributors, utilities, telecommunications and
sound contractors, wireless specialists, construction companies,
universities, governmental agencies and companies involved in the
automotive, mining, marine, petro-chemical, paper and pulp and other
natural resource industries. The Company's customers are located
throughout the United States of America and other parts of North
America. The Company generally sells to its customers on an unsecured
basis.
In connection with certain acquisitions completed during 1996 (See Note
8), the Company acquired three assembly operations. These operations
produce two lines of connector cable products and a line of copper and
fiber optic cable cutting and splicing kits which are sold through the
Company's distribution channels. On December 31, 1996, the splicing kit
line and one of the connector cable product lines were sold. Also see
Note 12 for subsequent event.
Consolidation
The accompanying consolidated financial statements consist of Anicom,
Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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 reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
+
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
1. Nature of Business and Summary of Significant Accounting Policies,
continued
Marketable Securities
Management determines the appropriate classification of its investment
in debt and equity securities at the time of purchase and reevaluates
such determination at each balance sheet date. The Company's portfolio
of marketable securities is accounted for as trading securities, is
valued at fair value and consists primarily of preferred stock and
municipal bonds with varying maturities and short term liquidity. These
securities generally have maturities of 28 days or less and are rated
A1, P1 or AAA as the Company attempts to reduce its credit risk. Cost
approximates fair value for these investments.
Inventory
Inventory, which primarily consists of finished goods, is stated at the
lower of cost or market. Cost is determined by the weighted average
method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the
estimated useful life of the assets or the terms of the lease for
leasehold improvements, generally 3 to 7 years.
Major renewals and improvements are capitalized. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or
other disposition of property, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is
recognized.
Goodwill
Goodwill arising from business combinations is amortized using the
straight-line method over forty years. The Company's evaluation of the
recoverability of goodwill includes operating performance and
undiscounted cash flows of the acquired business units.
Income Taxes
Subsequent to January 1, 1995, the Company applies an asset and
liability approach to accounting for income taxes. Deferred tax assets
and liabilities are established for the expected future tax
consequences of temporary differences between the financial statement
and tax bases of assets and liabilities, using enacted tax rates.
Prior to January 1, 1995, the Company's stockholders elected to be
treated as a Subchapter S Corporation for income tax purposes.
Accordingly the Company's stockholders were responsible for all federal
and certain state income tax liabilities arising from the Company's
operations. The Company's S Corporation status was terminated as of
January 1, 1995. A cash distribution of $163,032 was paid to the
Subchapter S Shareholders of the Company in 1995, representing tax
payments due with respect to the taxable income of the Company prior to
the termination of its S Corporation status.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
1. Nature of Business and Summary of Significant Accounting Policies,
continued
Revenue Recognition
Sales and the related cost of sales are recognized upon the shipment of
products.
Earnings Per Common Share
The computation of earnings per common share is based on the weighted
average number of common shares and common equivalents outstanding
during each period.
Stock-Based Compensation
During 1996, the Company was required to adopt Statement of Financial
Accounting Standards No 123, Accounting for Stock-Based Compensation
("SFAS No. 123") which encourages entities to adopt a fair value based
method of accounting for stock-based compensation plans in place of the
provisions of Accounting Principles Board Opinion No. 25 Accounting for
Stock Issued to Employees ("APB No. 25") for all arrangements under
which employees receive shares of stock or other equity instruments of
the employer.
As allowed by SFAS No. 123, the Company will continue to apply the
provisions of APB No. 25 in accounting for its stock-based employee
compensation arrangements and will disclose pro forma net income and
earnings per share information in its footnotes as if the fair value
method suggested in SFAS No. 123 had been applied.
The Company recognizes compensation cost for stock-based compensation
awards equal to the difference between the quoted market price of the
stock at the date of grant and the price to be paid by the employee
upon exercise in accordance with the provisions of APB No. 25. Based
upon the terms of Company's current stock option plans, the stock price
on the date of grant and price paid upon exercise are the same, thus no
compensation charge is required to be recognized.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
2. Notes Receivable
In connection with the sale of the cable cutting and splicing kit
product line, the Company accepted a $500,000 promissory note,
collateralized by the assets of the acquiring company. The note bears
interest at 7.5%. All principal and accrued interest is due and payable
on December 31, 1998.
In connection with the sale of a connector cable product line, the
Company accepted a $375,000 senior secured promissory note,
collateralized by the stock of the acquiring company and personally
guaranteed by its president. The note bears interest at 6%. The note
contains scheduled payments which are due and payable in five equal
installments of principal and interest beginning on December 31, 1997.
Payments may be deferred or accelerated based on the Company's
purchases from the acquiring company, as defined; however, all
outstanding principal and interest is due and payable in full on
December 31, 2001.
3. Property and Equipment
At December 31, property and equipment consisted of the following
components:
1996 1995
Machinery, equipment and vehicles $846,714 $233,031
Office equipment 928,452 320,279
Computer equipment and software 1,190,451 242,850
Leasehold improvements 410,974 34,296
Capital lease and other 139,031 75,916
------------- -------------
Total cost 3,515,622 906,372
Less: accumulated depreciation and
amortization (695,813) (254,472)
============= =============
Property and equipment, net $2,819,809 $651,900
============= =============
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
4. Long-Term Debt
At December 31, long-term debt consisted of the following:
1996 1995
Non-collateralized loans payable to
former shareholders of acquired
companies, each due in equal installments
(except as noted):
6.55% note due March 12, 1997 to 1999 $3,000,000
Prime rate note (8.5% at 12/31/96),
payable in monthly installments
through July 1, 2002 595,556
6.00% notes due May 30, 1997 to 1999 250,553
6.00% note due October 27, 1998 333,334 $500,000
6.75% notes due July 28, 1997 200,000 397,327
Other 230,958 88,881
----------- -----------
4,610,400 986,208
Less: current portion (1,597,616) (409,679)
----------- -----------
$3,012,784 $576,529
=========== ===========
The aggregate maturities in each of the five years ending December 31,
1997 to 2001 and thereafter are $1,597,616, $1,403,146, $1,228,139,
$146,334, $135,415 and $99,750, respectively.
At December 31,1996, the Company had a $10 million credit facility (the
"Credit Agreement"). The Credit Agreement is unsecured, contains
customary financial covenants (interest coverage, tangible net worth,
etc.) and expires on July 31, 1998. The Credit Agreement bears interest
at an annual rate to be determined from time to time based upon either
LIBOR plus 1.00% or the bank's Base Rate minus .50%. The Credit
Agreement replaced the Company's revolving line of credit which totaled
$4 million. At December 31, 1996 and 1995, no amount was outstanding
under either of these financing arrangements.
5. Common Stock
On September 25, 1996, the number of authorized shares of common stock
was increased from 10,000,000 to 30,000,000 following approval of such
action by the Company's stockholders at a special meeting. Following
such action, a 2-for-1 stock split effected in the form of a 100% stock
dividend was declared for holders of record as of October 1, 1996,
payable October 7, 1996. All share data and periods presented have been
restated to retroactively reflect the 100% stock dividend.
On September 16, 1996, the Company completed a private placement of
2,423,080 shares of its common stock at $ 6.50 per share. Net proceeds
to the Company after related costs and expenses were approximately
$15,100,000.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
5. Common Stock, continued
On November 27, 1995, the Company completed a follow-on public offering
of 6,000,000 shares of its common stock at $ 4.50 per share. On
November 29, 1995, the underwriters exercised their overallotment
option to purchase 900,000 shares of the Company's common stock. Net
proceeds to the Company, after underwriting discounts and other
offering costs and expenses were approximately $28,600,000.
On March 1, 1995, the Company completed an initial public offering of
2,400,000 shares of its common stock at $3.00 per share. On March 15,
1995, the underwriters exercised their over-allotment option to
purchase 360,000 additional shares of the Company's common stock. Net
proceeds to the Company after underwriting discounts and other offering
costs were approximately $7,000,000. In connection with the offering,
the Company reincorporated in the State of Delaware.
6. Income Taxes
The provision for income taxes for the years ended December 31,
1996 and 1995 is comprised of the following:
1996 1995
Current:
Federal $879,000 $421,100
State 215,592 82,100
--------------- --------------
1,094,592 503,200
--------------- --------------
Deferred:
Federal 442,500 (9,100)
State 85,000 (1,900)
--------------- --------------
527,500 (11,000)
--------------- --------------
$1,622,092 $492,200
=============== ==============
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
6. Income Taxes, continued
The following is a reconciliation of the provision for income taxes
computed at the federal statutory rate to the provision for income
taxes reported for the years ended December 31, 1996 and 1995:
1996 1995
Computed income taxes at federal
statutory rate $1,485,600 $427,204
State income taxes, net of federal benefit 190,000 59,811
Non-deductible goodwill amortization 128,700 26,205
Other non-deductible expenses 184,692 24,888
Non-taxable investment income (293,900) (45,908)
Other (73,000) --
------------- -----------
$1,622,092 $492,200
============= ===========
At December 31, 1996 and 1995, deferred income tax assets and
liabilities consisted of the following components:
1996 1995
Deferred income tax asset
(current):
Accounts receivable $42,600 $31,000
Inventory 401,500
Business integration liabilities, current 1,117,300
Other ( 4,250)
------------- -----------
1,557,150 31,000
------------- -----------
Deferred income tax liability
(non-current):
Property and equipment (126,375) (20,000)
Goodwill (309,000)
Gain on sale of product lines (51,300)
Business integration liabilities,
non-current 321,840
------------- -----------
(164,835) (20,000)
------------- -----------
Net deferred income tax asset $1,392,315 $11,000
============= ===========
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
7. Stock Options and Warrants
In January 1995, the Company adopted the 1995 Stock Incentive Plan (the
"1995 Plan") and the Directors' Option Plan (the "Directors Plan")
which authorize the granting of options to officers, key employees and
directors to purchase unissued common stock of the Company subject to
certain conditions, such as continued service. The 1995 Plan and the
Directors Plan authorized the granting of up to 1,200,000 and 100,000
options to purchase common stock, respectively. The option price of
options granted under either of these plans is equal to the fair market
value on the date of grant.
In February 1996, the Company adopted the 1996 Employee Stock Incentive
Plan (the "1996 Plan") which authorized the granting of an additional
1,200,000 options to purchase common stock of the Company. The adoption
of the 1996 Plan was approved by stockholders in May 1996.
The Company amended the Directors Plan to increase the total number of
shares of stock available for grant to directors to 200,000 shares in
May 1996. This amendment was approved by stockholders in September
1996.
All outstanding options vest ratably over periods ranging from 3 to 5
years.
A summary of information related to these options for the years ended
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 364,900 $3.71 -- --
Granted 1,309,495 8.02 364,900 $3.71
Exercised (6,483) 3.00 -- --
---------- ------- ---------- -------
Outstanding, end of year 1,667,912 $7.10 364,900 $3.71
========== ======= ========== =======
Available for grant, end of year 925,605 935,100
========== ==========
Price range at end of year $3.00 to $9.00 $3.00 to $4.50
============== ==============
Price range for exercised shares $3.00 --
========== ==========
Weighted-average fair value of options
granted during the year $3,251,632 $462,700
========== ==========
</TABLE>
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
7. Stock Options and Warrants, continued
The following table summarizes information about fixed-price stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted Weighted
Number Number Average Remaining Average
Price Outstanding Excercisable Contractual Life Exercise Price
<S> <C> <C> <C> <C>
$3.00 to $4.50 359,417 89,367 3.02 years $3.72
$5.75 to $6.89 321,000 20,000 2.11 years 6.16
$7.88 to $9.00 987,495 40,333 3.93 years 8.64
------------ ------------ ------------
1,667,912 149,700 $7.10
============ ============ ============
</TABLE>
SFAS No. 123 requires the Company to disclose pro forma net income and
earnings per share determined as if the Company had accounted for
stock-based compensation awards granted after December 31, 1994 under
the fair value method described in that statement. For purposes of this
disclosure, the fair value of options under SFAS No. 123 were estimated
at each grant date using a Black-Scholes option pricing model, the most
commonly used model, and the following assumptions: risk-free interest
rates from 5.66% to 7.2%, a dividend yield of zero, a volatility factor
of the expected market price of the Company's common stock of 25.94%,
and an expected option life of three to five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. The Company's employee stock
options have characteristics significantly different from those of
traded options, including vesting requirements and restrictions on
transfer. Because of these differences and the impact of the Company's
limited history, lack of comparable public companies, the Company's
rapid growth and the significant appreciation in stock price since its
initial public offering, management believes that the Black-Scholes
model may not provide a reliable measure of the fair value of the
Company's employee stock options.
The Company's results as reported and its pro forma results using the
valuation model discussed above are as follows:
1996 1995
Net income, as reported $2,622,510 $764,283
============= =============
Net income (loss), pro forma ($ 629,122) $301,583
============= =============
Earnings per common share, as reported $.20 $.14
============= =============
Earnings (loss) per common share, pro forma ($.05) $.05
============= =============
In connection with the initial public offering, the Company issued
warrants to purchase up to 240,000 shares of common stock at an
exercise price of $3.60 to the representatives of the underwriters.
These warrants are Excercisable for a five year period commencing on
February 22, 1996. During 1996, 162,000 of these warrants were
exercised.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
7. Stock Options and Warrants, continued
In connection with an acquisition, warrants to purchase 36,364 shares
of common stock were issued at an exercise price of $5.50. These
warrants become excercisable ratably over a three year period beginning
October 2, 1995.
8. Acquisitions and Dispositions
On September 3, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Western Wire and Alarm
Products, Inc. ("Western") of Denver Colorado, a specialist in the sale
and distribution of security devices and wire. The purchase price was
$300,000 payable in cash and common stock. In connection with the
acquisition, the Company paid in full $50,000 of Western's bank
indebtedness.
On September 1, 1996, the Company acquired Norfolk Wire & Electronics,
Inc. ("Norfolk"), through the purchase of all issued and outstanding
shares of common stock. Norfolk's operations consisted principally of
the sale and distribution of voice and data wire, cable and ancillary
products. In addition to its four locations in the state of Virginia,
Norfolk had locations in Tinton Falls, New Jersey and Gaithersburg,
Maryland. In addition, Norfolk assembled low voltage cable and fiber
optic connectors and copper and fiber optic cutting and splicing kits.
The purchase price was $8 million payable in cash and common stock. At
the closing, the Company paid in full approximately $2.6 million of
Norfolk bank indebtedness.
On May 30, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Southern Alarm Supply Co., Inc.
("Southern") of Nashville, Tennessee, a specialist in the sale and
distribution of security devices and wire. The purchase price was
$350,000 payable in cash and common stock.
On March 12, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Northern Wire & Cable, Inc.
("Northern"), a specialist in the sale and distribution of wire, cable,
fiber optics and connectivity products for structured wiring, power
cables, cable connector assemblies for automation, computers and
robotics and value-added services for the Industrial Management and
Technology market. In addition to its distribution business, Northern
assembled certain computer, robotics and power cable connectors sold
through its distribution channels. Northern had branches in Troy,
Michigan; Cleveland, Ohio; Atlanta, Georgia; Tampa, Florida; and Las
Vegas, Nevada. The purchase price was $13.3 million payable in cash,
notes and common stock. In connection with the acquisition, the Company
assumed approximately $5.6 million of Northern bank indebtedness which
was paid in full at closing.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
8. Acquisitions and Dispositions, continued
On February 22, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Medisco, Inc. ("Medisco") of
Indianapolis, Indiana, a distributor of wire and cable products. The
purchase price was $837,000 payable in cash.
On October 2, 1995, the Company acquired Morgan Hill Supply Co., Inc.
("Morgan Hill"), through the purchase of all Morgan Hill's issued and
outstanding shares of common stock. Morgan Hill had locations in
Kingston, New York and Boston, Massachusetts. The purchase price was
$1.5 million payable in cash, notes and common stock. After closing,
the Company repaid $200,000 of Morgan Hill bank indebtedness.
On July 31, 1995, the Company acquired Pinnacle Wire and Cable, Inc.
("Pinnacle") by a merger of Pinnacle into the Company. Pinnacle had
locations in Columbus, Ohio and Cincinnati, Ohio. The purchase price
was $1.4 million payable in cash, notes and common stock. After
closing, the Company repaid approximately $226,000 of Pinnacle bank
indebtedness.
All acquisitions have been recorded under the purchase method of
accounting. Accordingly, the results of operations of the acquired
businesses are included in the Company's consolidated results of
operations from the date of acquisition. The purchase price is
allocated to assets acquired and liabilities assumed based on the
estimated fair market value on the date of the acquisition.
The following pro forma condensed consolidated financial information
assumes that all material acquisitions and the common stock
transactions discussed in Note 5, which were a significant source of
the funds used in the acquisitions, occurred on January 1, 1995. The
results do not purport to be indicative of what would have occurred had
the acquisitions been made on January 1, 1995 nor are they indicative
of the results which may occur in the future.
1996 1995
Net sales $148,728,053 $125,986,265
============== =============
Operating income $4,066,849 $3,403,011
============== =============
Net income $2,390,325 $1,968,833
============== =============
Earnings per common share $.15 $.13
============== =============
Pro forma weighted average common shares 15,475,231 15,475,231
============== =============
On December 31, 1996, the Company sold its copper and fiber optic
cutting and splicing kit product line (the "Kit Line") and its low
voltage cable and fiber optic connector product line (the "Connector
Line") in two separate transactions. The Kit Line was sold to a group
that included a former shareholder and former employees of Norfolk
while the low voltage Connector Line was sold to a group that included
former Norfolk employees.
The selling price for the Kit Line was approximately $1 million payable
in notes and Anicom common stock originally issued in the Norfolk
acquisition. The $375,000 selling price for the Connector Line was
payable in notes which are personally guaranteed by the president of
the acquiring company. The Company recognized a pre-tax gain of
$878,315, net of transaction expenses, on these two sales.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
8. Acquisitions and Dispositions, continued
In connection with these sales, the Company entered into Service and
Supply Agreements with the acquiring companies. These agreements
appoint the Company as the primary distributor to certain identified
customers for certain product lines to be sold. The agreements run for
two and five years, respectively, and are automatically extended for
similar periods unless terminated in accordance with the respective
agreements.
9. Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with certain
officers. In the event of a change in control, as defined, the
employment agreements provide for severance payments if employment is
terminated. The aggregate base salary payable to these officers under
the employment agreements in 1996 was $753,250. In the event of a
change in control, the Company may become obligated to make payments to
these officers of up to approximately $4,800,000.
In connection with certain acquisitions, the Company entered into
employment agreements with certain former officers of the acquired
companies. The aggregate base salary payable to those employees who
became officers of the Company, two of which are now executive officers
of the Company, is approximately $763,000.
Operating Leases
The Company leases certain warehouse and office facilities and
equipment under operating leases. Rental expense under the leases was
approximately $1,418,500 and $364,000 for the years ended December 31,
1996 and 1995, respectively. Approximate minimum annual lease payments
required on noncancelable leases having initial or remaining lease
terms in excess of one year as of December 31, 1996 are as follows:
Year Amount
1997 $1,798,500
1998 1,353,204
1999 956,483
2000 524,033
2001 232,485
Thereafter 2,004
=============
$4,866,709
=============
The Company is also obligated to pay certain taxes and assessments
relating to these leases. Certain leases contain renewal options.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
9. Commitments and Contingencies, continued
Retirement Plan
Effective January 1, 1995, the Company adopted a defined contribution
retirement plan. Employer contributions under the plan are limited to
7% of compensation. As a result of the acquisition of Norfolk, the
Company has an additional defined contribution retirement plan which
requires Company contributions up to a maximum of 1% of the employees'
compensation. Total Company contributions to the plans were
approximately $103,800 and $20,300 in 1996 and 1995, respectively.
10. Supplemental Cash Flow Information
The following is a summary of the noncash investing and financing for
the years ended December 31, 1996 and 1995:
1996 1995
Acquisitions:
Fair value of assets acquired $54,871,008 $5,283,644
Business integration liabilities
established (5,218,674) --
Bank debt assumed (9,318,231) (426,007)
Other liabilities assumed (17,455,609) (1,726,317)
Long-term debt issued (3,000,000) (799,999)
Common stock issued (5,537,464) (897,327)
-------------- --------------
Cash paid 14,341,030 1,433,994
Less: cash acquired (140,485) --
-------------- --------------
Net cash paid for acquisitions $14,200,545 $1,433,994
============== ==============
Dispositions:
Value of assets sold, net of
transaction costs $403,540 --
============== ==============
Notes receivable accepted $875,000 --
============== ==============
Anicom common stock received $506,854 --
============== ==============
Assets acquired through capital lease -- $76,416
============== ==============
11. Other Related Party Transactions
One of the Company's directors is a Managing Director of an investment
banking firm which served as one of the underwriters of the Company's
follow-on offering in November 1995.
<PAGE>
ANICOM, INC.
Notes to Consolidated Financial Statements, continued
12. Subsequent Events (unaudited)
On February 28, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Carolina Cable & Connector,
Inc. ("Carolina Cable") of Raleigh, North Carolina. Carolina Cable is
a specialist in the sale and distribution of wire and cable, fiber
optics and computer network and connectivity products. Carolina Cable
has seven locations in the Carolinas and Tennessee and total revenues
of approximately $25 million. The purchase price consists of $3.5
million in cash and common stock. In addition, the Company assumed
approximately $3.5 million of Carolina Cable bank debt and notes.
On March 7, 1997, the Company sold its third assembled product line
which consisted of computer, robotics and power cable connectors. In
connection with the sale, the Company entered into a supply agreement
to act as the sole and exclusive distributor of certain products
assembled by the acquiring company. The selling price was payable in
cash and notes.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. SFAS 128 is effective
for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company will adopt SFAS 128 for
the year ended December 31, 1997. Management has not yet determined the
impact of implementing this standard.
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
2.1** Agreement and Plan of Merger, dated as of July 18, 1995, among
Anicom, Pinnacle Wire & Cable, Inc., Raymond J. Costello and
Robert A. Holous.
2.2*** Stock Purchase Agreement, dated September 19, 1995, among
Anicom, Morgan Hill, Inc. and Kenneth Jay Burgess.
2.3**** Asset Purchase Agreement, dated as of March 4, 1996, among
Anicom, Inc., Northern Wire & Cable, Inc., and Copperhead
Acquisition Corp.
2.4***** Agreement and Plan of Reorganization, by and among Anicom, Inc.,
Anicom-Southeast, Inc., Norfolk Wire & Electronics, Inc., and
Ronald A. Hurley, Robert H. Jennings, Stephen M. Mobley and
Vonda M. Hall, dated as of August 30, 1996.
3.1* Restated Certificate of Incorporation of Anicom.
3.2* Restated Bylaws of Anicom.
3.3****** Certificate of Amendment of Certificate of Incorporation of
Anicom.
4.1* Specimen Stock Certificate representing Common Stock.
10.1* Credit Agreement, dated June 30, 1993, between Registrant and
Harris Trust and Savings Bank, as amended.
10.2* Commercial Lease Agreement, dated April 30, 1993, between Anicom
and Harris Trust and Savings Bank.
10.3******* Form of 1995 Stock Incentive Plan as Amended and Restated.
10.4******* Credit Agreement, dated as of February 6, 1996, between Anicom
and Harris Trust and Savings Bank.
10.6* Shareholders Agreement
10.8* Form of Tax Indemnification Agreement
10.9* Form of Employment Agreement between Anicom and Scott C. Anixter
10.10* Form of Employment Agreement between Anicom and Carl E. Putnam.
10.11* Form of Employment Agreement between Anicom and Robert L.
Swanson
10.12****** Form of Amended and Restated 1995 Directors Stock Option Plan.
10.13**** Form of Employment Agreement between Anicom and Robert
Brzustewicz.
10.14**** Form of Employment Agreement between Anicom and Glen Nast.
10.15**** Non-Negotiable Note issued to Northern Wire & Cable, Inc.
10.16**** Guaranty by Anicom to Northern Wire & Cable, Inc.
10.17 Form of Employment Agreement between Anicom and Donald Welchko
10.18 1996 Stock Incentive Plan
21 List of Subsidiaries.
23.1 Consent of Independent Accountants
27 Financial Data Schedule
- - ------------------
* Previously filed as an Exhibit to Anicom's Registration
Statement on Form SB-2, registration no. 33-87736C and
incorporated herein by refrence thereto.
** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated August 10, 1995 and incorporated herein by
refrence.
*** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated October 16, 1995 and incorporated herein by
refrence.
**** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated March 12, 1996 and incorporated herein by
reference.
***** Previously filed as an Exhibit to Anicom's current report on
Form 8-K, dated August 30, 1996 and incorporated herein by
reference.
****** Previously filed as an Exhibit to Anicom's current report on
Form 10-QSB, for the quarter ended September 30, 1996 and
incorporated herein by reference.
******* Previously filed as an Exhibit to Anicom's Annual report on
Form 10-KSB, for the year ended December 31, 1996 and
incorporated herein by reference.
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
BY AND BETWEEN
ANICOM, INC.
AND
DONALD C. WELCHKO
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made as of
October 1, 1996 by and between Donald C. Welchko ("Executive") and ANICOM, INC.,
a Delaware corporation (the "Company").
PRELIMINARY RECITALS
WHEREAS, the Company desires to employ Executive, and Executive desires
to be employed by the Company, as Vice President and Chief Financial Officer of
the Company on the terms and conditions set forth in this Agreement.
WHEREAS, the Company is engaged in the business of selling and
distributing communication related wire, cable, fiber optics and computer
network and connectivity products (the "Business").
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged, the Company and Executive agree as follows:
1. Employment of Executive. The Company hereby employs Executive as the
Company's Vice President and Chief Financial Officer, and Executive hereby
accepts such employment and agrees to act as Vice President and Chief Financial
Officer of the Company, all in accordance with the terms and conditions of this
Agreement.
2. Term of Employment. Executive's employment under this Agreement will
begin on the date of this Agreement and will continue until the tenth (10th)
anniversary of the date of this Agreement (the "Initial Employment Period" and
together with any Renewal Period (as defined), if any, the "Employment Period").
The terms and conditions of this Agreement shall be automatically renewed for
subsequent terms of ten (10) years (each, a "Renewal Period") unless at least
one hundred twenty (120) days prior to the commencement of a Renewal Period,
either the Company or the Executive shall give notice to the other of its or his
intent to not renew this Agreement. If notice of intent not to renew this
Agreement is given by either the Company or the Executive pursuant to this
Section 2, such notice shall constitute termination without Cause for purposes
of this Agreement, and any rights of the Executive arising as a result of such
termination without Cause shall survive termination of this Agreement.
Notwithstanding anything to the contrary contained herein, the Employment Period
is subject to termination at any time pursuant to Section 8.
3. Offices and Duties. Subject to Section 8, during the Employment
Period, Executive will perform the duties of Vice President and Chief Financial
Officer of the Company as described in the Company's Bylaws and such other
duties as the Company's Board of
-1-
<PAGE>
Directors may prescribe from time to time. Executive agrees that during the
Employment Period, he will devote substantially all of his business time and
attention to fulfill his duties under this Agreement.
4. Compensation
(a) Base Salary. During the Employment Period, the Company
will pay Executive a base salary (the "Base Salary") in accordance with
the Company's normal payroll practices for executive officers. The Base
Salary during the Employment Period will be determined in the sole
discretion of the Company's Board of Directors.
(b) Bonuses. Executive will be eligible for, but is not
guaranteed to receive, additional compensation ("Bonus Payments") as
determined from time to time in the sole discretion of the Company's
Board of Directors.
(c) Benefits. Executive will be entitled to participate in
group life and medical insurance plans, profit-sharing and similar
plans, and other "fringe benefits" (collectively, "Benefits"),
comparable to those made available by the Company to its other senior
executive employees, in accordance with the terms of such plans.
(d) Withholding. All compensation payable to Executive under
this Agreement is stated in gross amount and will be subject to all
applicable withholding taxes, other normal payroll deductions, and any
other amounts required by law to be withheld.
(e) Expenses. The Company, in accordance with its policies and
past practices, will pay or reimburse Executive for all expenses
(including travel and entertainment expenses) reasonably incurred by
Executive during the Employment Period in connection with the
performance of Executive's duties under this Agreement, provided that
Executive, if so requested by the Company's Board of Directors, must
provide to the Company documentation or evidence of expenses for which
Executive seeks reimbursement.
5. Covenant Not to Compete.
5.1 Executive's Acknowledgment. Executive agrees and
acknowledges that in order to assure the Company that it will retain its value
and that of the Business as a going concern, it is necessary that Executive
undertake not to utilize his special knowledge of the Business and his
relationships with customers and suppliers to compete with the Company.
Executive further acknowledges that:
(a) the Company is currently engaged in the Business;
(b) Executive has occupied a position of trust and confidence
with the Company prior to the date of this Agreement and will continue
to acquire an intimate knowledge of all proprietary and confidential
information concerning the Business;
-2-
<PAGE>
(c) the agreements and covenants contained in this Section 5
are essential to protect the Company and the goodwill of the Business;
(d) the Company would be irreparably damaged if Executive were
to provide services to any person or entity in violation of the
provisions of this Agreement;
(e) the scope and duration of the Restrictive Covenants are
reasonably designed to protect a protectible interest of the Company
and are not excessive in light
of the circumstances; and
(f) Executive has a means to support himself and his
dependents other than by engaging in the Business, or a business
similar to the Business, and the provisions of this Section 5 will not
impair such ability.
5.2 Non-Compete. The "Restricted Period" for purposes of this
Agreement shall be the period of time commencing on the date hereof and ending
on the date two (2) years after termination of Executive's employment for any
reason, provided that, if a Change in Control occurs and, following the
effective date of the Change in Control, the Executive's employment with the
Company is terminated by the Executive for Good Reason or by the Company without
Cause, then the "Restricted Period" shall end on the effective date of the
termination of Executive's employment unless otherwise extended pursuant to
Section 11 below. Executive hereby agrees that at all times during the
Restricted Period, Executive shall not, directly or indirectly, as employee,
agent, consultant, stockholder, director, co-partner or in any other individual
or representative capacity, own, operate, manage, control, engage in, invest in
or participate in any manner in, act as a consultant or advisor to, render
services for (alone or in association with any person, firm, corporation or
entity), or otherwise assist any person or entity that engages in or owns,
invests in, operates, manages or controls any venture or enterprise that
directly or indirectly engages or proposes to engage in the Business anywhere
within thirty (30) miles of any office of the Company (the "Territory");
provided, however, that nothing contained herein shall be construed to prevent
Executive from investing in the stock of any competing corporation listed on a
national securities exchange or traded in the over-the-counter market, but only
if Executive is not involved in the business of said corporation and if
Executive and his associates (as such term is defined in Regulation 14(A)
promulgated under the Securities Exchange Act of 1934, as in effect on the date
hereof), collectively, do not own more than an aggregate of two percent of the
stock of such corporation.
5.3 Non-Solicitation. Without limiting the generality of the
provisions of Section 5.2 above, Executive hereby agrees that during the
Restricted Period Executive will not, directly or indirectly, solicit, or
participate as employee, agent, consultant, stockholder, director, partner or in
any other individual or representative capacity in any business which solicits,
business from (i) any Person which is or was a customer of the Business during
the Restricted Period, or from any successor in interest to any such Person for
the purpose of marketing, selling or providing any such Person any services or
products offered by or available from the Company, or encouraging any such
Person to terminate or otherwise alter his, her or its relationship with the
Company, or (ii) any Person who is or was a "Prospective Customer" of the
Business, for the purpose of marketing, selling or providing any such Person any
services offered by or available from the Company or encouraging any such Person
to terminate or
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<PAGE>
otherwise alter his, her or its relationship with the Company. For purposes of
this Agreement, "Prospective Customer" shall mean any Person who the Company has
contacted (orally or in writing), during the one year period prior to the
earlier of (i) the date of determination or (ii) the effective date of the
termination of Executive's employment with the Company, for the purpose of
developing a relationship relating to the Business.
5.4 Interference with Employee Relationships. During the
Restricted Period, Executive shall not, directly or indirectly, as employee,
agent, consultant, stockholder, director, co-partner or in any other individual
or representative capacity, without the prior written consent of the Company,
employ or engage, recruit or solicit for employment or engagement, any person
who is or becomes employed or engaged by the Company (during the Employment
Period or the Restricted Period), or otherwise seek to influence or alter any
such person's relationship with the Company.
5.5 Blue-Pencil. If any court of competent jurisdiction shall
at any time deem the term of this Agreement or any particular Restrictive
Covenant too lengthy or the Territory too extensive, the other provisions of
this Section 5 shall nevertheless stand, and the Restricted Period shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory shall be deemed to comprise the largest territory permissible by
law under the circumstances. The court in each case shall reduce the Restricted
Period and/or the Territory to permissible duration or size.
6. Severance Payments. Following a Change in Control of the Company,
if, during the thirty-six (36) months following such Change in Control, (i)
Executive is terminated by the Company without Cause or (ii) Executive
terminates employment with the Company (or its successor or assigns) for Good
Reason, the Company shall pay and provide Executive each of the following:
(a) Within five (5) business days after the effective date of
such termination of employment (the "Effective Date"), the Company (or
its successor or assigns) will pay Executive a lump sum cash payment
equal to the greater of:
(i) seven hundred and fifty thousand dollars
($750,000);
(ii) three (3) times the average annual compensation
that was includible in Executive's gross income during each of
the five (5) full fiscal years immediately prior to the
Effective Date.
(b) Executive and his dependents shall continue to be covered
for thirty-six (36) months after the Effective Date by all survivor
rights, insurance and benefit programs of the Company (or its successor
or assigns) in type and amount at least equivalent to that provided to
him and his dependents by the Company immediately prior to the Change
of Control; provided that if participation in any one or more of such
arrangements is not possible under the terms thereof, the Company (or
its successor or assigns) will provide substantially identical benefits
outside of the programs. The cost of this coverage will be paid by the
Company (or its successor or assigns).
-4-
<PAGE>
(c) If all or any portion of the amounts payable to Executive
under this Section 6, either alone or together with other payments
which Executive has the right to receive from the Company, constitute
"excess parachute payments" (within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), that are
subject to the excise tax imposed by Section 4999 of the Code (or
similar tax and/or assessment), the Company (or its successor or
assigns) shall increase the amounts payable pursuant to Section 6(a)
above to the extent necessary to place Executive in the same after-tax
position as he would have been in had no such excise tax been imposed
on the payments hereunder. The determination of the amount of any such
excise taxes shall initially be made by the independent accounting firm
employed by the Company immediately prior to the Change in Control. If,
at a later date, it is determined that the amount of excise taxes
payable by Executive is greater than the amount initially so
determined, then the Company (or its successor or assigns) shall pay
Executive an amount equal to the sum of (i) such additional excise
taxes, (ii) any interest, fines and penalties resulting from such
underpayment, plus (iii) an amount necessary to reimburse Executive for
any income, excise or other taxes payable by Executive with respect to
the amount specified in (i) and (ii) above, and the reimbursement
provided by this (iii).
Upon the occurrence of a Change in Control of the Company, if during
the six (6) months following such Change in Control, Executive terminates
employment with the Company (or its successor or assigns) without Good Reason,
then within five (5) business days after the Effective Date, the Company shall
pay to Executive an amount equal to twenty percent (20%) of the amount described
in Section 6(a) above.
7. Confidential Information. During the term of this Agreement and
thereafter, Executive shall keep secret and retain in strictest confidence, and
shall not, without the prior written consent of the Company, furnish, make
available or disclose to any third party or use for the benefit of himself or
any third party, any Confidential Information, except to the extent reasonably
necessary to carry out Executive's duties and responsibilities to the Company.
As used in this Section 7, "Confidential Information" shall mean any information
relating to the Business or affairs of the Company, including but not limited to
information relating to financial statements, business plans, forecasts,
purchasing plans, customer identities, potential customers, employees,
suppliers, equipment, programs, strategies and information, analyses, profit
margins or other proprietary information used by the Company in connection with
the Business of the Company; provided, however, that Confidential Information
shall not include any information which is in the public domain or becomes known
in the industry through no wrongful act on the part of Executive. Executive
acknowledges that the Confidential Information is vital, sensitive, confidential
and proprietary to the Company.
8. Termination
(a) The Company may terminate the Executive's employment
hereunder at any time, without Cause (as defined in Section 9), upon
not less than sixty (60) days notice to the Executive.
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<PAGE>
(b) The Company may terminate Executive's employment hereunder
at any time for Cause by providing to Executive written notice of
termination stating the grounds for termination for Cause. Upon notice
of termination of employment for Cause, the Employment Period will
immediately end and Executive will not be entitled to receive any
further compensation (whether in the form of Base Salary, Bonus
Payments, or Benefits or otherwise) other than accrued but unpaid Base
Salary.
(c) Notwithstanding anything to the contrary in this
Agreement, the Employment Period will terminate upon the death or
Disability of Executive. In the case of termination by the Executive
for Good Reason or Disability, termination shall be effective upon the
date of service of notice by either the Executive or the Company. In
the case of death, termination shall become effective immediately upon
the death of Executive. Upon termination by the Company without Cause,
termination by the Executive for Good Reason, death or Disability,
Executive will be entitled to receive (i) all accrued but unpaid Base
Salary as of the date of such termination, (ii) a pro rata portion of
the Bonus Payments (if any) for the year in which such termination
occurs, and (iii) any amounts payable pursuant to Section 6(a) above,
but all other obligations of the Company to pay Executive any further
compensation, whether in the form of Base Salary, Bonus Payments, or
Benefits (other than death and Disability benefits, if any) or
otherwise, will terminate.
9. Definitions. As used in this Agreement:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Anixter Family" means Alan B. Anixter, William R. Anixter, Scott C.
Anixter, their spouses, heirs and any group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of which any of the foregoing persons is a member for purposes of
acquiring, holding or disposing of securities of the Company, any trust
established by or for the benefit of any of the foregoing and any other entity
controlled by or for the benefit of any of the foregoing.
"Cause" means (a) an act of fraud or dishonesty by Executive that
results in gain or personal enrichment of Executive at the Company's expense,
(b) Executive's conviction of a felony-class crime or any act involving moral
turpitude, (c) any material breach by Executive of any provision of this
Agreement that has not been cured by Executive within thirty days of written
notice of such breach from the Company, (d) the Executive's willful engaging in
gross misconduct materially injurious to the Company that has not been cured by
Executive within thirty days of written notice specifying the alleged willful
gross misconduct and material injury, or (e) any intentional act or gross
negligence that has a material, detrimental effect on the reputation or Business
of the Company. The decision to terminate Executive's employment for
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<PAGE>
Cause, to take other action or to take no action in response to such occurrence
shall be in the sole and exclusive discretion of the Company.
"Change in Control" means the happening of any of the following events:
(a) (i) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%)
or more of the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the approval by the
stockholders of the Company of a reorganization, merger, consolidation,
complete liquidation or dissolution of the Company, the sale or
disposition of all or substantially all of the assets of the Company or
similar corporate transaction (in each case referred to in this Section
9(a) as a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental agency,
the obtaining of such consent (either explicitly or implicitly)
provided such acquisition or beneficial ownership would result in any
other Person's beneficially owning fifty percent (50%) or more of the
Outstanding Company Common Stock; excluding, however, the following:
(A) any acquisition by the Company or by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(B) any acquisition by a member of the Anixter Family, or (C) any
acquisition by or consummation of a Corporate Transaction with an
Affiliate.
(b) A change in the composition of the Board such that the
individuals who, as of the date of the Initial Public Offering (the
"Public Offering"), constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, for
purposes of this Section 9(b), that any individual who becomes a member
of the Board subsequent to the date of the Company's Public Offering
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of
the Incumbent Board (or deemed to be such pursuant to this provision)
shall be considered as though such individual were a member of the
Incumbent Board; but, provided, further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of
the Incumbent Board.
"Disability" will be deemed to have occurred whenever the Executive has
suffered physical or mental illness, injury, or infirmity that prevents
Executive from fulfilling his duties under this Agreement for a period of ninety
(90) consecutive days in the manner ordinarily required of him as an officer of
the Company and precludes him from actively participating in the management of
the Business of the Company.
-7-
<PAGE>
"Good Reason" means the occurrence of any of the following events,
unless (i) such event occurs with the Executive's express prior written consent,
(ii) the event is an isolated, insubstantial or inadvertent action or failure to
act which was not in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive, or (iii) the event
occurs in connection with the termination of the Executive's employment for
Cause, Disability or death:
(a) the assignment to the Executive by the Company of any
duties which are inconsistent with, a diminution of or an adverse
change in the Executive's position, duty, title, office, responsibility
or status with the Company, including without limitation, any
diminution of the Executive's position or responsibility in the
decision or management processes of the Company, reporting
relationships, job description, duties, responsibilities, or any
removal of the Executive from, or any failure to reelect the Executive
to, such position;
(b) a reduction by the Company in the Executive's rate of Base
Salary during the Employment Period;
(c) any failure to either continue in effect any material
Benefits or to substitute and continue other plans, policies, programs
or arrangements providing the Executive with substantially similar
benefits, or the taking of any action which would substantially and
adversely affect the Executive's participation in or materially reduce
the Executive's Benefits or compensation;
(d) any failure by any successor or assignee of the Company to
continue this Agreement in full force and effect or any breach of this
Agreement by the Company (or any successor or assignee of the Company),
unless such breach is cured within thirty (30) days of receiving
written notice of the breach from the Executive.
"Person" means any individual, corporation, trust, proprietorship,
association, governmental body, agency or subdivision or other entity.
10. Remedies. Executive acknowledges and agrees that the covenants set
forth in Sections 5 and 7 of this Agreement (collectively, the "Restrictive
Covenants") are reasonable and necessary for the protection of the Company's
business interests, that irreparable injury will result to the Company if
Executive breaches any of the terms of the Restrictive Covenants, and that in
the event of Executive's actual or threatened breach of any such Restrictive
Covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of the Restrictive Covenants, the Company shall be entitled to immediate
temporary injunctive and other equitable relief, without bond and without the
necessity of showing actual monetary damages, subject to hearing as soon
thereafter as possible. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
-8-
<PAGE>
11. Extension of Restricted Period. If a Change in Control occurs, and,
following the effective date of the Change in Control, Executive's employment
with the Company is terminated by the Executive for Good Reason or by the
Company without Cause, Executive shall have the option of extending the
Restricted Period for an additional term of two (2) years after the Effective
Date by giving written notice thereof to the Company on or before the twentieth
(20th) day following the Effective Date (the "Extension Option"). If Executive
exercises the Extension Option, the Company shall pay to Executive in
consideration for the extension of the Restricted Period an amount equal to two
(2) times Executive's highest annual compensation that was includible in
Executive's gross income during any of the five (5) full fiscal years
immediately prior to the Effective Date. The foregoing amount shall be payable
within fifteen (15) business days of Executive's exercise of the Extension
Option.
12. Miscellaneous.
(a) Notices. All notices and other communication between the
parties pursuant to this Agreement must be in writing and will be
deemed given when delivered in person, one (1) business day after being
dispatched by a nationally recognized overnight courier service, three
(3) business days after being deposited in the U.S. Mail, registered or
certified mail, return receipt requested, or one (1) business day after
being sent by facsimile (with receipt acknowledged), to the Company at
the address of its principal office in the Chicago, Illinois
metropolitan area and to Executive (or his representatives) at his
address as shown on the Company's records. Executive (or his
representatives) may change his address for notice purposes by
delivering notice to the Company in accordance with this Section 12(a).
All notices sent to the Company shall also be delivered to Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693, Attention: Jeffrey R. Patt, Esq., Facsimile No.:
(312-902-1061).
(b) Governing Law. This Agreement will be subject to and
governed by the laws of the State of Illinois, without regard to
principles of conflicts of laws.
(c) Binding Effect. This Agreement will be binding upon and
inure to the benefit of the parties and their respective heirs, legal
representatives, executors, administrators, successors, and assigns,
subject to the limitations on assignment in Section 12(h).
(d) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties with respect to the subject matter of
this Agreement and supersedes any other agreements, whether oral or
written, between the parties with respect to the subject matter of this
Agreement.
(e) Modification. No change or modification of this Agreement
will be valid unless it is in writing and signed by both of the
parties. No waiver of any provision of this Agreement will be valid
unless in writing and signed by the person or party to be charged.
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<PAGE>
(f) Severability. If any provision of this Agreement is, for
any reason, invalid or unenforceable, the remaining provisions of this
Agreement will nevertheless be valid and enforceable and will remain in
full force and effect. Any provision of this Agreement that is held
invalid or unenforceable by a court of competent jurisdiction will be
deemed modified to the extent necessary to make it valid and
enforceable and as so modified will remain in full force and effect.
(g) Headings. The headings in this Agreement are inserted for
convenience only and are not to be considered in the interpretation of
construction of the provisions of this Agreement.
(h) Assignability. This Agreement may not be assigned by
either party without the prior written consent of the other party,
except that the Company may assign its rights to, and cause its
obligations under this Agreement to be assumed by, any person or entity
to whom or to which the Company simultaneously transfers by sale,
merger, or otherwise all or substantially all of its assets.
(i) No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by Executive and the
Company to express their mutual intent, and no rule of strict
construction will be applied against Executive or the Company.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement as of the date first above written.
ANICOM, INC.
By: /s/ Scott C. Anixter
------------------------------------
Its: Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Donald C. Welchko
----------------------
DONALD C. WELCHKO
-11-
EXHIBIT 10.18
ANICOM, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
ANICOM, INC.
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE I
ESTABLISHMENT, AMENDMENT AND RESTATEMENT..................................... 1
1.1 Purpose............................................... 1
ARTICLE II
DEFINITIONS.................................................................. 1
2.1 "Affiliate"........................................... 1
2.2 "Agreement" or "Award Agreement"...................... 1
2.3 "Anixter Family"...................................... 1
2.4 "Award"............................................... 1
2.5 "Board of Directors" or "Board"....................... 2
2.6 "Cause"............................................... 2
2.7 "Change in Control" .................................. 2
2.8 "Code" or "Internal Revenue Code"..................... 2
2.9 "Commission".......................................... 2
2.10 "Committee"........................................... 2
2.11 "Common Stock"........................................ 2
2.12 "Company"............................................. 2
2.13 "Deferred Stock"...................................... 2
2.14 "Disability".......................................... 2
2.15 "Disinterested Person"................................ 3
2.16 "Effective Date"...................................... 3
2.17 "Exchange Act"........................................ 3
2.18 "Fair Market Value"................................... 3
2.19 "Grant Date".......................................... 3
2.20 "Incentive Stock Option".............................. 3
2.21 "Nonqualified Stock Option"........................... 3
2.22 "Option Period"....................................... 4
2.23 "Option Price"........................................ 4
2.24 "Participant"......................................... 4
2.25 "Plan"................................................ 4
2.26 "Public Offering"..................................... 4
2.27 "Representative"...................................... 4
2.28 "Restricted Stock".................................... 4
2.29 "Retirement".......................................... 4
2.30 "Rule 16b-3".......................................... 4
2.31 "Securities Act"...................................... 4
2.32 "Stock Appreciation Right"............................ 4
(i)
<PAGE>
Page
2.33 "Stock Option" or "Option"............................ 5
2.34 "Termination of Employment"........................... 5
ARTICLE III
ADMINISTRATION............................................................... 5
3.1 Committee Structure and Authority..................... 5
ARTICLE IV
STOCK SUBJECT TO PLAN........................................................ 7
4.1 Number of Shares...................................... 7
4.2 Release of Shares..................................... 8
4.3 Restrictions on Shares................................ 8
4.4 Stockholder Rights.................................... 8
4.5 Reasonable Efforts To Register........................ 8
4.6 Anti-Dilution......................................... 9
ARTICLE V
ELIGIBILITY.................................................................. 9
5.1 Eligibility........................................... 9
ARTICLE VI
STOCK OPTIONS................................................................ 10
6.1 General............................................... 10
6.2 Grant and Exercise.................................... 10
6.3 Terms and Conditions.................................. 10
6.4 Termination by Reason of Death........................ 12
6.5 Termination by Reason of Disability................... 12
6.6 Other Termination..................................... 13
6.7 Cashing Out of Option................................. 13
ARTICLE VII
STOCK APPRECIATION RIGHTS.................................................... 13
7.1 General............................................... 13
7.2 Grant................................................. 13
7.3 Terms and Conditions.................................. 14
ARTICLE VIII
RESTRICTED STOCK............................................................. 15
8.1 General............................................... 15
8.2 Awards and Certificates............................... 16
8.3 Terms and Conditions.................................. 16
(ii)
<PAGE>
Page
ARTICLE IX
DEFERRED STOCK............................................................... 17
9.1 General............................................... 17
9.2 Terms and Conditions.................................. 17
ARTICLE X
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN....................... 18
10.1 Transfer of Shares.................................... 18
10.2 Limited Transfer During Offering...................... 18
10.3 Committee Discretion.................................. 19
10.4 No Company Obligation................................. 19
ARTICLE XI
CHANGE IN CONTROL PROVISIONS................................................. 19
11.1 Impact of Event....................................... 19
11.2 Definition of Change in Control....................... 20
ARTICLE XII
MISCELLANEOUS................................................................ 20
12.1 Amendments and Termination............................ 20
12.2 Unfunded Status of Plan............................... 21
12.3 General Provisions.................................... 21
12.4 Mitigation of Excise Tax.............................. 22
12.5 Status of Awards Under Code Section 162(m)............ 23
12.6 Rights with Respect to Continuance of Employment...... 23
12.7 Awards in Substitution for Awards Granted by Other
Corporations.......................................... 23
12.8 Procedure for Adoption................................ 23
12.9 Procedure for Withdrawal.............................. 24
12.10 Delay................................................. 24
12.11 Headings.............................................. 24
12.12 Severability.......................................... 24
12.13 Successors and Assigns................................ 24
12.14 No Obligation to Give Notice.......................... 24
12.15 No Third Party Beneficiaries.......................... 24
12.16 Entire Agreement...................................... 25
(iii)
<PAGE>
ANICOM, INC.
1996 STOCK INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT, AMENDMENT AND RESTATEMENT
1.1 Purpose.
The Anicom, Inc. 1996 Stock Incentive Plan (the "Plan"), is hereby
established by Anicom, Inc. (the "Company") effective April 15, 1996. The
purpose of the Plan is to promote the overall financial objectives of the
Company and its stockholders by motivating those persons selected to participate
in the Plan to achieve long-term growth in stockholder equity in the Company and
by retaining the association of those individuals who are instrumental in
achieving this growth. This Plan and the grant of awards hereunder is expressly
conditioned upon the Plan's approval by the security holders of the Company. If
such approval is not obtained, then the Plan and all Awards hereunder shall be
null and void ab initio.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
2.3 "Anixter Family" means Alan B. Anixter, William R. Anixter, Scott
C. Anixter, their spouses, heirs and any group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of which any of the foregoing persons is a member for purposes of
acquiring, holding or disposing of securities of the Company, any trust
established by or for the benefit of any of the foregoing and any other entity
controlled by or for the benefit of any of the foregoing.
2.4 "Award" means a Stock Option, Stock Appreciation Right, Restricted
Stock or Deferred Stock.
<PAGE>
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean (a) an act of fraud or dishonesty by Participant that
results in gain or personal enrichment of Participant at the Company's expense,
(b) Participant's conviction of a felony-class crime or any act involving moral
turpitude, (c) any material breach by Participant of any provision of this
Agreement that has not been cured by Participant within thirty days of written
notice of such breach from the Company, (d) the Participant's willful engaging
in gross misconduct materially injurious to the Company that has not been cured
by Participant within thirty days of written notice specifying the alleged
willful gross misconduct and material injury, or (e) any intentional act or
gross negligence by Participant that has a material, detrimental effect on the
reputation or business of the Company.
2.7 "Change in Control" has the meaning set forth in Section 11.2.
2.8 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.9 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.10 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan, as further described in the Plan.
2.11 "Common Stock" means the shares of Common Stock, $.001 par value,
whether presently or hereafter issued, and any other stock or security resulting
from adjustment thereof as described hereinafter or the common stock of any
successor to the Company which is designated for the purpose of the Plan.
2.12 "Company" means Anicom, Inc., a Delaware corporation, and includes
any successor or assignee corporation or corporations into which the Company may
be merged, changed or consolidated; any corporation for whose securities all or
substantially all of the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.13 "Deferred Stock" means an Award made pursuant to Article IX.
2.14 "Disability" means a mental or physical illness, injury, or
infirmity that prevents Participant from fulfilling his or her duties for the
Company or an Affiliate for a period of sixty (60) consecutive days in the
manner ordinarily required of him or her. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted,
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suffered, or incurred, while participating in a criminal offense. The
determination of Disability shall be made by the Committee. The determination of
Disability for purposes of the Plan shall not be construed to be an admission of
disability for any other purpose.
2.15 "Disinterested Person" shall have the meaning set forth in Rule
16b-3 and shall mean a person is also an "outside director" under Section 162(m)
of the Code.
2.16 "Effective Date" means January 20, 1995.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.18 "Fair Market Value" means the value of the Common Stock determined
on the basis of the good faith determination of the Committee, without regard to
whether the Common Stock is restricted or represents a minority interest,
pursuant to the applicable method described below:
(a) if the Common Stock is listed on a national securities
exchange or quoted on The Nasdaq Stock Market (either the Nasdaq
National Market or the Nasdaq Small Cap Market (in either case,
"NASDAQ")), unless otherwise provided in an Agreement or determined by
the Committee, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which
quotations are reported, then on the immediately preceding date on
which quotations were reported), as reported by the principal national
exchange on which such shares are traded (in the case of an exchange)
or by the NASDAQ, as the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ, but is actively traded in the
over-the-counter market, unless otherwise provided in an Agreement or
determined by the Committee, the average of the closing bid and asked
prices for the Common Stock on the relevant date (or, if such date is
not a business day or a day on which quotations are reported, then on
the immediately preceding date on which quotations were reported), or
the most recent preceding date for which such quotations are reported;
and
(c) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (a) or (b), the value determined in
good faith by the Committee.
2.19 "Grant Date" means the date that as of which an Award is granted
pursuant to the Plan.
2.20 "Incentive Stock Option" means any Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.21 "Nonqualified Stock Option" means an Option granted under the Plan
other than an incentive stock option within the meaning of Section 422 of the
Code.
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2.22 "Option Period" means the period during which an Option shall be
exercisable in accordance with the Agreement and Article VI.
2.23 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.24 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a person becomes a Representative, then the
term "Participant" shall mean such Representative. For purposes of this
Agreement, the term "Termination of Employment" shall be deemed to be binding on
a Representative of the Participant.
2.25 "Plan" means the Anicom, Inc. 1995 Stock Incentive Plan, as herein
set forth and as may be amended from time to time.
2.26 "Public Offering" means an initial public offering of shares of
Common Stock under the Securities Act.
2.27 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred including, without
limitation, a trust for the benefit of the Participant, the Participant's
parents, spouse or descendants, or a custodian under a uniform gifts to minors
act or similar statute for the benefit of the Participant's descendants, to the
extent permitted by the Committee and not inconsistent with Rule 16b-3 or the
status of the Option as an Incentive Stock Option; provided that only one of the
foregoing shall be the Representative at any point in time as determined under
applicable law and recognized by the Committee.
2.28 "Restricted Stock" means an Award under Article VIII.
2.29 "Retirement" means the Participant's voluntary Termination of
Employment with the intent of not re-entering the work force after attaining
either the normal retirement age or the early retirement age as defined in the
principal (as determined by the Committee) tax-qualified plan of the Company or
an Affiliate. If the Participant is not covered by such a plan, then age 65
shall be deemed the age of Retirement.
2.30 "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as promulgated under the Exchange Act, as amended from time to
time, or any successor thereto.
2.31 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.32 "Stock Appreciation Right" means a right granted under Article
VII.
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2.33 "Stock Option" or "Option" means an option granted under Article
VI.
2.34 "Termination of Employment" means the occurrence of any act or
event whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate, the
Agreement shall establish what act or event shall constitute a Termination of
Employment for purposes of the Plan. A Termination of Employment shall occur to
an employee who is employed by an Affiliate if the Affiliate shall cease to be
an Affiliate and the Participant shall not immediately thereafter become an
employee of the Company or an Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered
by the Committee which may be comprised of one or more persons. The Committee
shall be the Option Committee of the Board of Directors, unless such committee
does not exist or the Board establishes a committee whose sole purpose is the
administration of the Plan; provided that only those members of the Option
Committee of the Board who participate in the decision relative to Awards under
the Plan shall be deemed to be part of the "Committee" for purposes of the Plan.
In the absence of an appointment, the Board or the portion thereof that are
Disinterested Persons shall be the Committee. A majority of the Committee shall
constitute a quorum at any meeting thereof (including telephone conference) and
the acts of a majority of the members present, or acts approved in writing by a
majority of the entire Committee without a meeting, shall be the acts of the
Committee for purposes of the Plan. The Committee may authorize any one or more
of its members or an officer of the Company to execute and deliver documents on
behalf of the Committee. The Committee shall include no less than the number of
Disinterested Persons required for application of Rule 16b-3 and the deduction
of compensation under Section 162(m) of the Code. No member of the Committee
shall exercise any discretion respecting himself or herself under the Plan. The
Board shall have the authority to remove, replace or fill any vacancy of any
member of the Committee upon notice to the Committee and the affected member.
Any member of the Committee may resign upon notice to the Board. The Committee
may allocate among one or more of its members, or may delegate to one or more of
its agents, such duties and responsibilities as it determines.
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Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Restricted Stock and Deferred Stock or any
combination thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration or forfeiture waiver regarding any Award and the shares of
Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from
time to time, of any Award, subject to the limitations of Section 12.1;
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall
be deferred;
(g) to determine under what circumstances an Award may be
settled in cash or Common Stock.
(h) to provide for the forms of Agreement to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or is
in Retirement;
(j) to determine what securities law requirements are
applicable to the Plan, Awards, and the issuance of shares of Common
Stock and to require of a Participant that appropriate action be taken
with respect to such requirements;
(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect
to the remaining number of shares of Common Stock available under the
Plan;
(m) to require as a condition of the exercise of an Award or
the issuance or transfer of a certificate of Common Stock, the
withholding from a Participant of the amount of any federal, state or
local taxes as may be necessary in order for the Company or any other
employer to obtain a deduction or as may be otherwise required by law;
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(n) to determine whether and with what effect an individual
has incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if
so, the terms and conditions on which such Common Stock is to be
purchased;
(p) to determine the restrictions or limitations on the
transfer of Common Stock;
(q) to determine whether an Award is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or the
terms of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or
other specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion, and in the case of any
determination relating to an Award, may be made at the time of the grant of the
Award or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Participants. Any determination shall not be subject
to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 600,000 shares of Common Stock
authorized for issuance effective as of the date
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hereof. Such shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of shares of Common Stock available for Award, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Options to a
particular Participant under any applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock which
is to be delivered to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Common Stock as provided in the
Plan or as the Committee may otherwise require. The Committee may require any
person exercising an Award to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of the shares of Common Stock in compliance with applicable law or
otherwise. Fractional shares shall not be delivered, but shall be rounded to the
next lower whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a
stockholder as to shares of Common Stock subject to an Award until, after proper
exercise of the Award or other action required, such shares shall have been
recorded on the Company's official stockholder records as having been issued or
transferred. Upon exercise of the Award or any portion thereof, the Company will
have thirty (30) days in which to issue the shares, and the Participant will not
be treated as a stockholder for any purpose whatsoever prior to such issuance.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to the date such shares are recorded as issued or
transferred in the Company's official stockholder records, except as provided
herein or in an Agreement.
4.5 Reasonable Efforts To Register. If there has been a Public
Offering, the Company intends to register under the Securities Act the Common
Stock delivered or deliverable pursuant to Awards on Form S-8 if available to
the Company for this purpose (or any successor
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or alternate form that is substantially similar to that form to the extent
available to effect such registration), in accordance with the rules and
regulations governing such forms. If the Committee deems registration to be in
the Company's best interests, the Company will use its reasonable efforts to
cause a registration statement to become effective and will file such
supplements and amendments to the registration statement as may be necessary to
keep the registration statement in effect until the earliest of (a) one year
following the expiration of the Option Period of the last Option outstanding,
(b) the date the Company is no longer a reporting company under the Exchange Act
and (c) the date all Participants have disposed of all shares delivered pursuant
to any Award. The Company may delay the foregoing obligation if the Committee
reasonably determines that any such registration is not in the Company's best
interests or if there is no material benefit to Participants in the Plan.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Awards under the Plan,
the number of shares of Common Stock covered by outstanding Awards, the maximum
number of Awards available for grant to any Participant for a stated period of
time (including the maximum number of Stock Appreciation Rights), the exercise
price per share of outstanding Awards, and any other characteristics or terms of
the Awards as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that the Committee may limit any such adjustment so as to maintain the
deductibility of the Awards under Section 162(m) of the Code, and that any
fractional shares resulting from such adjustment shall be eliminated by rounding
to the next lower whole number of shares with appropriate payment for such
fractional share as shall reasonably be determined by the Committee.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are officers, employees and consultants of the Company, who shall be in a
position, in the opinion of the Committee, to make contributions to the growth,
management, protection and success of the Company. Of those persons described in
the preceding sentence, the Committee may, from time to time, select persons to
be granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award,
the Committee may give consideration to the functions and responsibilities of
the person's contributions to the Company, the value of the individual's service
to the Company and such other factors deemed
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relevant by the Committee. The Committee may designate any person who is not
eligible to participate in this Plan if such person would otherwise be eligible
to participate in this Plan (and members of the Committee are expressly excluded
to the extent such persons are intended to be Disinterested Persons).
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Options under
the Plan at any time or from time to time. Stock Options may be granted alone or
in addition to other Awards and may be either Incentive Stock Options or
Non-Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price. During any three-calendar-year-period,
Options for no more than 300,000 shares of Common Stock (subject to adjustment
under Section 4.6) shall be granted to any Participant.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of
the date the Committee determines. Each Option granted under the Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Company (as such terms are defined in Section 424 of the Code)
on the date of grant shall be eligible to be granted an Option which is intended
to be and is an Incentive Stock Option. To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option. Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option
shall be fixed by the Committee; provided that no Non-Qualified Stock
Option shall be exercisable more than ten (10) years after the date the
Stock Option is granted. In the case of an Incentive Stock Option, the
Option Period shall not exceed ten (10) years from the date of grant or
five (5) years in the case of an individual who owns more than ten
percent (10%) of the voting power of all classes of stock of the
Company, a corporation which is a parent corporation of the Company or
any subsidiary of the Company (as defined in Section 424 of the Code).
No Option which is intended to be an Incentive Stock Option shall be
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granted more than ten (10) years from the date the Plan is adopted by
the Company or the date the Plan is approved by the stockholders of the
Company, whichever is earlier.
(b) Option Price. The Option Price per share of the Common
Stock purchasable under an Option shall be determined by the Committee.
If such Option is intended to qualify as an Incentive Stock Option, the
Option Price per share shall be not less than the Fair Market Value per
share on the date the Option is granted, or where granted to an
individual who owns or who is deemed to own stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock
of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section
424 of the Code), not less than one hundred ten percent (110%) of such
Fair Market Value per share.
(c) Exercisability. Subject to Section 11.1, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment
exercise provisions, in whole or in part. In addition, the Committee
may at any time accelerate the exercisability of any Stock Option. If
the Committee intends that an Option be an Incentive Stock Option, the
Committee shall, in its discretion, provide that the aggregate Fair
Market Value (determined at the Grant Date) of Incentive Stock Option
which is exercisable for the first time during the calendar year shall
not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this
Article VI, a Participant may exercise Stock Options, in whole or in
part, at any time during the Option Period by the Participant's giving
written notice of exercise on a form provided by the Committee to the
Company specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Except where waived by the Committee,
such notice shall be accompanied by payment in full of the purchase
price by cash or check or such other form of payment as the Company may
accept. If approved by the Committee (including approval at the time of
exercise), payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal to the Option
Price; (ii) by the execution and delivery of a note or other evidence
of indebtedness (and any security agreement thereunder) satisfactory to
the Committee and permitted in accordance with Section 6.3(e); (iii) by
authorizing the Company to retain shares of Common Stock which would
otherwise be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the Option Price; (iv) by
the delivery of cash or the extension of credit by a broker-dealer to
whom the Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with Part 220,
Chapter II, Title 12 of the Code of Federal Regulations, a so-called
"cashless" exercise); (v) by certifying ownership of shares of Common
Stock by the Participant to the satisfaction of the Committee for later
delivery to the Company as specified by the Committee; or (vi) by any
combination of the foregoing. If payment of the Option Price of a
Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock or Deferred Stock, the number of shares of Common
Stock to be received upon
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such exercise equal to the number of shares of Restricted Stock or
Deferred Stock used for payment of the Option Price shall be subject to
the same forfeiture restrictions or deferral limitations to which such
Restricted Stock or Deferred Stock was subject, unless otherwise
determined by the Committee. In the case of an Incentive Stock Option,
the right to make a payment in the form of already owned shares of
Common Stock of the same class as the Common Stock subject to the Stock
Option may be authorized only at the time the Stock Option is granted.
No shares of Common Stock shall be issued until full payment therefor
has been made. Subject to any forfeiture restrictions or deferral
limitations that may apply if a Stock Option is exercised using
Restricted Stock or Deferred Stock, a Participant shall have all of the
rights of a stockholder of the Company holding the Common Stock that is
subject to such Stock Option (including, if applicable, the right to
vote the shares and the right to receive dividends), when the
Participant has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's
official stockholder records as having been issued or transferred.
(e) Non-transferability of Options. Unless otherwise provided
in an Agreement or determined by the Committee, no Stock Option or
interest therein shall be transferable by the Participant other than by
will or by the laws of descent and distribution or by a designation of
beneficiary effective upon the death of the Participant, and all Stock
Options shall be exercisable during the Participant's lifetime only by
the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement,
every Option granted hereunder shall be freely transferable, but only
if such transfer does not result in liability under Section 16 of the
Exchange Act to the Participant or other Participants and is consistent
with registration of the Option and sale of Common Stock on Form S-8
(or a successor form) or the Committee's waiver of such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any vested, unexpired and unexercised Stock Options
held by such Participant shall thereafter be fully exercisable for a period of
one (1) year (or such other period or no period as the Committee may specify)
immediately following the date of such death or until the expiration of the
Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in
an Agreement or determined by the Committee, if a Participant incurs a
Termination of Employment due to a Disability, any vested, unexpired and
unexercised Stock Options held by such Participant shall thereafter be fully
exercisable by the Participant for the period of one (1) year (or such other
period or no period as the Committee may specify) immediately following the date
of such Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
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6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, any vested, unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable by the Participant for
the period of one (1) year (or such other period or no period as the Committee
may specify) immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter. Unless
otherwise provided in an Agreement or determined by the Committee, if a
Participant voluntarily incurs a Termination of Employment (other than due to
Retirement) or incurs a Termination of Employment by the Company for Cause, any
vested, unexpired and unexercised Stock Option held by such Participant shall
terminate immediately upon notice of termination by the Participant or the
Company, as the case may be. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment by the Company without Cause (other than due to death or Disability),
any vested, unexpired and unexercised Stock Options held by such Participant
shall thereafter be fully exercisable for a period of three (3) months (or such
other period or no period as the Committee may specify) immediately following
the date of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter. Unless otherwise provided in an Agreement
or determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the
exercisability of the time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option for which at least six months has elapsed since the Grant Date (provided
that such limitation shall not apply to an Option granted to a Participant who
has subsequently died) to be exercised by paying the Participant an amount, in
cash or Common Stock, equal to the excess of the Fair Market Value of the Common
Stock that is subject to the Option over the Option Price times the number of
shares of Common Stock subject to the Option on the effective date of such cash
out. Cash outs relating to Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act shall comply with the
"window period" provisions of Rule 16b-3, to the extent applicable, and, in the
case of cash outs of Non-Qualified Stock Options held by such Participants, the
Committee may determine Fair Market Value under the pricing rule set forth in
Section 2.18.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Committee shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan and the exercise of such
a Stock Appreciation Right
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shall require the cancellation of a corresponding portion of the Stock Option
(and the exercise of a Stock Option shall result in a corresponding cancellation
of the Stock Appreciation Right). In the case of a Non-Qualified Stock Option,
such rights may be granted either at or after the time of grant of such Stock
Option. In the case of an Incentive Stock Option, such rights may be granted
only at the time of grant of such Stock Option. A Stock Appreciation Right may
also be granted on a stand alone basis. The grant of a Stock Appreciation Right
shall occur as of the date the Committee determines. Each Stock Appreciation
Right granted under the Plan shall be evidenced by an Agreement, which shall
embody the terms and conditions of such Stock Appreciation Right and which shall
be subject to the terms and conditions set forth in the Plan. During any
three-calendar-year-period, Stock Appreciation Rights in respect of no more than
300,000 shares of Common Stock (subject to adjustment under Section 4.6) shall
be granted to any Participant.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation
Right shall be established by the Committee. If granted in conjunction
with a Stock Option, the Stock Appreciation Right shall have a term
which is the same as the Option Period and shall be exercisable only at
such time or times and to the extent the related Stock Options would be
exercisable in accordance with the provisions of Article VI. A Stock
Appreciation Right which is granted on a stand alone basis shall be for
such period and shall be exercisable at such times and to the extent
provided in an Agreement. Stock Appreciation Rights shall be exercised
by the Participant's giving written notice of exercise on a form
provided by the Committee (if available) to the Company specifying the
portion of the Stock Appreciation Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair
Market Value per share of Common Stock over the Option Price per share
of Common Stock specified in the related Agreement multiplied by the
number of shares in respect of which the Stock Appreciation Right is
exercised. In the case of a Stock Appreciation Right granted on a stand
alone basis, the Agreement shall specify the value to be used in lieu
of the Option Price per share of Common Stock. The aggregate Fair
Market Value per share of the Common Stock shall be determined as of
the date of exercise of such Stock Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights
relating to Stock Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act:
(i) The Committee may require that such Stock
Appreciation Rights be exercised only in accordance with the
applicable "window period" provisions of Rule 16b-3;
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(ii) The Committee may provide that the amount to be
paid upon exercise of such Stock Appreciation Rights (other
than those relating to Incentive Stock Options) during a Rule
16b-3 "window period" shall be based on the highest mean sales
price of the Common Stock on the principal exchange on which
the Common Stock is traded, NASDAQ or other relevant market
for determining value on any day during such "window period";
and
(iii) no Stock Appreciation Right shall be
exercisable during the first six months of its term, except
that this limitation shall not apply in the event of death or
Disability of the Participant prior to the expiration of the
six-month period.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under the Plan unless
otherwise provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at
such time as a Stock Option would terminate under the Plan, unless
otherwise provided in an Agreement.
(f) Effect on Shares Under the Plan. To the extent required by
Rule 16b-3, upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 4.2 on the number of shares of Common
Stock to be issued under the Plan, but only to the extent of the number
of shares of Common Stock covered by the Stock Appreciation Right at
the time of exercise based on the value of the Stock Appreciation Right
at such time.
(g) Incentive Stock Option. A Stock Appreciation Right granted
in tandem with an Incentive Stock Option shall not be exercisable
unless the Fair Market Value of the Common Stock on the date of
exercise exceeds the Option Price. In no event shall any amount paid
pursuant to the Stock Appreciation Right exceed the difference between
the Fair Market Value on the date of exercise and the Option Price.
ARTICLE VIII.
RESTRICTED STOCK
8.1 General. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
of Restricted Shares to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement.
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The Committee may condition the grant of Restricted Stock upon the attainment of
specified performance goals by the Participant or by the Company or an Affiliate
(including a division or department of the Company or an Affiliate) for or
within which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock
Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall be issued a certificate
in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Award as
determined by the Committee. The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions
of the Plan and the Agreement, during a period set by the Committee,
commencing with the date of such Award (the "Restriction Period"), the
Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber any interest in shares of Restricted Stock.
(b) Rights. Except as provided in Section 8.3(a), the
Participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company holding the class of
Common Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any
cash dividends. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on Common Stock that are the
subject of the Restricted Stock shall be automatically deferred and
reinvested in additional Restricted Stock, and dividends on Common
Stock that are the subject of the Restricted Stock shall be paid in the
form of Restricted Stock of Common Stock on which such dividend was
paid.
(c) Criteria. Based on service, performance by the Participant
or by the Company or the Affiliate, including any division or
department for which the Participant is employed or such other factors
or criteria as the Committee may determine, the Committee may provide
for the lapse of restrictions in installments and may accelerate the
vesting of all or any part of any Award and waive the restrictions for
all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability,
the restrictions shall lapse and the Participant shall be fully vested
in the Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
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Employment for any reason during the Restriction Period other than
death or Disability, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant, except the Committee
shall have the discretion to waive in whole or in part any or all
remaining restrictions with respect to any or all of such Participant's
shares of Restricted Stock.
(e) Delivery. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, unlegended certificates for such shares shall be
delivered to the Participant.
(f) Election. A Participant may elect to further defer receipt
of the Restricted Stock for a specified period or until a specified
event, subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made one (1) year prior
to completion of the Restriction Period.
ARTICLE IX.
DEFERRED STOCK
9.1 General. The Committee shall have authority to grant Deferred Stock
under the Plan at any time or from time to time. Shares of Deferred Stock may be
awarded either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions
of the Plan and except as provided in an Agreement, Deferred Stock
Awards, or any interest therein, may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or Elective Deferral
Period as defined in Section 9.2(e), where applicable), the Committee
may elect to deliver Common Stock, cash equal to the Fair Market Value
of such Common Stock or a combination of cash and Common Stock, to the
Participant for the shares covered by the Deferred Stock Award.
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(b) Rights. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on the Common Stock that is the
subject of the Deferred Stock Award shall be automatically deferred and
reinvested in additional Deferred Stock, and dividends on the Common
Stock that is the subject of the Deferred Stock Award payable in Common
Stock shall be paid in the form of Deferred Stock of Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant
or by the Company or the Affiliate, including any division or
department for which the Participant is employed or such other factors
or criteria as the Committee may determine, the Committee may provide
for the lapse of deferral limitations in installments and may
accelerate the vesting of all or any part of any Award and waive the
deferral limitations for all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in
the Deferred Stock. Unless otherwise provided in an Agreement or
determined by the Committee, upon a Participant's Termination of
Employment for any reason during the Deferral Period other than death
or Disability, the rights to the shares still covered by the Award
shall be forfeited by the Participant, except the Committee shall have
the discretion to waive in whole or in part any or all remaining
deferral limitations with respect to any or all of such Participant's
Deferred Stock.
(e) Election. A Participant may elect to further defer receipt
of the Deferred Stock payable under an Award (or an installment of an
Award) for a specified period or until a specified event, subject in
each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made at one (1) year prior to
completion of the Deferral Period for the Award.
ARTICLE X.
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
10.1 Transfer of Shares. A Participant may at any time make a transfer
of shares of Common Stock received pursuant to the exercise of an Award to his
parents, spouse or descendants or to any trust for the benefit of the foregoing
or to a custodian under a uniform gifts to minors act or similar statute for the
benefit of any of the Participant's descendants. Any transfer of shares received
pursuant to the exercise of an Award shall not be permitted or valid unless and
until the transferee agrees to be bound by the provisions of the Plan, and any
provision respecting Common Stock under the Agreement, provided that
"Termination of Employment" shall continue to refer to the Termination of
Employment of the Participant.
10.2 Limited Transfer During Offering. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered
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for sale in an underwritten offering, a Participant shall not, during the period
requested by the underwriters managing the registered public offering, effect
any public sale or distribution of shares received directly or indirectly
pursuant to an exercise of an Award.
10.3 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article X shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock this Article X, whereupon the assignee
of such right shall have all the rights, duties and obligations of the Company
with respect to purchase of the shares of Common Stock.
10.4 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XI.
CHANGE IN CONTROL PROVISIONS
11.1 Impact of Event. Notwithstanding any other provision of the Plan
to the contrary, in the event of a Change in Control (as defined in Section
11.2):
(a) Any Stock Appreciation Rights and Stock Options
outstanding as of the date such Change in Control and not then
exercisable shall become fully exercisable to the full extent of the
original grant;
(b) The restrictions and deferral limitations applicable to
any Restricted Stock and Deferred Stock shall lapse, and such
Restricted Stock and Deferred Stock shall become free of all
restrictions and become fully vested and transferable to the full
extent of the original grant.
11.2 Definition of Change in Control. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
(a) An acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
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fifty percent (50%) or more of the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii)
the approval by the stockholders of the Company of a reorganization,
merger, consolidation, complete liquidation or dissolution of the
Company, the sale or disposition of all or substantially all of the
assets of the Company or similar corporate transaction (in each case
referred to in this Section 11.2(a) as a "Corporate Transaction") or,
if consummation of such Corporate Transaction is subject, at the time
of such approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either explicitly
or implicitly) provided such acquisition or beneficial ownership would
result in any other Person's beneficially owning fifty percent (50%) or
more of the Outstanding Company Common Stock; excluding, however, the
following: (A) any acquisition by the Company or by an employee benefit
plan (or related trust) sponsored or maintained by the Company or an
Affiliate, (B) any acquisition by a member of the Anixter Family, or
(C) any acquisition by or consummation of a Corporate Transaction with
an Affiliate.
(b) A change in the composition of the Board such that the
individuals who, as of the date of the Initial Public Offering (the
"Public Offering"), constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, for
purposes of this Section 11.2(b), that any individual who becomes a
member of the Board subsequent to the date of the Company's Public
Offering whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of
the Incumbent Board (or deemed to be such pursuant to this provision)
shall be considered as though such individual were a member of the
Incumbent Board; but, provided, further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of
the Incumbent Board.
ARTICLE XII.
MISCELLANEOUS
12.1 Amendments and Termination. The Board may amend, alter, or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option, Stock Appreciation Right, Restricted Stock Award or
Deferred Stock Award theretofore granted without the Participant's consent,
except such an amendment (a) made to avoid an expense charge to the Company or
an Affiliate, (b) made to cause the Plan to qualify for the exemption provided
by Rule 16b-3, (c) made to prevent the Plan from being disqualified from the
exemption provided by Rule 16b-3 or (d) made to permit the Company or an
Affiliate a deduction under the Code. In addition, no such amendment shall be
made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.
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The Committee may amend the terms of the Plan or any Award theretofore
granted, prospectively or retroactively, subject to the same limitations (and
exceptions to limitations) as applied to the Board and further subject to any
approval or limitations the Board may impose.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules,
as well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding the
foregoing, if any right under the Plan would cause a transaction to be
ineligible for pooling of interest accounting that would but for the right
hereunder be eligible for such accounting treatment, the Committee may modify or
adjust the right so that pooling of interest accounting shall be available.
12.2 Unfunded Status of Plan. It is intended that the Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
12.3 General Provisions.
(a) Representation. The Committee may require each person
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the
shares without a view to the distribution thereof. The certificates for
such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee),
or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal,
state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company
or an Affiliate to obtain a current deduction. Unless otherwise
determined by the Committee, withholding obligations may be settled
with Common Stock, including Common Stock that is part of the Award
that gives rise to the withholding requirement provided that any
applicable requirements under Section 16 of the Exchange Act are
satisfied. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the
Participant. If the Participant disposes of shares of Common Stock
acquired pursuant to an Incentive Stock Option in any transaction
considered to be a
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disqualifying transaction under the Code, the Participant must give
written notice of such transfer and the Company shall have the right to
deduct any taxes required by law to be withheld from any amounts
otherwise payable to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall
only be permissible if sufficient shares of Common Stock are available
for such reinvestment (taking into account then outstanding Options and
other Awards).
(e) Representation. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) Controlling Law. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware (other than its law respecting choice
of law). The Plan shall be construed to comply with all applicable law,
and to avoid liability to the Company, an Affiliate or a Participant,
including, without limitation, liability under Section 16(b) of the
Exchange Act.
(g) Offset. Unless otherwise provided in an Agreement, any
amounts owed to the Company or an Affiliate by the Participant of
whatever nature may be offset by the Company from the value of any
shares of Common Stock, cash or other thing of value under the Plan or
an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under the Plan or an
Agreement shall be transferred unless and until all disputes between
the Company and the Participant have been fully and finally resolved
and the Participant has waived all claims to such against the Company
or an Affiliate.
(h) Right to Capitalize. The grant of an Award shall in no way
affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of
its business or assets.
12.4 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under the Plan (without the application of this Section 12.4),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
thereunder) that is subject to the excise tax imposed by Section 4999 of the
Code (or similar tax and/or assessment), the Company (or its successor or
assigns) shall increase the amounts payable hereunder to the extent necessary to
place Participant in the same after-tax position as he or she would have been in
had no such excise tax been imposed on the payments hereunder. The determination
of the amount of any such excise taxes shall initially be made by an independent
accounting firm employed by the Company. The Participant shall cooperate in good
faith with the Committee in making such determination and providing the
necessary information for this purpose. If, at a later date, it is determined
that the amount of excise taxes
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payable by Participant is greater than the amount initially so determined, then
the Company (or its successor or assigns) shall pay Participant an amount equal
to the sum of (i) such additional excise taxes, (ii) any interest, fines and
penalties resulting from such underpayment, plus (iii) an amount necessary to
reimburse Participant for any income, excise or other taxes payable by
Participant with respect to the amount specified in (i) and (ii) above, and the
reimbursement provided by this (iii).
12.5 Status of Awards Under Code Section 162(m). It is the intent of
the Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
12.6 Rights with Respect to Continuance of Employment. Nothing
contained herein shall be deemed to alter the relationship between the Company
or an Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of the Plan. There shall be no inference as to the length of
employment or service hereby, and the Company or an Affiliate reserves the same
rights to terminate the Participant's employment or service as existed prior to
the individual becoming a Participant in the Plan.
12.7 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under the Plan from time to time in substitution for
awards held by employees, directors or service providers of other corporations
who are about to become officers, directors or employees of the Company or an
Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or an Affiliate, or the acquisition by the Company
or an Affiliate of the assets of the employing corporation, or the acquisition
by the Company or Affiliate of the stock of the employing corporation, as the
result of which it becomes a designated employer under the Plan. The terms and
conditions of the Awards so granted may vary from the terms and conditions set
forth in the Plan at the time of such grant as the majority of the members of
the Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.
12.8 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
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12.9 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of the Plan.
12.10 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee shall have the discretion to suspend
the application of the provisions of the Plan required solely to comply with
Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to
the Plan.
12.11 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
12.12 Severability. If any provision of the Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and the Plan shall be construed as
if such invalid or unenforceable provision were omitted.
12.13 Successors and Assigns. The Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
12.14 No Obligation to Give Notice. No provision of the Plan shall be
deemed to create an obligation on the Company to give notice to any person or
entity of any event, except as expressly set forth in this Agreement.
12.15 No Third Party Beneficiaries. Nothing in this Agreement expressed
or implied is intended to confer any right or remedy under or by reason of this
Agreement on any person other than the parties hereto and their respective
heirs, representatives, successors and assigns, nor is anything set forth herein
intended to affect or discharge the obligation or liability of any third persons
to any party to this Agreement nor shall any provision give any third party any
right of subrogation or action over against any part to this Agreement.
-24-
<PAGE>
12.16 Entire Agreement. The Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and the Agreement, the
terms and conditions of the Agreement shall control.
-25-
<PAGE>
EXECUTED effective as of April 15, 1996.
ANICOM, INC.
__________________________________
Scott C. Anixter
Chief Executive Officer
-26-
EXHIBIT 21
Anicom, Inc.
List of Subsidiaries
As of March 14, 1997, Anicom, Inc. had the following wholly-owned subsidiaries:
1. Morgan Hill Supply Company, Inc.
2. Northern Wire & Cable, Inc.
3. Northern Connectivity Corp.
4. Anicom-Norfolk, Inc.
5. Anicom-Carolina, Inc.
6. Anicom-Louisiana, Inc.
-11-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by refrence in the registration
statement of Anicom, Inc. on Form S-3 (File No. 333-14719) and Form S-8
(File No. 333-1602) of our report, dated January 31, 1997, on our
audits of the consolidated financial statements of Anicom, Inc. as of
December 31, 1996 and 1995 and for the years ended December 31, 1996
and 1995, which report is included in the 1996 Annual Report on Form
10-KSB.
COOPERS & lYBRAND L.L.P.
Chicago, Illinois
March 20, 1997
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE YEAR ENDING DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
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<NAME> ANICOM, INC.
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