-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+gxSzzncCU6G4w158wabuyZJ92z3zrMeJCP3m6AkqY/bkBsFVbmQyqXTluXPE08 afZL9Nmajas/1vQSEO+xYw== 0000950134-98-002469.txt : 19980330 0000950134-98-002469.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950134-98-002469 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL WIRE GROUP INC CENTRAL INDEX KEY: 0000947429 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 431705942 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-93970 FILM NUMBER: 98575008 BUSINESS ADDRESS: STREET 1: 101 SOUTH HANLEY RD STREET 2: STE 1075 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147261323 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 33-93970 INTERNATIONAL WIRE GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 43-1705942 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 719-1000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. [X] YES [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. (The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing.) NO ESTABLISHED PUBLISHED PUBLIC TRADING MARKET EXISTS FOR THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ALL OF THE OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ARE HELD BY INTERNATIONAL WIRE HOLDING COMPANY. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants).
OUTSTANDING AT CLASS MARCH 25, 1998 ----- -------------- COMMON STOCK 1,000
DOCUMENTS INCORPORATED BY REFERENCE NONE ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL International Wire Group, Inc. (the "Company"), through its subsidiaries, is engaged in the design, manufacture and marketing of (i) non-insulated bare and tin-plated copper wire, (ii) insulated copper wire and (iii) wire harnesses. The Company's products are used by a wide variety of customers primarily in the appliance, computer and data communications, automotive and industrial equipment industries. - Non-insulated copper wire products (or conductors) are used to transmit digital, video or audio signals or conduct electricity and are sold to a variety of insulated wire manufacturers. - Insulated wire products (copper conductors insulated with plastic or other polymeric compounds) are incorporated in wire harnesses that control and distribute electrical current in automobiles, trucks and appliances. - Wire harnesses (assemblies of wires that are terminated with connectors, switches or other electrical devices) are sold to the major U.S. manufacturers of household appliances and utilized in refrigerators, washers, dryers, ranges and dishwashers. The principal executive offices of the Company are located at 101 South Hanley Road, Suite 400, St. Louis, Missouri 63105, and the Company's telephone number at such address is (314) 719-1000. The statements in this Annual Report on Form 10-K that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors and the other risks described in this Annual Report and the other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or that reflect the occurrence of unanticipated events. BACKGROUND The Company's insulated wire manufacturing and wire harness fabrication businesses are conducted by its Wirekraft unit, which has been in the business of manufacturing wire and cable and fabricating wire harnesses for approximately 35 years. Wire harness operations began in 1952 as Burcliff Holdings Corporation ("Burcliff"). The insulated wire activities have their roots as a division of Bristol Holding Corporation ("Bristol") and were initiated approximately 35 years ago. In 1987, Burcliff was acquired by Kirtland Indiana, Limited Partnership ("KILP"), a limited partnership organized by Kirtland Capital, a private investment firm ("Kirtland"). In 1988, Kirtland acquired Bristol and contributed Bristol's insulated wire business (known as Wirekraft Industries) into KILP. In December 1992, an investor group led by Hicks, Muse, Tate and Furst Incorporated ("Hicks Muse") acquired (the "Original Wirekraft Acquisition") KILP and renamed the operating entity Wirekraft Industries, Inc. ("Wirekraft"). In December 1993, Wirekraft purchased the wire manufacturing business of Ristance Corporation ("Ristance"), a subsidiary of Echlin, Inc. Ristance, a manufacturer of high temperature insulated copper wire, was subsequently consolidated into Wirekraft's insulated wire business. This acquisition increased Wirekraft's capacity as well as its product offering in the automotive, appliance and motor leadwire markets. In 1994, Wirekraft completed a major expansion of its wire mill in El Paso, Texas and acquired an insulating facility in Nogales, Mexico. The El Paso expansion significantly increased the copper wire fabricating capacity of Wirekraft and provided Wirekraft with a valuable presence in the Southwestern U.S. In December 1994, Wirekraft acquired (the "ECM Acquisition") Electro Componentes de Mexico, S.A. de C.V. ("ECM") and certain related assets from General Electric Company ("GE"). ECM functioned as the captive appliance wire harness operation for GE's domestic appliance business. ECM has been integrated into the wire harness operations of Wirekraft and its Mexican presence provides Wirekraft 3 significant competitive advantages. As part of the acquisition, Wirekraft entered into an eight-year supply agreement (subsequently extended through 2006) to supply substantially all of GE's U.S. wire harness requirements for major kitchen and laundry appliances. The Company's non-insulated wire manufacturing business is conducted by its Omega unit. The predecessor of Omega Wire, Inc. ("Omega") began operations in 1973, principally as a manufacturer of copper wire used in appliances and extension cords. In 1980, Omega acquired Auburn Wire Corporation, which expanded Omega's product offering to include shielding wire primarily used in computer and data communications applications. Omega expanded its shielding wire production capabilities in 1981 by establishing an additional facility in Hyannis, Massachusetts. In 1988, Omega was acquired by Thomas H. Lee Company and management. Omega's product offering was expanded further to include braided wire and textile products with the acquisition of Continental Cordage Corporation in 1989. In 1991, Omega acquired two manufacturing facilities in New York from Laribee Wire, a financially distressed competitor. The addition of these two facilities significantly increased Omega's capacity to manufacture tinplated wire as well as stranded and bunched wire products. In 1992, Omega acquired, in exchange for certain equipment and technology, a 20% interest in Changzhou Omega Wire Co., Ltd., a newly formed joint venture based in The People's Republic of China. This venture enabled Omega to participate indirectly in markets outside the U.S. In March 1995, Omega was acquired by an investor group (including management) led by Hicks Muse (the "Original Omega Acquisition"). International Wire Holding Company ("Holding"), the sole stockholder of the Company, and the Company were incorporated in Delaware in April 1995 by Hicks Muse for the purpose of combining the operations of Wirekraft and Omega (the "Wirekraft/Omega Combination"). In June 1995, through a series of acquisitions and mergers, the Company consummated the Wirekraft/Omega Combination with debt and equity financing valued at $420.6 million. On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a wholly-owned subsidiary of the Company, acquired the businesses of Hoosier Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc., a group of affiliated companies operating together under the trade name Dekko Wire Technology Group ("Dekko") for total consideration of approximately $173.2 million (the "DWT Acquisition"). Dekko was engaged in the design, manufacture and marketing of insulated and non-insulated copper wire. On February 12, 1997, the Company acquired all of the issued and outstanding common stock of Camden Wire Co., ("Camden") a wholly-owned subsidiary of Oneida LTD., for total consideration of approximately $65 million (the "Camden Acquisition"). Camden was engaged in the design, manufacture and marketing of non-insulated bare and tin-plated copper wire. PRODUCTS AND MARKETS The Company is engaged in the design, manufacture and marketing of (i) non-insulated bare and tin-plated copper wire, (ii) insulated copper wire and (iii) wire harnesses. The Company's products are used by a variety of end users, primarily in the appliance, computer and data communications, automotive and industrial equipment industries. See Note 13 of the Company's Consolidated Financial Statements for business segment information. The following is a description of the Company's primary products and markets served: Non-Insulated Wire The Company's non-insulated copper conductors are primarily used to (i) transmit digital, video and audio signals that generally control motor functions in appliances and industrial equipment, HVAC systems, safety control systems and switching equipment and (ii) conduct electricity. The Company's non-insulated wire products are sold primarily to wire insulators, who apply various insulating materials to the conductors through an extrusion process. These wire insulators, in turn, sell the insulated wire to a variety of customers, many of which are in the computer and data communications industries. Within these industries, the 2 4 Company's non-insulated wire is generally used in wire and cable products that (i) connect circuit boards inside personal computers ("PCs"), (ii) join PCs to peripheral equipment and (iii) link PCs in local area and wide area networks. The Company also manufactures non-insulated wire which is used in a variety of industrial markets including appliance, fine wire automotive, mining and mass transportation. The Company's non-insulated wire is used to transmit power and signals that generally control (i) motor functions in appliances and industrial equipment and (ii) ventilation systems, safety control systems and switching equipment. The Company manufactures a broad array of non-insulated copper conductors including the following: - Single End Wire. Single end wire is an individual wire drawn to the customer's size requirements ranging from .08 to .002 inches in diameter. Single end wire is used to transmit digital, video and audio signals or low voltage current in a variety of wire products used in motor controls, local area networks, security systems, television or telephone connections inside homes and buildings, and water sprinkler systems. Single end wire is capable of transmitting signals or electrical current only between two distinct end points (terminals) such as between an on-off switch and the starter to a motor. Single end wire is generally the least expensive form of wire to produce due to its simple configuration. - Stranded Wire. Stranded wire is comprised of a number of single end wires, twisted together in a specific geometric pattern, where each individual wire's relative position is preserved throughout the length of the strand. Like single end wire, stranded wire transmits digital, video and audio signals or low voltage current but is capable of connecting multiple terminals. This type of wire is the primary wire used in appliance and automotive wire harnesses. In addition, stranded wire is typically used in wire and cable products that (i) connect peripherals such as printers to a computer, (ii) connect the internal components of a PC, and (iii) control HVAC, security and other functions inside buildings. - Bunched Wire. Bunched wire is comprised of a number of single end wires that are twisted in a random pattern rather than a specific geometric pattern. Bunched wire is commonly used for transmission of electrical current in lighting fixture cords, extension cords and power cords for portable power hand tools. This type of wire provides improved flexibility (versus single end wire) while maintaining its ability to carry electrical currents. - Shielding Wire. Shielding wire is comprised of varying numbers of single end wire which are wound together in parallel construction around a bobbin. Shielding wire does not transmit signals or voltage but rather shields the signal traveling through the core conductor from outside interference. This type of wire is primarily used in data communication applications. - Cabled Wire and Braided Wire. Cabled wire and braided wire are combinations of single, bunched or stranded wire twisted together in various patterns and thickness. These wires transmit electrical current and are typically used in mining, mass transportation, automotive and other industrial applications. Insulated Wire The Company's insulated wire products are sold primarily to companies that assemble wire harnesses for installation in automobiles or appliances. The Company manufactures a diverse array of insulated wire products including the following: - PVC Lead Wire and Cable. PVC lead wire and cable is copper wire that has been insulated with polyvinyl chloride ("PVC"). This product is used primarily in automotive wire harnesses located behind the instrument panel or in the vehicle body that control certain functions including turn signals and air bags. - JIS Wire. JIS wire is copper wire insulated with PVC that is produced according to Japanese Industrial Standards ("JIS"). The primary difference between domestic PVC wire and JIS wire is that JIS wire is manufactured to metric dimensions and generally has thinner insulation than products manufactured according to U.S. Society of Automotive Engineers Standards. JIS wire is used primarily in automotive wire harnesses located behind the instrument panel or in the vehicle body. 3 5 - XLPE Insulated Wire. Cross-linked polyethylene ("XLPE") wire is copper wire insulated with polyethylene that is subjected to heat and steam pressure ("cross-linking") to make the wire resistant to high temperatures. This product's primary application includes use in high temperature environments such as the engine compartment of vehicles and in electric ranges. - PVC Insulated Cord. PVC insulated cord is insulated wire that is surrounded with fillers and then jacketed with PVC insulation. This product is used primarily for wall-plug applications (cord sets) in the appliance and power tool industries. - Appliance Wire. Appliance wire is copper wire primarily insulated with PVC and used in producing harnesses for a variety of appliances. The Company also manufactures high temperature wire, insulated with silicone, used primarily in electric ranges and niche applications such as resistance heaters, motor leads and lighting products. Wire Harnesses A wire harness is comprised of an assembly of wires with connectors and terminals attached to their ends that transmit electricity between two or more end points. For example, a wire harness used in a washing machine will link the washing machine's control panel with its other electrical components, such as the motor. The Company supplies wire harnesses to most of the leading domestic appliance manufacturers, including GE, Frigidaire, Whirlpool and Amana. Other Products The Company also participates in several niche businesses oriented around its expertise and marketing presence in the appliance industry, including resistance and appliance heaters. In addition, the Company produces truck trailer cable assemblies that transmit electrical current from the tractor to the trailer. INDUSTRY TRENDS In recent years several key trends and events developed within the automotive and appliance industries which caused the Company to develop and execute new business strategies to maintain customer volume levels and meet competitive pressures. The trends and events included the implementation of the North American Free Trade Agreement ("NAFTA"), geographic relocation of production facilities and changes in customers' ordering patterns to match just-in-time inventory management practices. With NAFTA and competitive pressures, the automotive and appliance industry accelerated the shifting of production of wire harness assemblies to lower cost Mexican operations. In order to address the market's demands, the Company purchased ECM in December 1994 and began moving production from the Midwest to the Southwest and Mexico to retain its long-standing relationship with certain major customers and to achieve cost efficiencies. As the Company increased the transition of wire harness production to Mexican facilities it began closing several domestic wire harness facilities in fiscal 1995. At the time of the acquisition of KILP in 1992, the automotive marketplace accepted KILP's manufacturing philosophy and approach to customer service. KILP's manufacturing philosophy was geared toward meeting long lead-time orders for large quantities of certain types of automotive insulated wire. However, due to overall economic trends and changes within the automotive industry, KILP's customer base began to decrease the number and frequency of long lead-time orders and increased the number and frequency of short lead-time orders for small quantities of insulated wire. This allowed customers the ability to further reduce their on-hand inventories and led to more demanding customer service expectations and a change in KILP's production philosophy to fill the small orders and meet stringent delivery schedules. As a result, KILP's operating costs increased, because shorter production runs created more downtime, an increased number of setups and higher scrap rates. This shift was a significant factor in the Company's decision to acquire Dekko, which utilized product line focused facilities which were geared for shorter production runs and had a history of superior customer service and on-time delivery operating on that basis. In addition, several of these facilities were strategically located near the Southwest and Mexico. As the Company began 4 6 integrating facilities purchased in the DWT Acquisition, it began closing several insulated wire facilities in fiscal 1996 and relocating production capacity. MARKETING AND DISTRIBUTION The Company sells its products through a combination of direct (Company-employed) sales people, manufacturer's representatives and distributors. The Company's sales organization is supported by an internal marketing staff and customer service groups. Collectively, these departments act as a bridge between the Company's customers and its production and engineering staff. The Company's engineers work directly with customers in designing the wire or wire harness products to the customer's exact specifications. In addition, engineers work closely with the Company's production managers, quality supervisors and customer service representatives to ensure the timely delivery of quality products. KEY CUSTOMERS The Company sells its products primarily to major appliance manufacturers, automotive wire harness manufacturers and copper wire insulators who then sell to a diverse array of end users. A substantial percentage of the Company's total sales are to GE. Sales to GE accounted for approximately 14%, 18% and 19% of the Company's total sales in 1997, 1996 and 1995, respectively. In connection with the ECM Acquisition, the Company entered into a supply agreement with GE, which expires December 31, 2006 pursuant to which the Company supplies substantially all of GE's U.S. wire harness requirements for major kitchen and laundry appliances. RAW MATERIALS The principal raw material used by the Company is copper, which is purchased in the form of 5/16 inch rod from the major copper producers in North America. Copper rod prices are based on market prices, which are generally established by reference to the New York Mercantile Exchange, Inc. ("COMEX") prices, plus a premium charged to convert copper cathode to copper rod and deliver it to the required location. As a world traded commodity, copper prices have historically been subject to fluctuations. However, the Company generally passes the copper cost through to its customers. Management has no reason to believe that this practice will change. Other major raw materials consumed by the Company include PVC resin, plasticizer, XLPE compound, and a wide variety of electro-mechanical components. The Company enters into long term supply agreements on a wide variety of materials consumed. Supplies on all critical materials are currently adequate to meet market needs. MANUFACTURING The Company is committed to the highest quality standards for its products, a standard maintained in part by continuous improvements to its production processes and upgrades and investments to its manufacturing equipment. The Company's equipment can be adapted to satisfy the changing needs of its customers. The Company maintains advanced quality assurance and testing equipment to ensure the products it manufactures will consistently meet customer quality requirements. The following is a description of the Company's manufacturing facilities and processes for its major product lines. Non-Insulated Wire. As of December 31, 1997, the Company had ten facilities dedicated to the production and distribution of non-insulated wire. Five of these facilities are located in New York, two are located in Arkansas, one facility is located in Indiana, one facility is located in Texas and one facility is located in California. The manufacturing of non-insulated wire consists of three processes: wire drawing, plating and bunching and stranding. - Wire Drawing Process. Wire drawing involves a multi-step process in which 5/16 inch copper rod is drawn through a series of dies of decreasing diameters. 5 7 - Plating Process. After being drawn, the Company's wire products may be plated through an electro-plating process. The Company has the capability to plate copper wire with tin and other metals. Approximately 30% of the Company's non-insulated wire products are plated with tin. The plating process prevents the bare copper from oxidizing and also allows the wire to be soldered, which is an important quality in many electrical applications. - Bunching and Stranding Process. Bunching and stranding is the process of twisting together single strand wires to form a construction ranging from seven to over 200 strands. If the wire is bunched, the individual strands of wire are twisted together in a random pattern. Bunched wire is typically used in power cords for lights and appliances. Stranded wire is composed of a number of single end wires twisted together in a specific geometric pattern where each strand's relative position is maintained throughout the length of the wire. Stranded wire is typically used in security systems, audio systems and intercom systems. Insulated Wire. As of December 31, 1997, the Company had sixteen manufacturing and distribution facilities used to produce and distribute insulated wire. Seven of these facilities are located in Indiana, five are located in Texas, two are located in Alabama, one is located in Mexico and one is located in the Philippines. The production of insulated wire starts with non-insulated wire (primarily manufactured internally) and involves the following two processes: - Compounding Process. The Company produces PVC, polyethylene, rubber and silicone insulation formulations from basic components utilizing its own computerized mixing and blending systems and utilizes purchased compounds. The Company is capable of producing polymeric insulation compounds that meet specific customer requirements. - Extrusion Process. The Company insulates wire products with a polymeric insulating compound through an extrusion process. Extrusion involves the feeding, melting and pumping of insulating compounds through a die to shape it into its final form on the wire. In order to enhance the insulation properties of certain products, certain polymeric compounds can be cross-linked chemically after the extrusion process. The Company has extensive chemical cross-linking capabilities. Wire Harnesses. As of December 31, 1997, the Company had two wire harness manufacturing facilities in the U.S., one in Ohio and one in Indiana, two manufacturing facilities located in Mexico and a distribution facility in Texas. The manufacturing of wire harnesses involves the following four-step process: - Cutting and Stripping. Insulated copper wire, obtained primarily from internal sources, is fed through cutting machines that are programmed to cut wire to a certain length, strip the end of the wire and attach terminals or connectors. - Splicing and Connecting. In the second process, the lengths of wire are spliced or joined together and additional connectors and/or terminals are attached. Splicing, like cutting and stripping, lends itself to automation. - Harness Assembly. Once these two preparatory stages have been completed, the cut and spliced wires are brought to the assembly area. Assembly boards are used to guide each employee on the assembly line in the placement of designated wires. - Quality Control. After assembly, each harness is tested for continuity and analyzed by a trained inspector. Every assembly board is equipped with 100% continuity testers that are designed into the assembly board. These testers will pinpoint any defective circuits for repair or rework. COMPETITION As a result of the diversity of the Company's product lines, the Company believes that no single competitor competes with the Company across the entire spectrum of the Company's product lines. However, in each of the Company's business segments, the Company experiences competition from at least one major competitor. The Company competes primarily on the basis of quality, reliability, price, reputation, customer service and delivery time. The Company believes it maintains a leading market share position in the non- 6 8 captive (defined as third party purchases from independent suppliers) U.S. market for each of its business segments. BACKLOG Due to the manner in which it processes its orders, the Company has no significant order backlog. The Company follows the industry practice of producing its products on an ongoing basis to meet customer demand without significant delay. Management believes the ability to supply orders in a timely fashion is a competitive factor in its market, and therefore, attempts to minimize order backlog to the extent practicable. PATENTS AND TRADEMARKS The Company has seven patents, nine registered trademarks and three trademark applications. The Company does not believe that its competitive position is dependent on patent protection or that its operations are dependent on any individual patent or trademark or group of related patents or trademarks. EMPLOYEES As of December 31, 1997, the Company employed approximately 7,200 full time employees, of which approximately 4,400 were located in Mexico and approximately 90 (all located at the Company's plant in Rolling Prairie, Indiana) were represented by a labor union. The Company's collective bargaining agreement with the union expires on March 12, 2000. The Company believes that it has a good relationship with its employees. ENVIRONMENTAL MATTERS The Company is subject to a number of federal, state, local and foreign environmental laws and regulations relating to the storage, handling, use, emission, discharge, release or disposal of materials into the environment and the investigation and remediation of contamination associated with such materials. These laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, the Water Pollution Control Act, the Clean Air Act and the Resource Conservation and Recovery Act, the regulations promulgated thereunder, and any state analogs. The Company's operations also are governed by laws and regulations relating to employee health and safety. The Company believes that it is in material compliance with such applicable laws and regulations and that its existing environmental controls are adequate. Further, the Company has no current plans for substantial capital expenditures in this area. As is the case with most manufacturers, the Company could incur costs relating to environmental compliance, including remediation costs related to historical hazardous materials handling and disposal practices at certain facilities, although it does not believe that such costs would materially and adversely affect the Company. In the past the Company has undertaken remedial activities to address on-site soil contamination caused by historic operations. None of these activities have resulted in any material liability. Currently, the Company is involved with environmental monitoring activities at its Camden, New York and Jordan, New York facilities. The Company currently does not anticipate that compliance with environmental laws or regulations or the costs to remediate the sites discussed above will have material adverse effect on the Company's operations, financial condition or competitive position. As mentioned above, however, the risk of environmental liability and remediation costs is inherent in the nature of the Company's business and, therefore, there can be no assurances that material environmental costs, including remediation costs, will not arise in the future. In addition, it is possible that future developments (e.g., new regulations or stricter regulatory requirements) could result in the Company incurring material costs to comply with applicable environmental laws and regulations. 7 9 ITEM 2. PROPERTIES The Company uses owned or leased properties as manufacturing facilities, warehouses and offices throughout the United States, Mexico and the Philippines. The Company's principal executive offices are located in St. Louis, Missouri. The Company considers its plants and equipment to be modern and well maintained and providing adequate production capacity to meet expected demand for its products. Substantially all of the Company's owned properties are pledged to secure the Company's indebtedness under the Company's Amended and Restated Credit Agreement dated as of February 12, 1997, with the Chase Manhattan Bank, Bankers Trust Company and the other lenders party thereto, as amended (the "Amended and Restated Credit Agreement"). Listed below are the principal manufacturing and distribution facilities operated by the Company as of December 31, 1997:
LOCATION SQUARE FEET OWNED/LEASED PRIMARY PRODUCTS/END USE -------- ----------- ------------ ------------------------ NON-INSULATED WIRE Camden, NY..................... 450,000 Owned Single End, Bunched, Stranded, Cabled and Electroplated Wire Williamstown, NY............... 210,000 Owned Single End, Bunched, Stranded and Cabled Wire Bremen, IN..................... 175,000 Owned Bunched Wire Camden, NY..................... 150,000 Leased Single End, Bunched, Stranded and Cabled Wire Pine Bluff, AR................. 130,000 Owned Single End, Bunched, Stranded and Cabled Wire Jordan, NY..................... 120,000 Leased Single End, Bunched, Stranded, Shielding and Cabled Wire Cazenovia, NY.................. 60,000 Owned Braided Wire El Paso, TX.................... 57,000 Owned Bunched Wire Pine Bluff, AR................. 40,000 Owned Shielding, Fine Pigtail and Braided Wire Cerritos, CA................... 19,000 Leased Distribution INSULATED WIRE Rolling Prairie, IN............ 200,000 Owned Automotive and Appliance Cebu, Philippines.............. 135,000 Owned Automotive Avilla, IN..................... 119,000 Owned Appliance Elkmont, AL.................... 118,000 Owned Automotive El Paso, TX.................... 101,000 Leased Automotive El Paso, TX.................... 90,000 Owned Automotive Corunna, IN.................... 72,000 Owned Appliance Kendallville, IN............... 61,000 Leased Appliance and Automotive Kendallville, IN............... 60,000 Owned Appliance and Automotive El Paso, TX.................... 60,000 Owned Automotive El Paso, TX.................... 50,000 Leased Distribution Ardmore, AL.................... 45,000 Owned Automotive Nogales, Mexico................ 42,000 Leased Automotive Albion, IN..................... 39,000 Owned Appliance and Automotive Corunna, IN.................... 32,000 Owned Appliance El Paso, TX.................... 28,000 Leased Automotive WIRE HARNESSES Juarez, Mexico................. 120,000 Leased Appliance Chihuahua, Mexico.............. 100,000 Owned Appliance Bucyrus, OH.................... 47,000 Leased Truck Trailers, Farm Machinery and Appliance El Paso, TX.................... 38,000 Leased Distribution Mishawaka, IN.................. 29,000 Owned Appliance, HVAC and Lawn and Garden
8 10 The leases on the Company's Camden, New York and Jordan, New York facilities have remaining terms of approximately 14 years. During 1997, the Company purchased the notes that were collateralized by the Camden and Jordan properties from an unrelated creditor. The Company negotiated a payment schedule with the lessor which allows the lessor to retain title to the property until the termination of the lease at which time, the Company will have the option to purchase the properties for a nominal purchase price. The lease on the Company's Juarez, Mexico facility has a remaining term of approximately five years. The leases on the Company's Bucyrus, Ohio, Nogales, Mexico and Cerritos, California facilities have remaining terms of approximately two years. The leases on the Company's Kendallville, Indiana and three insulated wire facilities in El Paso, Texas have remaining terms of approximately one year. The Company's wire harness facility in El Paso, Texas has a remaining term of approximately one year with an option to renew for two additional 3-year terms. Additionally, in February 1998, the Company entered into a lease agreement for a 91,000 square foot production facility in Chihuahua, Mexico. The Company expects to begin production at this facility in March 1998. The lease has a term of 10 years. The Company believes its facilities are suitable for their present and intended purposes and adequate for the Company's current level of operations. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature incidental to the operations of the Company. The Company was served with notice of an action styled Whirlpool Corporation v. Wirekraft Industries, Inc. (Case No. 97-2039-CK-T), initiated in the Second Judicial Circuit of the State of Michigan, Berrien County Trial Court, Civil Division, on August 8, 1997. The action relates to a product liability claim related to certain wire harness products supplied to Whirlpool by one of the Company's predecessors during 1991 and 1992. The complaint filed with respect to such lawsuit does not specify an amount of damages. The Company is investigating the merits of the claim as well as the Company's rights of indemnification from involved third-party suppliers and the Company's related insurance coverage. In the opinion of the Company's management, all such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the Company's results of operations, financial condition or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the fourth quarter of 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the Company's outstanding common stock is held by Holding and there is no established public trading market for such. The Company has paid no dividends to common stockholders since inception and does not have any present intention to commence payment of any cash dividends. The Company intends to retain earnings to provide funds for operation and expansion of the Company's business and to repay outstanding indebtedness. The Company's ability to pay such dividends is limited by the terms of its Amended and Restated Credit Agreement and the Indentures relating to its 11 3/4% Senior Subordinated Notes due 2005, its 14% Senior Subordinated Notes due 2005 and its 11 3/4% Series B Senior Subordinated Notes due 2005 (collectively, the "Senior Subordinated Notes"). 9 11 ITEM 6. SELECTED FINANCIAL DATA THE COMPANY The selected financial data below presents the financial information for the seven months ended December 31, 1995 and for the years ended December 31, 1996 and December 31, 1997, as derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with the consolidated financial statements of the Company and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein.
SEVEN MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996 1997 ------------ ------------ ------------ (IN THOUSANDS) RESULTS OF OPERATIONS: Net sales............................................ $ 245,583 $ 546,981 $695,148 Cost of goods sold................................... 195,221 420,823 530,310 Selling, general and administrative expenses......... 17,129 43,885 56,703 Depreciation and amortization........................ 11,020 31,341 36,026 Impairment, unusual and plant closing charges(1)..... 1,750 84,250 2,000 Inventory valuation adjustment(2).................... -- 8,500 8,500 --------- --------- -------- Operating income (loss).............................. 20,463 (41,818) 61,609 Interest expense..................................... (19,931) (43,013) (50,939) Amortization of deferred financing costs............. (1,468) (3,701) (3,932) Other (expense) income............................... (158) 312 (103) --------- --------- -------- Income (loss) before income tax provision and extraordinary item................................ (1,094) (88,220) 6,635 Income tax provision................................. 2,197 1,262 2,654 --------- --------- -------- Income (loss) before extraordinary item.............. (3,291) (89,482) 3,981 Extraordinary item(3)................................ -- -- (2,991) --------- --------- -------- Net income (loss)............................ $ (3,291) $ (89,482) $ 990 ========= ========= ======== OTHER DATA: EBITDA, as adjusted(4)............................... $ 33,233 $ 82,273 $108,135 Capital expenditures................................. $ 5,751 $ 15,849 $ 27,760 Total assets......................................... $ 427,920 $ 531,020 $628,048 Long-term obligations (including current maturities)....................................... $ 338,677 $ 447,667 $523,795 CASH FLOW DATA: Net cash from (used in) operating activities......... $ 13,334 $ 31,980 $ 33,998 Net cash from (used in) investing activities......... $(346,797) $(176,108) $(86,756) Net cash from (used in) financing activities......... $ 333,463 $ 144,128 $ 52,758
- --------------- (1) Represents charges relating to plant closings in the amounts of $1,750, $6,000 and $2,000 in the seven months ended December 31, 1995, the year ended December 31, 1996 and the year ended December 31, 1997, respectively. In addition, included in the year ended December 31, 1996 are charges to write-off goodwill principally related to the acquisition of Wirekraft in the amount of $78,250. See Note 10 to the Company's consolidated financial statements. (2) Represents a pre-tax inventory valuation charge to reduce the last in, first out ("LIFO") valuation of copper in inventory as a result of the decline in the average price of copper during 1996 and 1997. See Note 4 to the Company's consolidated financial statements. (3) The extraordinary item in the year ended December 31, 1997 represents a $2,991 loss on the early extinguishment of debt (net of income taxes of $1,995). (4) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude depreciation, amortization of intangible assets, impairment, unusual and plant closing charges and other one-time charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the Indentures relating to its Senior Subordinated Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, 10 12 does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." WIREKRAFT (PREDECESSOR COMPANY) The selected financial data presented below presents the financial information of Wirekraft for the periods indicated. The data for the period December 22, 1992 through November 30, 1993, the year ended November 30, 1994 and the six months ended May 31, 1995 are derived from the audited consolidated financial statements of Wirekraft. In connection with the ECM Acquisition, WB Holdings Inc. became a wholly owned subsidiary of Wirekraft, and, accordingly, references to Wirekraft shall include WB Holdings Inc. The following information should be read in conjunction with the audited consolidated financial statements of Wirekraft and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein.
DECEMBER 22, 1992 THROUGH YEAR ENDED SIX MONTHS NOVEMBER 30, NOVEMBER 30, ENDED MAY 31, 1993(1) 1994 1995 ------------ ------------ ------------- (IN THOUSANDS) RESULTS OF OPERATIONS: Net sales................................. $ 181,188 $240,972 $168,053 Cost of goods sold........................ 150,092 201,602 138,851 Selling, general and administrative expenses............................... 10,582 14,319 13,301 Depreciation and amortization............. 4,496 6,435 6,474 Compensation expense...................... -- -- 895(2) Expenses related to sale.................. -- -- 501(3) Expenses related to plant closings........ -- -- 2,000(4) --------- -------- -------- Operating income.......................... 16,018 18,616 6,031 Interest expense.......................... (8,645) (10,565) (8,020) Amortization of deferred financing costs.................................. (1,677) (1,995) (1,657) --------- -------- -------- Income (loss) before income taxes and extraordinary item..................... 5,696 6,056 (3,646) Income tax provision (benefit)............ 3,155 3,023 (2,114) --------- -------- -------- Income (loss) before extraordinary item... 2,541 3,033 (1,532) Extraordinary item........................ -- -- (7,835)(5) --------- -------- -------- Net income (loss)................. $ 2,541 $ 3,033 $ (9,367) ========= ======== ======== OTHER DATA: EBITDA, as adjusted(6).................... $ 20,514 $ 25,051 $ 15,901 Capital expenditures...................... $ 3,705 $ 6,248 $ 2,914 Total assets.............................. $ 146,671 $178,488 $241,277 Long-term obligations (including current maturities)............................ $ 93,123 $111,639 $148,386 CASH FLOW DATA: Net cash from (used in) operating activities............................. $ 8,620 $ 2,318 $ (3,921) Net cash from (used in) investing activities............................. $(115,026) $(18,002) $(47,887) Net cash from (used in) financing activities............................. $ 106,646 $ 17,497 $ 51,663
- --------------- (1) On December 21, 1992, WB Holdings Inc., through the Original Wirekraft Acquisition, acquired all of the issued and outstanding common stock of Bristol and Burcliff. 11 13 (2) Represents payments to senior management of Wirekraft for the redemption of employee stock options in connection with the Wirekraft/Omega Combination. (3) Represents non-recurring expenses of Wirekraft associated with the Wirekraft/Omega Combination, which included, among other things, brokerage and legal fees. (4) Represents expenses related to the closing of certain domestic wire harness facilities. (5) The extraordinary item in the six months ended May 31, 1995 represents a $7,835 loss on early extinguishment of debt (net of income tax of $4,930). (6) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude depreciation, amortization of intangible assets, impairment, unusual and plant closing charges and other one-time charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the Indentures relating to its Senior Subordinated Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. An adjustment was made to EBITDA for the year ended November 30, 1993 in the amount of $1,455. This adjustment represents charges to operations incurred by KILP but not assumed by the Company. 12 14 OMEGA (PREDECESSOR COMPANY) The selected financial data below presents the financial information of Omega and its predecessor, THL-Omega Holding Corporation ("THL-Omega") for the periods indicated. The data for the years ended December 31, 1993 and 1994 and the three months ended March 31, 1995 are derived from the audited consolidated financial statements of THL-Omega. The data for the two months ended May 31, 1995, are derived from the audited consolidated financial statements of Omega. The following information should be read in conjunction with the audited consolidated financial statements of THL-Omega and Omega and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein.
THL-OMEGA OMEGA ------------------------------------- --------- THREE TWO MONTHS MONTHS YEAR-ENDED DECEMBER 31, ENDED ENDED ------------------------ MARCH 31, MAY 31, 1993 1994 1995 1995(1) --------- --------- --------- --------- (IN THOUSANDS) RESULTS OF OPERATIONS: Net sales.............................. $107,004 $134,457 $38,736 $ 23,295 Cost of goods sold..................... 80,276 98,012 29,401 17,512 Selling, general and administrative expenses............................ 12,061 10,839 2,651 1,639 Depreciation and amortization.......... 5,191 5,761 1,459 1,233 Compensation expense................... -- -- 9,715(2) -- Expenses related to sale............... -- -- 1,689(3) -- -------- -------- ------- --------- Operating income (loss)................ 9,476(4) 19,845 (6,179) 2,911 Interest expense....................... (6,026) (5,932) (1,478) (1,797) Amortization of deferred financing costs............................... (289) (262) (50) (238) Other income........................... 772 296 32 -- -------- -------- ------- --------- Income (loss) before income taxes and extraordinary item.................. 3,933 13,947 (7,675) 876 Income tax provision................... 1,892 5,787 484 171 -------- -------- ------- --------- Income (loss) before extraordinary item................................ 2,041 8,160 (8,159) 705 Extraordinary item..................... -- -- (1,148)(5) (4,044)(6) -------- -------- ------- --------- Net income (loss).............. $ 2,041 $ 8,160 $(9,307) $ (3,339) ======== ======== ======= ========= OTHER DATA: EBITDA, as adjusted(7)................. $ 14,667(4) $ 25,606 $ 6,684 $ 4,144 Capital expenditures................... $ 3,683 $ 8,667 $ 1,597 $ 581 Total assets........................... $ 85,868 $101,675 $97,657 $ 176,659 Long-term obligations (including current maturities)................. $ 58,174 $ 56,093 $54,615 $ 128,116 CASH FLOW DATA: Net cash from (used in) operating activities.......................... $ 10,070 $ 11,064 $ 3,604 $ 4,987 Net cash from (used in) investing activities.......................... $ (3,683) $ (8,667) $(1,597) $(159,661) Net cash from (used in) financing activities.......................... $ (6,380) $ (2,081) $(1,536) $ 154,674
- --------------- (1) On March 31, 1995, Omega, through the Original Omega Acquisition, acquired all of the issued and outstanding common stock of THL-Omega. (2) Represents payments to senior management for the redemption of stock options and stock that was issued immediately prior to the Original Omega Acquisition for consideration less than the fair value. 13 15 (3) Represents expenses of the sellers associated with the Original Omega Acquisition. (4) During 1993 a charge of approximately $3,100 was recorded related to certain one-time bad debt write-offs. Excluding the effects of this charge, operating income and EBITDA, as adjusted, would have been $12,576 and $17,767, respectively. (5) The extraordinary item in the three months ended March 31, 1995 represents a $1,148 loss on early extinguishment of debt (net of income taxes of $765). (6) The extraordinary item in the two months ended May 31, 1995 represents a $4,044 loss on early extinguishment of debt (net of income taxes of $2,082). (7) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude depreciation, amortization of intangible assets, impairment, unusual and plant closing charges and other one-time charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the Indentures relating to its Senior Subordinated Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS To facilitate a meaningful comparison, the following discussion and analysis includes combined results of operations of the Company, Wirekraft, Omega and ECM for periods prior to the Wirekraft/Omega Combination. These combined results of operations have not been prepared in accordance with GAAP, which does not allow for the aggregation of financial data for entities that are not under common ownership. Nevertheless, management believes that the aggregate financial information shown below for the periods prior to the Wirekraft/Omega Combination is helpful in understanding the past operations of the companies combined in the Wirekraft/Omega Combination. The Company in June 1995, through a series of mergers and acquisitions, consummated the Wirekraft/Omega Combination. As a result of certain transactions, including the Wirekraft/Omega Combination, the Original Omega Acquisition and the ECM Acquisition, the Company incurred substantial indebtedness and recorded significant amounts of goodwill, which resulted in interest and amortization expenses for the Company substantially greater than the interest and amortization expenses incurred by the Company's predecessors. Additionally, the accounting bases for the Company's predecessors differ from the accounting bases of the Company. Therefore, the results of operations data for the Company's predecessors are not directly comparable to the results of operations data for the Company, and the Company cautions investors against placing undue reliance on the comparative information contained herein. The Company conducts its operations through two segments: (i) wire products, which includes both non-insulated and insulated wire, and (ii) wire harness products. The table below sets forth the major components of the results of operations on a historical combined basis for the five months ended May 31, 1995 and on a historical basis for the seven months ended December 31, 1995, the year ended December 31, 1996 and the year ended December 31, 1997 and should be used in reviewing the discussion and analysis of results of operations and liquidity and capital resources. Included in fiscal year 1995, and referred to as "Historical Combined Fiscal Year Ended December 31, 1995," is the five month period ended May 31, 1995 of Wirekraft, the three month period ended March 31, 1995 of THL-Omega, the two month period ended May 31, 1995 of Omega (collectively referred to as "Historical Combined Five Months Ended May 31, 1995") and the seven month period ended December 31, 14 16 1995 of the Company. The results of operations of Dekko and Camden are not included in the Historical Combined Fiscal Year Ended December 31, 1995. Included in the year ended December 31, 1996 is the year ended December 31, 1996 of the Company, which includes the results of operations of Wire Technologies from March 5, 1996, the date of the DWT Acquisition. The results of operations of Camden are not included in the year ended December 31, 1996. Included in the year ended December 31, 1997 is the year ended December 31, 1997 of the Company, which includes the results of operations of Camden from February 12, 1997, the date of the Camden Acquisition. RESULTS OF OPERATIONS
PREDECESSORS THE COMPANY ------------ ------------------------------------------ FIVE MONTHS SEVEN MONTHS ENDED ENDED YEAR ENDED YEAR ENDED MAY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 ------------ ------------ ------------ ------------ (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Wire sales..................... $131,831 $161,741 $385,627 $529,718 Wire harness sales............. 77,279 83,842 161,354 165,430 -------- -------- -------- -------- Net sales.............. 209,110 245,583 546,981 695,148 Cost of goods sold............. 167,456 195,221 420,823 530,310 Selling, general and administrative expenses..... 15,714 17,129 43,885 56,703 Depreciation and amortization................ 8,313 11,020 31,341 36,026 Impairment, unusual and plant closing charges............. 2,000 1,750 84,250 2,000 Inventory valuation adjustment.................. -- -- 8,500 8,500 Compensation expense........... 10,610 -- -- -- Expenses related to sale....... 2,190 -- -- -- -------- -------- -------- -------- Operating income (loss)............... $ 2,827 $ 20,463 $(41,818) $ 61,609 ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net sales for the year ended December 31, 1997 were $695.1 million, representing a $148.2 million, or 27.1%, increase over the year ended December 31, 1996. This increase occurred substantially within the wire segment, where sales increased $144.1 million, or 37.4%, over the year ended December 31, 1996. This increase was primarily the result of the Camden Acquisition which contributed $119.3 million to the sales of the Company and growth in most non-insulated markets served by the Company, including computer and electronics and industrial. These increases were partially offset by reduced demand for automotive lead wire and a decline in copper prices. In general, the Company prices its products based upon a spread over the cost of copper, which results in a decreased dollar value of sales when copper prices decrease. The average price of copper based upon the New York Mercantile Exchange, Inc. ("COMEX") declined to $1.03 per pound over the year ended December 31, 1997 from $1.06 per pound during the year ended December 31, 1996. Within the wire harness segment, sales were $165.4 million for the year ended December 31, 1997, representing a 2.5% increase over December 31, 1996. This increase was due to increased customer demand. Cost of goods sold as a percentage of sales decreased from 76.9% for the year ended December 31, 1996 to 76.3% for the year ended December 31, 1997. This improvement reflected lower current period costs achieved through the transition of certain wire harness segment business to lower-cost Mexican facilities, savings realized from plant consolidation actions taken in 1996, and reduced material and logistic costs as well as the impact of declining copper prices. Because the Company's products are typically priced at a spread over 15 17 the cost of copper, a lower copper price leads to a higher gross margin percentage but generally has no impact on gross margin dollars. Selling, general and administrative expenses were $56.7 million for the year ended December 31, 1997 compared to $43.9 million during the year ended December 31, 1996, an increase of $12.8 million. Expressed as a percentage of sales, selling, general and administrative expenses increased from 8.0% during the year ended December 31, 1996 to 8.2% during the year ended December 31, 1997. This increase, as a percentage of sales, was partially attributable to the effect on net sales of lower copper costs during the year ended December 31, 1997, as compared to the year ended December 31, 1996. Other cost increases included operating expenses from Dekko for a full year and Camden for approximately 11 months, volume related items and cost inflation. Depreciation and amortization was $36.0 million for the year ended December 31, 1997 as compared to $31.3 million for the same period in 1996. The increase of $4.7 million was the result of depreciation of property, plant and equipment additions and Camden's assets acquired, amortization of goodwill from the Camden Acquisition and the depreciation and amortization of goodwill of Dekko for a full year. The increase was partially offset by lower amortization as the result of the goodwill impairment charge recorded in 1996. The goodwill impairment charge was recorded in 1996, resulting from a variety of circumstances described below. There was no similar charge recorded in 1997. In the first quarter of 1996, the Company adopted a new business strategy that had a major impact on its business units. The Company's strategy considered reducing production costs, moving production to the South and Southwest, improving customer service and lowering selling, general and administrative expenses. The Company developed the new strategy and business plan in the first quarter of 1996, which it finalized in connection with the DWT Acquisition. The DWT Acquisition was instrumental in the evaluation and implementation of the new business strategy, due to DWT's strategically sized and located facilities. With the DWT Acquisition, additional goodwill of $105.0 million was recorded. With the addition of significant goodwill, the Company believed it was appropriate to perform a comprehensive review of the carrying value of goodwill. In addition to the DWT Acquisition, factors that were examined during the Company's review of the carrying value of goodwill included the changes in the appliance and automotive industries. These changes include the movement of appliance harness requirements to Mexican manufacturing facilities and the shift in automotive harness requirements from large, long lead-time orders to more frequent, small, short lead-time orders. As a result of these changes, the Company began to close several of its facilities and undertook its new business strategy. Upon completion of its analysis, the Company determined that the carrying value of goodwill exceeded fair value by approximately $78.2 million. A non-cash impairment charge of $78.2 million was recorded upon completion of this analysis in the fourth quarter of 1996. There was no similar charge recorded in 1997. A $2.0 million and a $6.0 million pre-tax charge to operations, representing plant shutdown costs, were recorded during the years ended December 31, 1997 and December 31, 1996, respectively. The plant closing costs relate to shutting down and consolidating wire segment facilities. Pre-tax inventory valuation charges of $8.5 million were recorded during each of the years ended December 31, 1997 and December 31, 1996. These charges were the result of an adjustment of the LIFO valuation of copper in inventory reflecting the decrease in the copper cost per pound during fiscal 1997 and 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 Net sales for the year ended December 31, 1996 were $547.0 million, representing a $92.3 million, or 20.3%, increase over the Historical Combined Fiscal Year Ended December 31, 1995. This increase occurred substantially within the wire segment, where sales increased $92.1 million, or 31.3%, over the Historical Combined Fiscal Year Ended December 31, 1995. This increase reflected $139.7 million of net sales from Wire Technologies, as well as continued growth in the Company's automotive, cable and control signal market 16 18 accounts. These increases were partially offset by a decline in copper prices. In general, the Company prices its products based upon a spread over the cost of copper, which results in a decreased dollar value of sales when copper prices decrease. The average price of copper based upon the COMEX declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per pound during the Historical Combined Fiscal Year Ended December 31, 1995. Within the wire harness segment, sales remained constant at $161.4 million during the year ended December 31, 1996. This constant level of sales represented strong sales from most major wire harness customers other than Whirlpool. Sales to Whirlpool declined during the year due to the expiration of a transition supply agreement in October 1995. Cost of goods sold as a percentage of sales decreased from 79.8% to 76.9% for the year ended December 31, 1996. This decrease was due to the result of negotiated price reductions for certain purchased materials and the elimination of the majority of outside purchases of non-insulated wire subsequent to the Original Omega Acquisition. Wirekraft's purchases of non-insulated wire from outside suppliers declined as Omega's non-insulated wire production for Wirekraft increased. In addition, the change in cost of goods sold as a percent of sales reflected cost reductions achieved within both the wire and wire harness segments resulting from plant consolidation actions taken in 1995 and 1996, as well as the impact of declining copper prices. Because the Company's products are typically priced at a spread over the cost of copper, a lower copper price leads to a higher gross margin percentage but generally has no impact on gross margin dollars. YEAR ENDED DECEMBER 31, 1996 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 1995 Net sales for the year ended December 31, 1996 were $547.0 million, representing an increase of $301.4 million over the seven months ended December 31, 1995. This increase included wire segment sales of $223.9 million and wire harness segment sales of $77.5 million. The increase was primarily the result of the additional five months of operations of the Company in 1996, as compared to 1995 and the inclusion of $139.7 million of wire segment sales as the result of the DWT Acquisition in March 1996. These increases were partially offset by a decline in copper prices. Generally, the Company prices its products based upon a spread over copper, which results in a decreased dollar value of sales when copper prices decrease. The average price of copper based upon the COMEX declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per pound during the seven months ended December 31, 1995. Cost of goods sold as a percentage of sales decreased from 79.5% for the seven months ended December 31, 1995 to 76.9% for the year ended December 31, 1996. This decrease was due to the result of negotiated price reductions for certain purchased materials and the elimination of the majority of outside purchases of non-insulated wire. Wirekraft's purchases of non-insulated wire from outside sources declined as Omega's non-insulated wire production for Wirekraft increased. In addition, the change in cost of goods sold as a percent of sales reflected cost reductions achieved within both the wire and wire harness segments resulting from plant consolidation actions taken in 1995 and 1996, as well as the impact of declining copper prices. Because the Company's products are typically priced at a spread over the cost of copper, a lower copper price leads to a higher gross margin percentage but generally has no impact on gross margin dollars. Selling, general and administrative expenses were $43.9 million for the year ended December 31, 1996 compared to $17.1 million during the seven months ended December 31, 1995, an increase of $26.8 million. The increase was primarily the result of the additional five months of operations of the Company in 1996, as compared to 1995 and the inclusion of $5.7 million of expenses from the DWT Acquisition. Expressed as a percentage of sales, selling, general and administrative expenses increased from 7.0% during the seven months ended December 31, 1995 to 8.0% during the year ended December 31, 1996. This increase, as a percentage of sales, was partially attributable to the effect on net sales of higher copper costs during the seven months ended December 31, 1995, as compared to the year ended December 31, 1996. Other cost increases included volume related items and cost inflation. Depreciation and amortization was $31.3 million for the year ended December 31, 1996 compared to $11.0 million for the seven months ended December 31, 1995. This increase of $20.3 million was the result of the additional five months of operations of the Company in 1996, as compared to 1995, as well as additional 17 19 depreciation of property, plant and equipment from 1996 additions and the amortization of goodwill from the DWT Acquisition. In the first quarter of 1996, the Company adopted a new business strategy that had a major impact on its business units. The Company's strategy considered reducing production costs, moving production to the South and Southwest, improving customer service and lowering selling, general and administrative expenses. The Company developed the new strategy and business plan in the first quarter of 1996, which it finalized in connection with the DWT Acquisition. The DWT Acquisition was instrumental in the evaluation and implementation of the new business strategy, due to DWT's strategically sized and located facilities. With the DWT Acquisition, additional goodwill of $105.0 million was recorded. With the addition of significant goodwill, the Company believed it was appropriate to perform a comprehensive review of the carrying value of goodwill. In addition to the DWT Acquisition, factors that were examined during the Company's review of the carrying value of goodwill included the changes in the appliance and automotive industries. These changes include the movement of appliance harness requirements to Mexican manufacturing facilities and the shift in automotive harness requirements from large, long lead-time orders to more frequent, small, short lead-time orders. As a result of these changes, the Company closed certain of its facilities and undertook its new business strategy. Upon completion of its analysis, the Company determined that the carrying value of goodwill exceeded fair value by approximately $78.2 million. A non-cash impairment charge of $78.2 million was recorded upon completion of the analysis in the fourth quarter of 1996. A $6.0 million pre-tax charge to operations was recorded during the year ended December 31, 1996, representing plant closing costs. The plant closing costs relate to shutting down and consolidating six facilities. There was a similar charge of $1.8 million for the seven months ended December 31, 1995. An $8.5 million pre-tax inventory valuation charge was recorded during the year ended December 31, 1996. This charge was the result of an adjustment to the LIFO valuation of copper in inventory reflecting the decrease in the copper cost per pound during fiscal 1996. There was no similar charge for the seven months ended December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES Working Capital and Cash Flows For the year ended December 31, 1997, the Company generated $34.0 million in cash from operations and $6.0 million of net proceeds from the issuance of long-term debt obligations related to the Camden Acquisition. During 1997, the Company made net borrowings of $1.1 million under debt obligations, spent $27.8 million on capital projects, used $11.3 million related to financing fees and used $2.1 million on other financing activities. In June 1997, the Company generated $157.4 million in proceeds from the issuance of 11.75% Series B Senior Subordinated Notes due June 2005, net of financing costs of $5.8 million. The Company applied all net proceeds from this issuance to repay a portion of the Senior Bank Facility (as hereinafter defined). For the year ended December 31, 1996, the Company generated $32.0 million in cash from operations and $13.0 million of net proceeds from the issuance of equity securities and long-term debt obligations related to the DWT Acquisition. During 1996, the Company made net repayments of $21.3 million under debt obligations, spent $15.8 million on capital projects and used $7.8 million related to financing fees. For the Historical Combined Year Ended December 31, 1995, the Company generated $25.2 million in cash from operations and $23.0 million of net proceeds from the issuance of equity securities and long-term debt obligations related to acquisitions. During 1995, the Company made net repayments of $17.6 million under debt obligations ($12.5 million repaid by the predecessor companies in connection with the Acquisitions), spent approximately $10.5 million on capital projects and used $21.0 million to pay financing fees ($7.0 million of which were incurred in connection with the acquisition of THL-Omega). 18 20 Financing Arrangements In connection with the Wirekraft/Omega Combination, the Company issued $150.0 million principal amount of Senior Subordinated Notes due 2005 (the "Original 11 3/4% Notes") under an indenture, dated June 12, 1995. The Original 11 3/4% Notes bear interest at the rate of 11.75% per annum, requiring semi-annual interest payments of $8.8 million on each June 1 and December 1. The Original 11 3/4% Notes are not subject to any sinking fund requirements. In connection with the Camden Acquisition, Holding and the Company entered into the Amended and Restated Credit Agreement with The Chase Manhattan Bank, Bankers Trust Company and the other lenders party thereto pursuant to which the Company obtained financing of up to $428.5 million, consisting of an $111.0 million, five year term Tranche A loan, an $115.0 million, seven year term Tranche B loan, an $127.5 million, eight year term Tranche C loan (collectively, the "Term Facility") and a $75.0 million revolving loan and letter of credit (the "Revolver," and together with the "Term Facility," the "Senior Bank Facility"). The Company issued $150.0 million of 11.75% Series B Senior Subordinated Notes due June 2005 under an Indenture dated June 17, 1997, priced at 108.75% for an effective interest rate of 10.15% (the "Series B Notes"). The Series B Notes bear interest at the rate of 11.75% per annum, requiring a semi-annual interest payment of $8.8 million on each June 1 and December 1. The Series B Notes are not subject to any sinking fund requirements. In connection with the issuance of the Series B Notes, the Company sought and received the consent of the lenders under the Senior Bank Facility to the application of the net proceeds from the Series B Notes issuance as described in the following paragraph and entered into the First Amendment to Amended and Restated Credit Agreement, dated as of June 17, 1997 (the "First Amendment"). The Company used the net proceeds of the Series B Notes issuance to repay approximately $157.4 million principal amount of borrowings outstanding under the Senior Bank Facility (the "Senior Debt Repayment"). The Senior Debt Repayment was allocated in the following manner: first, approximately $65.5 million was applied to the Tranche A Loan to reduce the aggregate principal amount outstanding thereunder to $25.0 million; second, approximately $80.5 million was applied to the Tranche B Loan, which was combined with the Tranche C Loan pursuant to the First Amendment, to reduce the aggregate principal amount outstanding thereunder to $160.5 million; and third, approximately $11.4 million was applied to the Revolver to repay in full all amounts outstanding thereunder. As amended, the Senior Bank Facility provides senior secured financing of up to $260.5 million, consisting of the $25.0 million Tranche A Loan, the $160.5 million Tranche B Loan and the $75.0 million Revolver. The Company is obligated to make principal payments in respect of the Term Facility of $3.5 million in 1998, $4.8 million in 1999, $6.0 million in 2000, $7.3 million in 2001, $46.4 million in 2002 and $116.6 million in 2003. The Revolver is available for working capital purposes including letters of credit. The commitments terminate and all amounts under the Revolver then outstanding mature in 2002. As of February 27, 1998, there was $183.8 million outstanding under the Term Facility and $51.2 million of unused borrowing capacity under the Revolver. The Company's obligations under the Senior Bank Facility bear interest at floating rates and require interest payments on varying dates depending on the interest rate option selected by the Company. At February 27, 1998, the weighted average interest rate on outstanding borrowings under the Senior Bank Facility was 7.67%. The Company has outstanding $5.0 million of 14% Senior Subordinated Notes due June 1, 2005 (the "14% Notes"). The 14% Notes require a semi-annual interest payment of $.4 million on each June 1 and December 1. The 14% Notes are not subject to any sinking fund requirements. In connection with the Camden Acquisition, the Company assumed debt related to two Industrial Revenue Bonds (the "IRBs") totaling $15.5 million. The IRBs are due in August, 2005 and March 2016 in the amounts of $9.0 million and $6.5 million, respectively. The IRBs bear interest at a rate per annum which is 19 21 tied to the Tax Exempt Money Market Index. Rates change weekly and interest is paid monthly. The IRBs are collateralized by letters of credit totaling $15.5 million. At February 27, 1998, the effective interest rate on the IRBs was 3.29%. As of February 27, 1998, the Company had entered into two interest rate agreements. These agreements provide ceilings of 8.0% on $63.5 million of indebtedness through May 1998, 7.0% on $32.5 million of indebtedness through March 1998 and 8.0% on $32.5 million of indebtedness through March 1999. Liquidity The principal raw material used in the Company's products is copper. The market price of copper is subject to significant fluctuations. Working capital needs change whenever the Company experiences a significant change in copper prices. A $0.10 per pound change in the price of copper changes the Company's working capital by approximately $4.5 million. The Company enters into contractual relationships with most of its customers to adjust it prices based upon the prevailing market prices on the COMEX. This approach is patterned after the Company's arrangement with its copper suppliers and is designed to remove the risk associated with fluctuating copper prices. As part of the impairment charge in 1996 as more fully described in Note 10 to the Company's financial statements for the year ended December 31, 1997, the Company accrued $4.2 million for anticipated losses related to product liability claims associated with the Original Wirekraft Acquisition. These claims are for a non-wire product in the appliance industry that the Company has not manufactured since 1992. The Company's policy is to record the probable and reasonably estimable loss related to product liability claims. In 1996, the claims significantly increased as a result of the receipt of claims accumulated by insurance companies related to prior periods. Accordingly, the Company revised its estimated liability outstanding on actual claims reported and its estimate of claims incurred but not reported. The Company continues to review the status of the claims and adjust the liability accordingly. In developing its estimated liability outstanding on actual claims reported, the Company considered historic settlement rates. In determining its estimate of claims incurred but not reported, the Company considered historical claim levels, amounts relative to total product shipped and historical settlement rates. The reserve for product liability claims was $3.4 million and $4.2 million at December 31, 1997 and December 31, 1996, respectively. Due to the uncertainties associated with these product claims, the future cost of final settlement of these claims may differ from the liability currently accrued. However, in the Company's opinion, the impact of final settlement of these claims on future operations, financial position and liquidity will not be material. The Company's primary sources of liquidity are cash flows from operations and borrowings under the Revolver, which are subject to a borrowing base calculation. The major uses of cash in 1998 are expected to be for debt service requirements and capital expenditures. In 1998, debt service requirements are estimated at approximately $57 million while capital expenditures are estimated at approximately $30 million, including an estimated $7 million to complete the construction of a manufacturing facility in Cebu, Philippines. See Note 12 to the Company's Consolidated Financial Statements. Management believes that cash from operating activities, together with available borrowings under the Revolver, if necessary, should be sufficient to permit the Company to meet these financial obligations. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a previous assessment, the Company determined that it will be required to replace portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. At December 31, 20 22 1997, the Company estimated that approximately 40 percent of the Company's systems were Year 2000 compliant, with all systems expected to be compliant by early 1999. The Company presently believes that with the expected conversions to new software, the Year 2000 Issue can be mitigated. However, if such conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company will utilize both internal and external resources to replace and test the software for Year 2000 modifications. The total cost of the project is estimated to be approximately $6 million. The majority of the expenditures relate to the purchase of new software and hardware which will be capitalized and is being funded through operating cash flows. The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 21 23 ITEM 8. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS
PAGE ---- INTERNATIONAL WIRE GROUP, INC. Report of Coopers & Lybrand L.L.P., Independent Public Accountants............................................ 23 Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996...................................... 24 Consolidated Statements of Operations for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995......................... 25 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995...... 26 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995......................... 27 Notes to Consolidated Financial Statements................ 28 Report of Coopers & Lybrand L.L.P., Independent Public Accountants............................................ 48 Consolidated Financial Statement Schedule for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995: Schedule II -- Valuation and Qualifying Accounts................ 49 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) Report of Coopers & Lybrand L.L.P., Independent Public Accountants............................................ 50 Consolidated Statement of Operations for the six months ended May 31, 1995..................................... 51 Consolidated Statement of Stockholders' Equity for the six months ended May 31, 1995.............................. 52 Consolidated Statement of Cash Flows for the six months ended May 31, 1995..................................... 53 Notes to Consolidated Financial Statements................ 54 OMEGA WIRE CORP. Report of Coopers & Lybrand L.L.P., Independent Public Accountants............................................ 60 Consolidated Statement of Operations for the two months ended May 31, 1995..................................... 61 Consolidated Statement of Stockholders' Equity for the two months ended May 31, 1995.............................. 62 Consolidated Statement of Cash Flows for the two months ended May 31, 1995..................................... 63 Notes to Consolidated Financial Statements................ 64 THL-OMEGA HOLDING CORPORATION Report of Coopers & Lybrand L.L.P., Independent Public Accountants............................................ 68 Consolidated Statement of Operations and Retained Earnings for the three months ended March 31, 1995.............. 69 Consolidated Statement of Cash Flows for the three months ended March 31, 1995................................... 70 Notes to Consolidated Financial Statements................ 71
22 24 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of International Wire Group, Inc.: We have audited the accompanying consolidated balance sheets of International Wire Group, Inc. and subsidiaries as of December 31, 1997 and December 31, 1996, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Wire Group, Inc. and subsidiaries as of December 31, 1997 and December 31, 1996, and the consolidated results of their operations and their cash flows for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 30, 1998 23 25 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Current assets: Accounts receivable, less allowance of $2,078 and $1,363................................................. $ 87,201 $ 71,181 Inventories............................................... 74,406 60,362 Prepaid expenses and other................................ 9,881 5,060 Deferred income taxes..................................... 17,392 4,741 -------- -------- Total current assets.............................. 188,880 141,344 Property, plant and equipment, net.......................... 165,239 118,551 Deferred financing costs, net............................... 23,592 21,222 Intangible assets, net...................................... 242,336 244,655 Other assets................................................ 8,001 5,248 -------- -------- Total assets...................................... $628,048 $531,020 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term obligations............... $ 4,493 $ 20,948 Accounts payable.......................................... 48,761 45,832 Accrued and other liabilities............................. 39,143 33,150 Customers' deposits....................................... 19,978 8,033 Accrued interest.......................................... 4,834 4,648 -------- -------- Total current liabilities......................... 117,209 112,611 Long-term obligations, less current maturities.............. 519,302 426,719 Deferred income taxes....................................... 12,840 14,719 Other long-term liabilities................................. 24,525 12,162 -------- -------- Total liabilities................................. 673,876 566,211 Stockholders' equity (deficit): Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding................................. 0 0 Series A senior cumulative exchangeable redeemable preferred stock, $.01 par value, $25 liquidation value, 400,000 shares authorized at December 31, 1997 and December 31, 1996 and 0 and 400,000 issued and outstanding at December 31, 1997 and December 31, 1996, respectively........................................... -- 4 Contributed capital....................................... 113,717 125,340 Carryover of predecessor basis............................ (67,762) (67,762) Accumulated deficit....................................... (91,783) (92,773) -------- -------- Total stockholders' equity (deficit).............. (45,828) (35,191) -------- -------- Total liabilities and stockholders' equity (deficit)....................................... $628,048 $531,020 ======== ========
See accompanying notes to the consolidated financial statements 24 26 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
SEVEN MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------- Net sales............................................... $695,148 $546,981 $245,583 Operating expenses: Cost of goods sold.................................... 530,310 420,823 195,221 Selling, general and administrative expenses.......... 56,703 43,885 17,129 Depreciation and amortization......................... 36,026 31,341 11,020 Impairment, unusual and plant closing charges......... 2,000 84,250 1,750 Inventory valuation adjustment........................ 8,500 8,500 -- -------- -------- -------- Operating income (loss)................................. 61,609 (41,818) 20,463 Other income (expense): Interest expense...................................... (50,939) (43,013) (19,931) Amortization of deferred financing costs.............. (3,932) (3,701) (1,468) Other, net............................................ (103) 312 (158) -------- -------- -------- Income (loss) before income tax provision and extraordinary item.................................... 6,635 (88,220) (1,094) Income tax provision.................................... 2,654 1,262 2,197 -------- -------- -------- Income (loss) before extraordinary item................. 3,981 (89,482) (3,291) Extraordinary item -- loss related to early extinguishment of debt, net of taxes of $1,995........ (2,991) -- -- -------- -------- -------- Net income (loss).................................. $ 990 $(89,482) $ (3,291) ======== ======== ========
See accompanying notes to the consolidated financial statements 25 27 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS)
CARRYOVER OF COMMON PREFERRED CONTRIBUTED PREDECESSOR ACCUMULATED STOCK STOCK CAPITAL BASIS DEFICIT TOTAL ------ --------- ----------- ------------ ----------- -------- Capital contributed............... $ 0 $ 0 $ 81,951 $ -- $ -- $ 81,951 Issuance costs.................... -- -- (900) -- -- (900) Carryover of predecessor basis.... -- -- -- (67,762) -- (67,762) Net loss.......................... -- -- -- -- (3,291) (3,291) --- --- -------- -------- -------- -------- Balance December 31, 1995......... 0 -- 81,051 (67,762) (3,291) 9,998 Capital contributed............... -- -- 35,493 -- -- 35,493 Issuance of preferred stock....... -- 4 9,996 -- -- 10,000 Issuance costs.................... -- -- (1,200) -- -- (1,200) Net loss.......................... -- -- -- -- (89,482) (89,482) --- --- -------- -------- -------- -------- Balance December 31, 1996......... 0 4 125,340 (67,762) (92,773) (35,191) --- --- -------- -------- -------- -------- Capital contributed............... -- -- 451 -- -- 451 Repurchase of stock of Holding.... -- -- (700) -- -- (700) Conversion of preferred stock to debt............................ -- (4) (9,996) -- -- (10,000) Preferred stock dividend.......... -- -- (1,378) -- -- (1,378) Net income........................ -- -- -- -- 990 990 --- --- -------- -------- -------- -------- Balance December 31, 1997......... $ 0 $-- $113,717 $(67,762) $(91,783) $(45,828) === === ======== ======== ======== ========
See accompanying notes to the consolidated financial statements 26 28 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SEVEN MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Cash flows provided by (used in) operating activities: Net income (loss).................................. $ 990 $ (89,482) $ (3,291) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................... 36,026 31,341 11,020 Impairment and unusual charges.................. -- 78,250 -- Amortization of deferred financing costs........ 3,932 3,701 1,468 Extraordinary loss on early extinguishment of debt.......................................... 4,986 -- -- Inventory valuation adjustment.................. 8,500 8,500 -- Deferred income taxes........................... 901 3,184 274 Change in assets and liabilities, net of acquisitions: Accounts receivable........................... (456) (1,878) 12,094 Inventories................................... (1,835) (3,645) (9,590) Prepaid expenses and other.................... (6,273) (4,829) (846) Accounts payable.............................. (9,171) 1,216 1,232 Accrued and other liabilities................. 2,278 2,299 (2,084) Accrued interest.............................. 186 2,132 2,516 Income taxes payable/refundable............... (2,976) 1,914 778 Other long-term liabilities................... (3,090) (723) (237) --------- --------- --------- Net cash from operating activities......... 33,998 31,980 13,334 --------- --------- --------- Cash flows provided by (used in) investing activities: Acquisitions, net of cash.......................... (58,996) (160,259) (341,046) Capital expenditures............................... (27,760) (15,849) (5,751) --------- --------- --------- Net cash used in investing activities...... (86,756) (176,108) (346,797) --------- --------- --------- Cash flows provided by (used in) financing activities: Equity proceeds.................................... -- 45,039 15,048 Proceeds from issuance of long-term obligations.... 228,125 128,200 337,500 Repayment of long-term obligations................. (162,001) (21,311) (5,085) Repurchase of stock of Holding..................... (700) -- -- Cash dividends paid on preferred stock............. (1,378) -- -- Financing fees and other........................... (11,288) (7,800) (14,000) --------- --------- --------- Net cash from financing activities......... 52,758 144,128 333,463 --------- --------- --------- Net change in cash and cash equivalents.... -- -- -- Cash and cash equivalents at beginning of the period............................................. -- -- -- --------- --------- --------- Cash and cash equivalents at end of the period....... $ -- $ -- $ -- ========= ========= =========
See accompanying notes to the consolidated financial statements 27 29 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 AND SEVEN MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY International Wire Group, Inc. ("Group" or the "Company"), a Delaware corporation, was formed to participate in the transactions contemplated by the Acquisitions (as described below). On June 12, 1995, Wirekraft Holdings Corp. ("Wirekraft"), Omega Wire Corp. ("Omega"), International Wire Holding Company ("Holding"), the sole common stockholder of Group, Wirekraft Acquisition Company and certain shareholders of Wirekraft and Omega entered into a series of acquisitions and mergers (the "Acquisitions") pursuant to which Group acquired all of the common equity securities (and all securities convertible into such securities) of Wirekraft and all of the common equity securities of Omega. The Company has designated June 1, 1995, as the effective date of the Acquisitions for financial reporting purposes. The Company through its two segments, the Wire segment and the Harness segment, is engaged in the design, manufacture and marketing of non-insulated and insulated copper wire and wire harnesses. The Company's products are used by a wide variety of customers primarily in the appliance, computer and data communications, automotive and industrial equipment industries. The total purchase price of the Acquisitions was approximately $420,591, which included the redemption of certain equity securities, the retirement of existing indebtedness of Wirekraft and Omega and the payment of related fees and costs, is summarized as follows: Redemption of common stock, equity rights, warrants and options................................................... $104,810 Repayment of existing indebtedness.......................... 275,460 Redemption of preferred stock............................... 26,321 Fees and costs.............................................. 14,000 -------- $420,591 ========
In accordance with EITF 88-16, "Basis in Leveraged Buy Out Transactions," the Acquisitions have been accounted for at "predecessor basis". The total acquisition costs have been allocated to the acquired net assets as follows: Current assets.............................................. $117,504 Property, plant and equipment............................... 83,253 Goodwill.................................................... 209,818 Fees and costs.............................................. 19,000 Other assets................................................ 3,749 Current liabilities......................................... (58,707) Other liabilities........................................... (21,788) Carryover predecessor basis................................. 67,762 -------- $420,591 ========
2. DWT AND CAMDEN ACQUISITIONS On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a wholly-owned subsidiary of the Company, acquired the businesses of Hoosier Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc., a group of affiliated companies operating together under the trade name Dekko Wire Technology Group (the "DWT Acquisition"). The total consideration of $173,239 paid in connection with the DWT Acquisition including fees, expenses and certain adjustments consisted of (i) cash and (ii) warrants for the purchase of 2,000,000 shares of Common Stock, par value $.01 per share, of Holding. The DWT 28 30 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Acquisition and the related transaction fees and expenses were funded with (i) $128,200 of senior debt under the Amended Credit Agreement, (ii) $35,000 from the issuance of 35,000,000 shares of Common Stock, par value $.01 per share, of Holding, (iii) $39 from the issuance of 3,888,889 shares of Class A Common Stock, par value $.01 per share, of Holding, and (iv) $10,000 from the issuance of 400,000 shares of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share, of the Company (sold in units together with warrants for the purchase of shares of Common Stock, par value $.01 per share, of Holding). The DWT Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost has been allocated to the consolidated assets and liabilities based upon their estimated respective fair values. The total acquisition cost is allocated to the acquired net assets as follows: Current assets.............................................. $ 37,669 Property, plant and equipment............................... 36,020 Goodwill.................................................... 105,041 Other, non-current.......................................... 3,515 Fees and costs.............................................. 7,800 Current liabilities......................................... (15,306) Other liabilities........................................... (1,500) -------- $173,239 ========
On February 12, 1997, the Company acquired all of the issued and outstanding common stock of Camden Wire Co., ("Camden") a wholly-owned subsidiary of Oneida LTD, for total consideration of approximately $65,000 (the "Camden Acquisition"). Camden was engaged in the design, manufacture and marketing of non-insulated bare and tin-plated copper wire. The total consideration of $65,000 paid in connection with the Camden Acquisition, including fees and expenses, consisted of (i) cash and (ii) the assumption of debt related to Industrial Revenue Bonds, a non-cash item. The cash portion of the consideration paid and the transaction fees and expenses incurred in connection with the Camden Acquisition were funded with $65,000 of senior debt under the Amended and Restated Credit Agreement (see Note 7). The Camden Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost has been allocated to the consolidated assets and liabilities based upon their estimated respective fair values. The total acquisition cost is allocated to the acquired net assets as follows: Current assets.............................................. $ 42,844 Property, plant & equipment................................. 44,053 Goodwill.................................................... 4,922 Other, non-current.......................................... 4,313 Fees and costs.............................................. 3,250 Current liabilities......................................... (28,959) Other liabilities........................................... (5,423) -------- $ 65,000 ========
Unaudited pro forma results of operations of the Company for the years ended December 31, 1997, December 31, 1996 and December 31, 1995, are included below. Such pro forma presentation has been prepared assuming that the Camden Acquisition and related financing had occurred as of January 1, 1997 and January 1, 1996, respectively, the DWT Acquisition and related financing had occurred as of January 1, 1996 29 31 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and January 1, 1995, respectively, and that the Acquisitions (as described in Note 1) had occurred as of January 1, 1995.
1997 1996 1995 -------- -------- -------- Net sales.......................................... $714,388 $682,246 $601,709 Income (loss) before extraordinary item............ $ 3,654 $(92,213) $ (2,613) Net income (loss).................................. $ 663 $(92,213) $ (2,613)
3. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Group and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: building -- 25 to 40 years; building improvements -- 15 years; machinery and equipment -- 3 to 11 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. In fiscal 1996, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired which is amortized using the straight-line method over forty years. In fiscal 1996, the Company completed a review of the carrying value of goodwill, which resulted in an impairment (see Note 10). Accumulated amortization aggregated $25,911 and $18,182 at December 31, 1997 and December 31, 1996, respectively. The Company periodically evaluates goodwill to assess recoverability. The Company considers various factors in determining if goodwill may be impaired. These factors include reductions in estimated future cash flows, significant events impacting the Company's business and changes in the business environment. The Company further assesses the recoverability of goodwill by comparing the value of goodwill as indicated by a discounted cash flow analysis to the carrying value of goodwill. The discounted cash flow analysis consists of discounted free cash flows for a projection period plus a terminal value, which is calculated by dividing estimated annual unlevered net income by the weighted average cost of capital less an assumed growth rate. Upon consideration of these factors, if the Company determines that an impairment has occurred, the Company determines the impairment charge by comparing the carrying value of goodwill to the adjusted fair 30 32 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value of the Company, as calculated through a discounted cash flow analysis. In fiscal 1996, the Company completed a review of the carrying value of goodwill, which resulted in an impairment charge (see Note 10). Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Accumulated amortization aggregated $9,101 and $5,169 at December 31, 1997 and December 31, 1996, respectively. Foreign Currency For operations in Mexico, the Company's functional currency is the U.S. dollar. Gains and losses from translation and transactions are determined using a combination of current and historical rates and are included in net income. Interest Rate Hedging Arrangement The Company has entered into interest rate hedging arrangements for the purpose of hedging against rising interest rates. The fees the Company paid for these arrangements are included in deferred financing fees and amortized on a straight-line basis over the life of the arrangements. The arrangements provide a ceiling interest rate of 8.0% on $63,500 of indebtedness through May 1998 and $32,500 thereafter through March 1999. The Company estimates that fair value approximates carrying value of the interest rate hedging arrangements. Fair Value of Financial Instruments The Company's financial instruments, excluding the Senior Notes (as hereinafter defined) are carried at fair value or amounts that approximate fair value. The Company has estimated the fair value of the Senior Notes using current market data. At December 31, 1997, the estimated fair market value of the Senior Subordinated Notes and the Series B Senior Subordinated Notes was approximately $165,000 and $165,000, respectively. At December 31, 1996, the estimated fair market value of the Senior Subordinated Notes was $162,000. Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest paid for the years ended December 31, 1997 and December 31, 1996 and seven months ended December 31, 1995 was $50,753, $40,881 and $17,415, respectively. Taxes paid for the year ended December 31, 1997, refunded, net of payments for the year ended December 31, 1996 and paid for the seven months ended December 31, 1995 were $2,817, $4,073 and $1,145, respectively. During the years ended December 31, 1997 and December 31, 1996 and seven months ended December 31, 1995, the Company entered into certain non-cash investing and financing activities. In 1997, the 31 33 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company exchanged $10,000 of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock for debt. In connection with the Acquisitions, certain shares of Omega and Wirekraft common stock and Class A common stock were exchanged for shares of Holding common stock. The total amount of shares exchanged was $66,903. In fiscal 1997, 1996 and 1995, the Company recorded capital lease obligations of $0, $2,348 and $680 respectively, for property, plant and equipment. Significant Customer A significant portion of the Company's sales were to a major customer within the Harness segment. Sales to this customer represented 14%, 18% and 19% of net sales for the years ended December 31, 1997, December 31, 1996 and the seven months ended December 31, 1995, respectively. Recently Issued Accounting Standards Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, is effective for years beginning after December 15, 1997. This statement requires that an enterprise classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, is effective for years beginning after December 15, 1997. This statement requires that a public business report financial and descriptive information about its reportable business segments. The Company believes that the future adoption of these statements will not have a significant impact on the results of operations or financial position of the Company but will require the Company to make additional disclosures. 4. INVENTORIES The composition of inventories is as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Raw materials............................................... $33,983 $26,191 Work-in process............................................. 15,992 14,908 Finished goods.............................................. 24,431 19,263 ------- ------- Total inventories................................. $74,406 $60,362 ======= =======
The current cost of inventories at December 31, 1997 approximated the carrying cost. At December 31, 1996, the current cost was approximately $57,267. In connection with the decline in the average price of copper, the Company recorded pre-tax inventory valuation charges of $8,500 and $8,500 for the years ended December 31, 1997 and December 31, 1996, respectively, to reduce the LIFO valuation of copper in inventory. 32 34 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment is as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Land........................................................ $ 4,281 $ 2,797 Buildings and improvements.................................. 47,698 31,546 Machinery and equipment..................................... 199,171 121,013 Construction in progress.................................... 5,977 -- -------- -------- 257,127 155,356 Less: accumulated depreciation.............................. (91,888) (36,805) -------- -------- $165,239 $118,551 ======== ========
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisitions, the Company incurred aggregate fees and costs of $14,000. Costs of $13,100 related to the Senior Notes and Amended and Restated Credit Agreement (see Note 7) are included in deferred financing costs and are being amortized over the terms of the related borrowings. Costs of $900 related to the issuance of Holding's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the DWT Acquisition, the Company incurred aggregate fees and costs of $7,800. Costs of $6,600 related to the Amended Credit Agreement (as hereinafter defined) are included in deferred financing costs and are being amortized over the terms of the related borrowings. Costs of $1,200 related to the issuance of Holding's common stock and the Preferred Stock (as defined in Note 8) have been deducted from the proceeds to reduce the carrying value of the common and preferred stock. In connection with the Camden Acquisition, the Company incurred aggregate fees and costs of $3,250 which are included in deferred costs and are being amortized over the term of the related borrowings. All costs related to the Amended and Restated Credit Agreement (as hereinafter defined) are included in deferred financing costs and are being amortized over the terms of the related borrowings. In June 1997, the Company refinanced debt under the Amended and Restated Credit Agreement. Accordingly, the Company recorded an extraordinary loss of $2,601, net of income tax related to the write-off of deferred financing fees. In addition, the Company repurchased $5,000 of debt and recorded an extraordinary loss of $390, net of income tax, related to a prepayment premium. In connection with the Acquisitions and the related financing, the Company entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners") (an affiliate of the Company) pursuant to which the Company paid Hicks Muse Partners a cash fee of $3,725 as compensation for financial advisory services. The fees have been allocated based upon the issuance proceeds to the debt and equity securities issued in connection with the Acquisitions. Pursuant to the Agreement, the Company paid Hicks Muse Partners cash fees of $2,500 and $900 as compensation for financial advisory services received in connection with the DWT Acquisition and Camden Acquisition, respectively. The fees paid in connection with the DWT Acquisition were allocated as deferred financing costs or as a deduction from the cash proceeds received from the sale of the common stock of Holding and all fees paid associated with the Camden Acquisition were included in deferred financing costs. The Agreement further provides that the Company shall pay Hicks Muse Partners an annual fee of $500, for ten years for monitoring and oversight services adjusted annually at the end of each fiscal year to an amount equal to 0.1% of the consolidated net sales of the Company, but in no event less than $500 annually. The obligation under the Agreement and the related deferred financing costs have been recorded in the consolidated balance sheets. 33 35 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM OBLIGATIONS The composition of long-term obligations at December 31, 1997 is as follows:
Amended and Restated Credit Agreement: Revolving credit facility................................. $ 825 Term facility............................................. 183,750 Senior Subordinated Notes................................... 150,000 Series B Senior Subordinated Notes.......................... 150,000 Series B Senior Subordinated Notes Premium.................. 12,485 Industrial revenue bonds.................................... 15,500 Other....................................................... 11,235 -------- 523,795 Less, current maturities.................................... 4,493 -------- $519,302 ========
The schedule of principal payments (excluding amortization of premium) for long-term obligations at December 31, 1997 is as follows:
1998........................................................ $ 4,493 1999........................................................ 5,832 2000........................................................ 7,132 2001........................................................ 8,001 2002........................................................ 46,375 Thereafter.................................................. 439,477 -------- Total..................................................... $511,310 ========
During 1997, the Company issued $150,000 of 11.75% Series B Senior Subordinated Notes due June 2005, priced at 108.75% for an effective interest rate of 10.15%. The proceeds of this issuance were used to pay down the term facility of the Amended and Restated Credit Agreement. Amended and Restated Credit Agreement In connection with the Series B Senior Subordinated Notes issuance, the Company amended the Amended and Restated Credit Agreement dated June 17, 1997, with certain financial institutions. This amendment to the Amended and Restated Credit Agreement provides senior secured financing of up to $260,500, consisting of a $25,000 Term A loan and a $160,500 Term B loan (collectively called the "Term Facility") and a $75,000 revolving loan and letter of credit facility (the "Revolver"). Mandatory principal payments of the Term Facility are due in quarterly installments. The final installment on the Term A loan is due September 30, 2002 at which time the Revolver is also due. The final installment on the Term B Loan is due September 30, 2003. Borrowings under the Term A Loan and Revolver bear interest, at the option of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus 0.5% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 1.5%. Borrowings under the Term B Loan bear interest, at the option of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus 1.0% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 2.0%. The Alternate Base Rate and Eurodollar Rate margins are established quarterly based on a formula as defined in the Amended and Restated Credit Agreement. Interest payment dates vary depending on the interest rate option to which the Term Facility and the Revolver are tied, but generally 34 36 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest is payable quarterly. The Amended and Restated Credit Agreement contains several financial covenants which, among other things, require Group to maintain certain financial ratios and restrict Group's ability to incur indebtedness, make capital expenditures and pay dividends. The weighted average interest rate on outstanding borrowings was 7.82% and 8.75% at December 31, 1997 and December 31, 1996, respectively. Senior Subordinated and Series B Senior Subordinated Notes The Senior Subordinated Notes issued in connection with the Acquisitions and the Series B Senior Subordinated Notes issued in connection with refinancing of the Term Facility (collectively called the "Senior Notes") were issued under similar indentures (the "Indentures") dated June 12, 1995 and June 17, 1997 respectively. The Senior Notes represent unsecured general obligations of Group and are subordinated to all Senior Debt (as defined in the Indenture) of Group. The Senior Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro Componentes de Mexico, S.A. de C.V., Wirekraft Industries de Mexico, S.A. de C.V. and IWG-Philippines, Incorporated (newly formed with no operations) (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the Company. The Senior Notes mature on June 1, 2005. Interest on the Senior Notes is payable semi-annually on each June 1 and December 1. The Senior Notes bear interest at the rate of 11.75% per annum. The Senior Notes may not be redeemed prior to June 1, 2000, except in the event of a Change of Control (as defined) or Initial Public Offering (as defined) and at such applicable premium (as defined). The Senior Notes are redeemable, at the Company's option, at the redemption prices of 105.875% at June 1, 2000, and at decreasing prices to 100% at June 1, 2003, and thereafter, with accrued interest. In addition, prior to June 1, 1998, the Company may redeem, within guidelines specified in the Indenture, up to $100,000 of the Senior Notes with the proceeds of one or more Equity Offerings (as defined) by the Company or Holding at a redemption price of 110%, with accrued interest. The Senior Notes restrict, among other things, the incurrence of additional indebtedness by the Company, the payment of dividends and other distributions in respect of the Company's capital stock, the payment of dividends and other distributions by the Company's subsidiaries, the creating of liens on the properties and the assets of the Company to secure certain subordinated debt and certain mergers, sales of assets and transactions with affiliates. Industrial Revenue Bonds In connection with the Camden Acquisition, the Company assumed debt related to two Industrial Revenue Bonds (the "IRB's") totaling $15,500. The IRB's are due in August, 2005 and March, 2016 in the amounts of $9,000 and $6,500, respectively. The IRB's bear interest at a rate per annum which is tied to the Tax Exempt Money Market Index which resulted in an effective rate of 3.83% at December 31, 1997. Rates change weekly and interest is paid monthly. The IRB's are collateralized by letters of credit totaling $15,500. 8. PREFERRED STOCK In connection with the DWT Acquisition, the Company issued 400,000 shares of the Preferred Stock. In accordance with the Certificate of Designation of the Preferred Stock, cumulative dividends were payable quarterly at the rate of 14% per annum. At December 31, 1996, dividends in arrears were $1,200 or $2.99 per share. The Preferred Stock had a liquidation preference of $25.00 per share and a par value of $.01 per share. In 1997, the Company exchanged all shares of Preferred Stock for debt and paid all dividends in arrears related to the Preferred Stock. 35 37 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. The provision for income taxes is as follows:
SEVEN YEAR ENDED YEAR ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Current: Federal..................................... $ 169 $ -- $ -- State....................................... 776 935 1,262 Foreign..................................... 808 264 661 ------- ------ ------ 1,753 1,199 1,923 Deferred: Federal..................................... 1,020 (64) (530) State....................................... (119) 127 804 ------- ------ ------ 901 63 274 ------- ------ ------ 2,654 1,262 2,197 Tax provision on extraordinary item........... (1,995) -- -- ------- ------ ------ Total provision............................... $ 659 $1,262 $2,197 ======= ====== ======
Reconciliation between the statutory income tax rate and effective tax rate is summarized below:
SEVEN MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ U.S. Federal statutory rate.................. $2,324 $(30,877) $ (372) State taxes, net of federal effect........... 427 690 1,364 Foreign taxes................................ (875) (430) 789 Nondeductible expenses....................... 1,144 31,814 397 Other........................................ (366) 65 19 ------ -------- ------ $2,654 $ 1,262 $2,197 ====== ======== ======
36 38 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Deferred tax assets: Accounts receivable reserves............................. $ 720 $ 477 Accrued liabilities not yet deductible................... 2,672 3,497 Inventories.............................................. 8,608 1,205 Net operating loss carry forward......................... 5,077 -- Postretirement benefits.................................. 3,158 -- Other.................................................... 315 227 ------- ------- 20,550 5,406 Deferred tax liabilities: Depreciation and amortization............................ 15,998 14,684 Other.................................................... -- 700 ------- ------- 15,998 15,384 ------- ------- Net deferred tax asset (liability)............... $ 4,552 $(9,978) ======= =======
The Company's net operating loss carryforward expires in periods ranging from the year 2010 through 2011. Wirekraft's U.S. income tax returns for the years 1993-1995 are being reviewed by the Internal Revenue Service. The proposed settlement is being reviewed by the Joint Tax Committee. The Company believes that the final settlement will not have a material adverse effect on the future financial position, operations or cash flows of the Company and that adequate amounts of taxes and related interest, if any, have been provided. 10. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES Commencing in the first quarter of 1996, the Company began a comprehensive review of the strategic position of its individual business units. The original goodwill related to the Wirekraft acquisition recognized long-term customer relationships and plant locations that were strategically sized, located and customer focused. Due to intense competition in the appliance and automotive markets and the loss of the portion of business from a major appliance customer in 1995, the Company developed and executed new business strategies in 1996, including the DWT Acquisition, to maintain customer volume levels, meet competitive pressures and address key changes within the marketplace. As a result, the Company embarked on a major plant consolidation program including the utilization of facilities purchased in the DWT Acquisition and transitioning of business from the Midwest to the Southwest and Mexico. In June of 1995, the Company established a plant closing reserve of $1,750 to shut down and consolidate certain Harness segment facilities. During the development of the new business strategies in 1996, the Company formulated a plan to realign the plant capacity through plant closings and consolidations of wire segment facilities. To that end, the Company charged an additional $6,000 to the reserve through December 31, 1996. As future costs of the 1996 plan became reasonably estimable, the Company charged an additional $2,000 to the reserve in 1997 relating to the closure of plants in the Wire segment. The plant closing reserve includes provisions for shut-down costs from the period of the plant closure to the date of disposal, commitment costs for leased property and key personnel and severance related costs. During 1997, 1996 and 37 39 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1995, plant closing actions resulted in the reduction of approximately 303, 55 and 45 employees, respectively. There have been ten Harness segment facilities and four Wire segment facilities closed to date. The following table summarizes the activity in the plant closing reserve for the period from June 1, 1995 through December 31, 1997:
SEVEN YEAR YEAR MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Balance, beginning of period.................. $ 2,462 $ 700 $ -- Charges to operations: Facility shut-down costs.................... 1,875 3,872 731 Lease commitments........................... -- 773 67 Key personnel and severance costs........... 125 1,355 952 ------- ------- ------- 2,000 6,000 1,750 Costs incurred: Facility shut-down costs.................... (1,979) (3,017) (339) Lease commitments........................... (230) (134) (67) Key personnel and severance costs........... (808) (1,087) (644) ------- ------- ------- (3,017) (4,238) (1,050) ------- ------- ------- Balance, end of period........................ $ 1,445 $ 2,462 $ 700 ======= ======= =======
The Company periodically evaluates the adequacy of the reserve balances and estimated future expenditures, including assumptions used and the period over which such costs are expected to be incurred. In December 1996, the Company completed its review of the carrying value of goodwill, resulting in an impairment charge of $78,250 for the year ended December 31, 1996. In determining the goodwill impairment charge, the Company completed financial projections through the year 2000. These projections reflect the Company's business strategies and were based on current industry trends, forecasts and expected developments. A discounted cash flow analysis of the consolidated entity was used to calculate the fair market value of the Company and was based upon the Company's acquisition strategy which focuses on the identification and realization of certain synergies existing between the acquired businesses. The calculated fair value of the Company is determined as the sum of discounted free cash flows through the year 2000 plus a terminal value, which is calculated using a discounted cash flow terminal value approach, determined by capitalizing unlevered net income in the last year of the projection by dividing unlevered net income by the weighted average cost of capital, less an assumed future growth rate. The calculated fair market value was compared to net tangible assets (net working capital and net property, plant and equipment). The difference between net tangible assets and the fair market value was compared to net goodwill to determine the goodwill impairment charge. In connection with the impairment charge recorded in December 1996, the Company provided $4,201 for anticipated losses of related to product liability claims associated with the period preceding the original acquisition of Wirekraft in 1992. These claims are for a non-wire product in the appliance industry that the Company has not manufactured since 1992. The Company's policy is to record the probable and reasonably estimable loss related to product liability claims. In developing its estimated liability outstanding on actual claims reported, the Company considered historical settlement rates. The Company has estimated its liability outstanding on actual claims reported at December 31, 1997 and December 31, 1996 to be $1,971 and $1,500, respectively. In determining its estimate of claims incurred but not reported, the Company considered historical claim levels and amounts relative to total product shipped. Additionally, the Company considered 38 40 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) historical settlement rates to develop its estimate for incurred but not reported claims at December 31, 1997 and December 31, 1996 of $1,471 and $2,701, respectively. Due to the uncertainties associated with these product claims, the future cost of final settlement of these claims may differ from the liability currently accrued. However, in the Company's opinion, the impact of final settlement of these claims on future operations, financial position and cash flows will not be material. 11. RETIREMENT BENEFITS AND STOCK OPTION PLANS The Company sponsors a number of defined contribution retirement plans which provide retirement benefits for eligible employees. Company contribution expense related to these retirement plans for the years ended December 31, 1997 and December 31, 1996 and seven months ended December 31, 1995 amounted to approximately $3,442, $1,208 and $902, respectively. Holding's Qualified and Non-qualified Stock Option Plan (the "Option Plan") provides for the granting of up to 4,795,322 shares of common stock to officers and key employees of Holding and the Company. Under the plan, options granted approximate market value of the common stock at the date of grant. Such options vest ratably over a five year period commencing on the first anniversary date after the date of grant, and vested options are exercisable at the discretion of the committee appointed to administer the Option Plan. Generally, an option may be exercised only if the holder is an officer or employee of Holding or the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution. Holding and the Company also granted Performance Options ("the Performance Options") to certain key executives in 1996 and 1995. The Performance Options are exercisable only on the occurrence of certain events. The exercise price for the Performance Options is initially equal to $1.00 per share and, effective each anniversary of the grant date, the per share exercise price for the Performance Options is equal to the per share exercise price for the prior year multiplied by 1.09. The Performance Options terminate on the tenth anniversary date of the date of grant. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for the Option Plan. Accordingly, no compensation cost has been recognized for the Option Plan and the Performance Options. There may be compensation expense in future periods when the Performance Options became exercisable to the extent that the fair value of the stock exceeds the exercise price of the Performance Options. Had compensation cost for the Option Plan and the Performance Options been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income (loss) would approximate the following:
SEVEN MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ As reported................................... $990 $(89,482) $(3,291) Pro forma..................................... $800 $(89,759) $(3,329)
The minimum value of each option grant is estimated on the date of grant with the following assumptions in 1997, 1996 and 1995, respectively: (i) risk-free interest rates ranging from 6.4% to 6.6% in 1997, ranging from 5.9% to 6.5% in 1996 and 5.9% in 1995 and (ii) expected life of 10 years. 39 41 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. Additional awards in future years are anticipated. Changes in the status of the Option Plan are summarized below:
WEIGHTED AVERAGE EXERCISE PRICE OPTIONS OPTIONS PER SHARE GRANTED VESTED ---------------- ---------- --------- June 1, 1995................................ -- -- -- Granted................................... $1.00 3,400,000 -- Vested.................................... -- -- -- ----- ---------- --------- December 31, 1995........................... $1.00 3,400,000 -- Granted................................... $1.02 1,865,249 -- Vested.................................... $1.00 -- 495,249 Forfeitures............................... $1.00 (1,250,000) -- ----- ---------- --------- December 31, 1996........................... $1.01 4,015,249 495,249 Granted................................... $1.40 1,350,000 -- Vested.................................... $1.03 -- 915,000 Forfeitures............................... $1.00 (888,805) (28,805) ----- ---------- --------- December 31, 1997........................... $1.12 4,476,444 1,381,444 ===== ========== =========
Changes in the status of the Performance Options are summarized below:
WEIGHTED AVERAGE EXERCISE PRICE OPTIONS OPTIONS PER SHARE GRANTED VESTED ---------------- --------- ------- June 1, 1995.................................... $ -- -- -- Granted....................................... $1.00 2,966,178 -- ----- --------- ---- December 31, 1995............................... $1.00 2,966,178 -- Granted....................................... $1.00 1,236,566 -- ----- --------- ---- December 31, 1996............................... $1.06 4,202,744 -- Granted....................................... $ -- -- -- ----- --------- ---- December 31, 1997............................... $1.16 4,202,744 -- ===== ========= ====
The weighted average grant-date fair value of options granted during 1997, 1996 and 1995 was $0.35, $0.48 and $0.44 per share, respectively. Of the 4,476,444 options outstanding under the Option Plan at December 31, 1997, 3,375,000 have an exercise at $1.00 per share, 1,350,000 at $1.40 per share and 51,444 at $1.63 per share and have weighted average remaining contractual lives of between 8 and 10 years. The weighted average exercise price of options vested at December 31, 1997 is $1.02 per share. Of the Performance Options outstanding at December 31, 1997, 2,966,178 and 1,235,566 have exercise prices of $1.19 and $1.09 respectively, and have weighted average remaining contractual lives of between 8 and 9 years. In addition to the options granted to officers and key employees under the Option Plan, Holding and the Company also granted options outside of the Option Plan to purchase 300,000 shares of Holding Common Stock at $1.00 per share to directors of the Company. These options were issued and vested in 1995. 12. COMMITMENTS AND CONTINGENCIES The Company leases certain property, transportation vehicles and other equipment. Total rental expense under operating leases was $5,862, $2,237 and $1,420 for the years ended December 31, 1997 and 40 42 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1996 and seven months ended December 31, 1995, respectively. Future minimum lease payments under capital and operating leases for the years ended December 31 are:
CAPITAL OPERATING ------- --------- 1998........................................................ $ 1,391 $3,454 1999........................................................ 1,391 2,236 2000........................................................ 1,355 1,215 2001........................................................ 970 920 2002........................................................ 230 582 Thereafter.................................................. 2,780 -- ------- ------ Total minimum lease payments.............................. 8,117 $8,407 ====== Less amount representing interest......................... (3,297) ------- Present value of net minimum lease payments............... $ 4,820 =======
The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company has agreed to participate in an international expansion project with one of the Wire segment's largest customers. The Company estimates its financial commitment for property, plant and equipment to be approximately $13,000 of which approximately $6,000 has been expended as of December 31, 1997. 13. BUSINESS SEGMENT INFORMATION Certain information concerning the Company's operating segments for the years ended December 31, 1997 and December 31, 1996 and the seven months ended December 31, 1995 is presented below. Total revenue by segment includes both sales to customers and intersegment sales, which are accounted for at prices charged to customers and eliminated in consolidation.
YEAR ENDED DECEMBER 31, 1997 WIRE HARNESS CONSOLIDATED - ------------------------------------------------------ -------- -------- ------------ Total revenue......................................... $553,925 $165,430 Intersegment sales.................................... 24,207 -- -------- -------- Sales to customers.................................... $529,718 $165,430 $695,148 Operating income...................................... $ 41,261 $ 20,348 $ 61,609 Identifiable assets................................... $536,782 $ 91,266 $628,048 Depreciation and amortization......................... $ 28,589 $ 7,437 $ 36,026 Capital expenditures, net............................. $ 24,961 $ 2,799 $ 27,760
YEAR ENDED DECEMBER 31, 1996 WIRE HARNESS CONSOLIDATED - ------------------------------------------------------ -------- -------- ------------ Total revenue......................................... $406,026 $161,354 Intersegment sales.................................... 20,399 -- -------- -------- Sales to customers.................................... $385,627 $161,354 $546,981 Operating loss........................................ $(29,443) $(12,375) $(41,818) Identifiable assets................................... $437,524 $ 93,496 $531,020 Depreciation and amortization......................... $ 24,880 $ 6,461 $ 31,341 Capital expenditures, net............................. $ 13,060 $ 2,789 $ 15,849
41 43 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEVEN MONTHS ENDED DECEMBER 31, 1995 WIRE HARNESS CONSOLIDATED - ------------------------------------------------------ -------- -------- ------------ Total revenue......................................... $167,082 $ 84,288 Intersegment sales.................................... 5,341 446 -------- -------- Sales to customers.................................... $161,741 $ 83,842 $245,583 Operating income...................................... $ 10,937 $ 9,526 $ 20,463 Identifiable assets................................... $295,671 $132,249 $427,920 Depreciation and amortization......................... $ 7,442 $ 3,578 $ 11,020 Capital expenditures, net............................. $ 4,991 $ 760 $ 5,751
14. GUARANTOR SUBSIDIARIES The Senior Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of the Company (the "Guarantor Subsidiaries") other that Electro Componentes de Mexico, S.A. de C.V., Wirekraft Industries de Mexico, S.A. de C.V. and IWG-Philippines, Incorporated (newly formed with no operations) (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the Company. The following condensed, consolidating financial statements of the Company include the accounts of the Company, the combined accounts of the Guarantor Subsidiaries and the combined accounts of the Non-Guarantor Subsidiaries. Given the size of the Non-Guarantor Subsidiaries relative to the Company on a consolidated basis, separate financial statements of the respective Guarantor Subsidiaries are not presented because management has determined that such information is not material in assessing the Guarantor Subsidiaries. 42 44 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1997 ASSETS
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED -------- --------- --------- ------------ ------------ Cash.................................. $ -- $ (226) $ 226 $ -- $ -- Accounts receivable................... -- 86,521 680 -- 87,201 Inventory............................. -- 74,406 -- -- 74,406 Other assets.......................... -- 27,273 -- -- 27,273 -------- -------- ------- --------- -------- Total current assets........ -- 187,974 906 -- 188,880 Property plant and equipment, net..... -- 150,443 14,796 -- 165,239 Intangible assets, net................ 23,592 242,336 -- -- 265,928 Investment in subsidiaries............ 592,643 -- -- (592,643) -- Other assets.......................... -- 5,963 2,038 -- 8,001 -------- -------- ------- --------- -------- Total assets................ $616,235 $586,716 $17,740 $(592,643) $628,048 ======== ======== ======= ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities................... $ 8,334 $106,623 $ 2,252 $ -- $117,209 Long term obligations, less current maturities.......................... 498,014 21,288 -- -- 519,302 Other long-term liabilities........... -- 37,365 -- -- 37,365 Intercompany (receivable) payable..... 87,953 (97,774) 9,821 -- -- -------- -------- ------- --------- -------- Total liabilities........... 594,301 67,502 12,073 -- 673,876 Stockholder's equity Common stock........................ 0 -- -- -- 0 Preferred stock..................... -- -- -- -- -- Contributed capital................. 113,717 572,012 138 (572,150) 113,717 Predecessor carryover............... -- (67,762) -- -- (67,762) Retained earnings................... (91,783) 14,964 5,529 (20,493) (91,783) -------- -------- ------- --------- -------- Total stockholder's equity (deficit)................. 21,934 519,214 5,667 (592,643) (45,828) -------- -------- ------- --------- -------- Total liabilities and stockholder's equity (deficit)................. $616,235 $586,716 $17,740 $(592,643) $628,048 ======== ======== ======= ========= ========
43 45 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED -------- --------- --------- ------------ ------------ Net sales................................. $ -- $695,148 $35,885 $(35,885) $695,148 Operating expenses Cost of goods sold...................... -- 551,311 14,884 (35,885) 530,310 Selling, general and administrative expenses............................. -- 44,190 12,513 -- 56,703 Depreciation and amortization........... -- 33,347 2,679 -- 36,026 Impairment, unusual and plant closing charges.............................. -- 2,000 -- -- 2,000 Inventory valuation adjustment.......... -- 8,500 -- -- 8,500 -------- -------- ------- -------- -------- Operating income (loss)................... -- 55,800 5,809 -- 61,609 Other income (expense).................... (49,753) (1,186) -- -- (50,939) Interest expense........................ Amortization of deferred financing fees................................. (3,932) -- -- -- (3,932) Equity in net income of subsidiaries.... 57,666 -- -- (57,666) -- Other, net.............................. -- (98) (5) -- (103) -------- -------- ------- -------- -------- Income before income tax provision and extraordinary item...................... 3,981 54,516 5,804 (57,666) 6,635 Income tax provision...................... -- 1,846 808 -- 2,654 -------- -------- ------- -------- -------- Income before extraordinary item.......... 3,981 52,670 4,996 (57,666) 3,981 Extraordinary item........................ (2,991) -- -- -- (2,991) -------- -------- ------- -------- -------- Net income...................... $ 990 $ 52,670 $ 4,996 $(57,666) $ 990 ======== ======== ======= ======== ========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Net cash from operating activities....... $ (53,585) $ 78,917 $ 8,666 $-- $ 33,998 --------- -------- ------- --- --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash............... -- (58,996) -- -- (58,996) Capital expenditures................... -- (19,062) (8,698) -- (27,760) --------- -------- ------- --- --------- Net cash used in investing activities................... -- (78,058) (8,698) -- (86,756) --------- -------- ------- --- --------- Cash flows provided by (used in) financing activities: Equity proceeds........................ 331 (451) 120 -- -- Proceeds from issuance of long-term obligations......................... 228,125 -- -- -- 228,125 Repayment of long-term obligations..... (161,505) (496) -- -- (162,001) Repurchase of stock of Holding......... (700) -- -- -- (700) Cash dividends paid on preferred stock............................... (1,378) -- -- -- (1,378) Financing fees and other............... (11,288) -- -- -- (11,288) --------- -------- ------- --- --------- Net cash from financing activities................... 53,585 (947) 120 -- 52,758 --------- -------- ------- --- --------- Net change in cash............. $ -- $ (88) $ 88 $-- $ -- ========= ======== ======= === =========
44 46 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1996 ASSETS
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED -------- --------- --------- ------------ ------------ Cash...................................... $ -- $ (138) $ 138 $ -- $ -- Accounts receivable....................... -- 70,010 1,902 (731) 71,181 Inventory................................. -- 59,648 714 -- 60,362 Other assets.............................. 5,375 4,314 112 -- 9,801 -------- -------- ------- --------- -------- Total current assets............ 5,375 133,834 2,866 (731) 141,344 Property plant and equipment, net......... -- 109,774 8,777 -- 118,551 Intangible assets, net.................... 19,722 246,155 -- -- 265,877 Investment in subsidiaries................ 534,857 -- -- (534,857) -- Other assets.............................. -- 4,368 880 -- 5,248 -------- -------- ------- --------- -------- Total assets.................... $559,954 $494,131 $12,523 $(535,588) $531,020 ======== ======== ======= ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities....................... $ 24,620 $ 85,866 $ 2,856 $ (731) $112,611 Long term obligations, less current maturities.............................. 420,422 6,297 -- -- 426,719 Other long-term liabilities............... 6,081 20,790 10 -- 26,881 Intercompany (receivable) payable......... 76,260 (85,366) 9,106 -- -- -------- -------- ------- --------- -------- Total liabilities............... 527,383 27,587 11,972 (731) 566,211 Stockholders' equity Common stock............................ -- -- -- -- -- Preferred stock......................... 4 -- -- -- 4 Contributed capital..................... 125,340 572,012 18 (572,030) 125,340 Predecessor carryover................... -- (67,762) -- -- (67,762) Retained earnings....................... (92,773) (37,706) 533 37,173 (92,773) -------- -------- ------- --------- -------- Total stockholders' equity (deficit)..................... 32,571 466,544 551 (534,857) (35,191) -------- -------- ------- --------- -------- Total liabilities and stockholders' equity (deficit)..................... $559,954 $494,131 $12,523 $(535,588) $531,020 ======== ======== ======= ========= ========
45 47 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Net sales................................ $ -- $546,981 $34,757 $(34,757) $ 546,981 Operating expenses Cost of goods sold..................... -- 435,164 20,416 (34,757) 420,823 Selling, general and administrative expenses............................ -- 33,384 10,501 -- 43,885 Depreciation and amortization.......... -- 29,688 1,653 -- 31,341 Impairment, unusual and plant closing charges............................. -- 84,250 -- -- 84,250 Inventory valuation adjustment......... -- 8,500 -- -- 8,500 --------- -------- ------- -------- --------- Operating income (loss).................. -- (44,005) 2,187 -- (41,818) Other income (expense) Interest expense....................... (41,187) (1,410) (416) -- (43,013) Amortization of deferred financing fees................................ (3,701) -- -- -- (3,701) Equity in net loss of subsidiaries..... (46,794) -- -- 46,794 -- Other, net............................. -- 243 69 -- 312 --------- -------- ------- -------- --------- Income (loss) before income tax provision.............................. (91,682) (45,172) 1,840 46,794 (88,220) Income tax provision..................... (2,200) 3,197 265 -- 1,262 --------- -------- ------- -------- --------- Net income (loss).............. $ (89,482) $(48,369) $ 1,575 $ 46,794 $ (89,482) ========= ======== ======= ======== =========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Net cash from operating activities....... $ 16,189 $ 12,881 $ 2,910 $ -- $ 31,980 --------- -------- ------- ---- --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash............... (160,259) -- -- -- (160,259) Capital expenditures................... -- (13,048) (2,801) -- (15,849) --------- -------- ------- ---- --------- Net cash used in investing activities................... (160,259) (13,048) (2,801) -- (176,108) --------- -------- ------- ---- --------- Cash flows provided by (used in) financing activities: Equity proceeds........................ 44,289 750 -- -- 45,039 Proceeds from issuance of long-term obligations......................... 128,200 -- -- -- 128,200 Repayment of long-term obligations..... (20,619) (692) -- -- (21,311) Financing fees and other............... (7,800) -- -- -- (7,800) --------- -------- ------- ---- --------- Net cash from financing activities................... 144,070 58 -- -- 144,128 --------- -------- ------- ---- --------- Net change in cash............. $ -- $ (109) $ 109 $ -- $ -- ========= ======== ======= ==== =========
46 48 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Net sales................................ $ -- $245,583 $ 8,240 $(8,240) $ 245,583 Operating expenses Cost of goods sold..................... -- 198,958 4,503 (8,240) 195,221 Selling, general and administrative expenses............................ -- 13,259 3,870 -- 17,129 Depreciation and amortization.......... -- 10,927 93 -- 11,020 Impairment, unusual and plant closing charges............................. -- 1,750 -- -- 1,750 Inventory valuation adjustment......... -- -- -- -- -- --------- -------- ------- ------- --------- Operating income (loss).................. -- 20,689 (226) -- 20,463 Other income (expense) Interest expense....................... (18,960) (815) (156) -- (19,931) Amortization of deferred financing fees................................ (1,468) -- -- -- (1,468) Equity in net loss of subsidiaries..... 9,621 -- -- (9,621) -- Other, net............................. -- (158) -- -- (158) --------- -------- ------- ------- --------- Income (loss) before income tax provision.............................. (10,807) 19,716 (382) (9,621) (1,094) Income tax provision..................... (7,516) 9,053 660 -- 2,197 --------- -------- ------- ------- --------- Net income (loss).............. $ (3,291) $ 10,663 $(1,042) $(9,621) $ (3,291) ========= ======== ======= ======= =========
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995
TOTAL TOTAL NON- COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Net cash from operating activities....... $ 108 $ 7,945 $ 5,281 $ -- $ 13,334 --------- -------- ------- ---- --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash............... (341,046) -- -- -- (341,046) Capital expenditures................... -- (5,482) (269) -- (5,751) --------- -------- ------- ---- --------- Net cash used in investing activities................... (341,046) (5,482) (269) -- (346,797) --------- -------- ------- ---- --------- Cash flows provided (used in) financing activities: Equity proceeds........................ 15,048 -- -- -- 15,048 Proceeds from issuance of long-term obligations......................... 337,500 -- -- -- 337,500 Repayment of long-term obligations..... -- (450) (4,635) -- (5,085) Financing fees and other............... (14,000) -- -- -- (14,000) --------- -------- ------- ---- --------- Net cash from financing activities................... 338,548 (450) (4,635) -- 333,463 --------- -------- ------- ---- --------- Net change in cash............. $ (2,390) $ 2,013 $ 377 $ -- $ -- ========= ======== ======= ==== =========
47 49 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of International Wire Group, Inc.: Our report on the consolidated financial statements of International Wire Group, Inc. and subsidiaries is included on page 23 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 22 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 30, 1998 48 50 INTERNATIONAL WIRE GROUP, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL COLLECTION OF ACCOUNTS -- DEDUCTED FROM BALANCE AT PREVIOUSLY BALANCE AT ACCOUNTS RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF BALANCE SHEET OF PERIOD PROVISION WRITE-OFFS ACCOUNTS ACQUISITIONS PERIOD --------------------------- ---------- --------- ---------- ------------- ------------ ---------- (IN THOUSANDS) Seven months ended December 31, 1995................... $ 845 $ 33 $ (53) $35 $ -- $ 860 Year ended December 31, 1996....................... $ 860 $337 $ (71) $12 $225 $1,363 Year ended December 31, 1997....................... $1,363 $888 $(388) $12 $203 $2,078
49 51 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Wirekraft Holdings Corp.: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Wirekraft Holdings Corp. and subsidiaries (formerly WB Holdings, Inc.) for the six months ended May 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Wirekraft Holdings Corp. and subsidiaries for the six months ended May 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 27, 1996 50 52 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1995 -------------- (IN THOUSANDS) Net sales................................................... $168,053 Operating expenses: Cost of goods sold........................................ 138,851 Selling, general and administrative....................... 13,301 Depreciation and amortization............................. 6,474 Compensation expense...................................... 895 Expenses related to sale.................................. 501 Expenses related to plant closings........................ 2,000 -------- Operating income............................................ 6,031 Other income (expense): Interest expense.......................................... (8,020) Amortization of deferred financing costs.................. (1,657) -------- Income (loss) before income tax provision and extraordinary item...................................................... (3,646) Income tax provision (benefit).............................. (2,114) -------- Income (loss) before extraordinary item..................... (1,532) Extraordinary item -- loss due to early extinguishment of debt, net of income tax of $4,930......................... (7,835) -------- Net income (loss)................................. $ (9,367) ========
See accompanying notes to the consolidated financial statements 51 53 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MAY 31, 1995
CLASS A ADDITIONAL RETAINED PREFERRED COMMON COMMON PAID-IN EARNINGS STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL --------- ------ ------- ---------- --------- ------- (IN THOUSANDS) Balance November 30, 1994...... -- 200 24 22,576 5,574 28,374 Issuance of preferred stock.... 10 -- -- 24,990 -- 25,000 Issuance of common stock....... -- 3 -- 747 -- 750 Issuance costs................. -- -- -- (300) -- (300) Net loss....................... -- -- -- -- (9,367) (9,367) --- ---- --- ------- ------- ------- Balance May 31, 1995........... $10 $203 $24 $48,013 $(3,793) $44,457 === ==== === ======= ======= =======
See accompanying notes to the consolidated financial statements 52 54 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1995 -------------- (IN THOUSANDS) Cash flows provided by (used in) operating activities: Net income (loss)......................................... $ (9,367) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary item..................................... 12,765 Depreciation and amortization.......................... 6,474 Amortization of deferred financing costs............... 1,493 Accretion of debt discount............................. 164 Deferred income taxes.................................. (4,282) Change in assets and liabilities, net of acquisitions: Accounts receivable.................................. (9,863) Inventories.......................................... (824) Prepaid expenses and other........................... (166) Accounts payable..................................... (617) Accrued and other liabilities........................ 2,628 Accrued interest..................................... 1,276 Income taxes payable/refundable...................... (3,366) Other long-term liabilities.......................... (236) -------- Net cash from operating activities................ (3,921) -------- Cash flows provided by (used in) financing activities: Acquisitions, net of cash................................. (44,973) Capital expenditures, net................................. (2,914) -------- Net cash from investing activities................ (47,887) -------- Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term obligations........... 24,000 Equity proceeds........................................... 25,750 Borrowings of long-term obligations....................... 19,639 Repayment of long-term obligations........................ (14,226) Financing fees and other.................................. (3,500) -------- Net cash from financing activities................ 51,663 -------- Net change in cash and cash equivalents........... (145) Cash and cash equivalents at beginning of the period........ 2,053 -------- Cash and cash equivalents at end of the period ............. $ 1,908 ========
See accompanying notes to the consolidated financial statements 53 55 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MAY 31, 1995, (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY WB Holdings Inc. ("Holdings"), a Delaware corporation, was formed to participate in the December 21, 1992 Acquisition (defined below). Holdings had no operations prior to December 21, 1992. On December 2, 1994, Holdings, through a series of mergers, became a wholly owned subsidiary of Wirekraft Holdings Corp. ("New Holdings" together with Holdings, the "Company"). Pursuant to the mergers, the existing stockholders of Holdings exchanged their Holdings securities for New Holdings securities that have terms identical to the exchanged Holdings securities. New Holdings, a Delaware corporation, was formed to participate in the acquisition of Electro Componentes de Mexico S.A. de C.V. ("ECM") as discussed in Note 2. New Holdings had no operations prior to December 2, 1994. Holdings and New Holdings have a fiscal year-end of November 30. On December 21, 1992, Holdings, through a series of acquisitions and mergers, acquired all of the issued and outstanding common stock of Bristol Holding Corporation and Burcliff Holdings Corporation, the parent companies of the general partners of Kirtland Indiana, Limited Partnership for a total consideration of $116,997 (the "Acquisition"). Through a related series of mergers after the Acquisition, Bristol Holding Corporation became the surviving entity. Bristol Holding Corporation was later renamed Wirekraft Industries, Inc. ("Wirekraft") (together with Holdings, the "Company"). Wirekraft through its two segments, the Wire segment and the Harness segment, is engaged in the manufacture, design and distribution of insulated wire and wire harnesses used primarily in the appliance and automobile markets. The Company markets and distributes its products through a combination of internal sales representatives and independent sales representatives, selling primarily to original equipment manufacturers. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of New Holdings and its wholly owned subsidiary, Holdings. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related costs of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: building and improvements -- 25 years; machinery and equipment -- 7 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or life of the respective improvement. 54 56 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Intangible Assets Intangible assets, which consist principally of goodwill arising from the excess of cost over the value of net assets acquired, are amortized using the straight-line method over forty years. Deferred Financing Costs Deferred financing costs, which consists of fees and other expenses associated with the debt financing, are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Income Taxes Deferred income taxes are determined using the liability method. Statement of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest paid for the six months ended May 31, 1995 was approximately $6,744. Taxes paid for the six months ended May 31, 1995 was approximately $604. During the six months ended May 31, 1995, the Company entered into a capital lease obligation of $4,714 for new equipment. Fair Value of Financial Instruments The fair market values of the financial instruments included in the consolidated financial statements approximate the carrying values of the financial instruments. Concentration of Credit Risk Sales to the Company's five largest customers represented 61% of net sales for the six months ended May 31, 1995. A significant portion of the Company's sales are to three major customers within the Harness Segment. Sales to one of these customers represented 25% of net sales for the six months ended May 31, 1995. The Company has entered into a supply contract with this customer expiring in 2002. Sales to the Company's two other major customers represented 12% and 7% of net sales for the six months ended May 31, 1995. 3. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisition and ECM acquisition, the Company incurred aggregate fees and costs of $11,900. Costs of $11,100 related to the 12% Senior Subordinated Notes due 2003 and Credit Agreement are included in deferred financing costs and are amortized over the term of the related borrowings. Costs of $800 related to the issuance of Holding's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the Acquisition and the related financing, Holdings and Wirekraft entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co., Incorporated ("Hicks Muse") (an affiliate of the Company) pursuant to which the Company paid Hicks Muse a financial advisory fee of $1,725. The fees, which also include $200 paid in connection with the acquisition of Ristance and $750 paid in connection with the acquisition of ECM, have been allocated to the Company's debt and equity securities as deferred financing costs or as a deduction from the cash proceeds received from the sale of stock. The Agreement further provides that the Company shall pay Hicks Muse an annual fee of $115 (subject to 55 57 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adjustment), for ten years, for monitoring and oversight services. Such Agreement was amended and restated in connection with the acquisition of ECM to increase the annual fee for financial advisory services to $200 (subject to adjustment). The obligation under the Agreement, as amended, and the related deferred financing costs have been recorded in the consolidated balance sheet. 4. STOCKHOLDERS' EQUITY The authorized capital stock of the Company at May 31, 1995 consists of 50,000,000 shares of common stock, 3,000,000 shares of Class A common stock, and 10,000,000 shares of preferred stock. In connection with the financing of the Acquisition, the Company issued 20,000,000 shares of common stock, 2,402,402 shares of Class A common stock and 1,621,622 warrants to purchase common stock. Each warrant represents the right to purchase one share of the Company's common stock for $1.00 per warrant. The warrants expire on December 31, 2002. As of May 31, 1995, no warrants had been exercised. On December 2, 1994, in connection with the acquisition of ECM, the Company issued 1,000,000 shares of Series A Senior Preferred Stock and 275,758 shares of common stock. The Class A common stock may be converted into shares of common stock at the option of the holder at any time. In addition, shares of the Class A common stock (i) may be converted into common stock at the option of the Company effective immediately prior to the occurrence of a Triggering Event (as defined in the Company's Certificate of Incorporation) or (ii) shall automatically be converted on December 31, 2002. Such conversions are based on a formula set forth in the Company's Certificate of Incorporation. Dividends are payable to holders of the common stock and Class A common stock in amounts as and when declared by the Company's board of directors, subject to legally available funds and certain agreements governing the Company's indebtedness. In the event of any liquidation, dissolution or winding up of the Company, before any payment or distribution of the assets of the Company shall be made to the holders of the Class A common stock, each share of common stock shall be entitled to a liquidation preference based on a formula set forth in the Company's Certificate of Incorporation. The common stock and the Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. The Company has adopted a qualified and non-qualified incentive stock option plan (the "Option Plan") for officers and key employees of Holdings. A total of 1,471,000 shares of the Company's common stock has been reserved for issuance under the Option Plan. Under the Option Plan, eligible participants may receive qualified and non-qualified options to purchase shares of the Company's common stock. Options are exercisable at such time and on such terms as the committee appointed to administer the Option Plan (the "Committee") determines. The exercise price for the options granted under the Option Plan may not be less than the fair market value of the underlying share, as determined by the Committee on the date of grant. Generally, an option may be exercised only if the holder is an officer or employee of the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution. During the year ended November 30, 1994, the Company granted options to purchase 75,000 shares of common stock at $2.74 per share and canceled 235,200 options. No options were exercised during the year. During the six months ended May 31, 1995, the Company granted options to purchase 100,000 shares of common stock at $2.74 per share, canceled 188,800 shares and 20,000 options were exercised. At May 31, 1995, there were 764,000 options available for issuance under the Option Plan. 56 58 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES The provision (benefit) for income taxes consists of the following:
SIX MONTHS ENDED MAY 31, 1995 ------------ Current: Federal................................................... $ 1,022 State..................................................... 892 Foreign................................................... 254 ------- 2,168 ------- Deferred: Federal................................................... (3,159) State..................................................... (1,123) ------- (4,282) ------- Total............................................. $(2,114) =======
Reconciliation between the Federal statutory income tax rate and the effective tax rate is summarized below:
SIX MONTHS ENDED MAY 31, 1995 ------------ Federal taxes at statutory rate (34%)....................... $(1,240) State taxes, net of federal effect.......................... 210 Foreign..................................................... (1,468) Nondeductible assets........................................ 340 Other....................................................... 44 ------- Provision (benefit) for income taxes........................ $(2,114) =======
6. PLANT CLOSING EXPENSE In May 1995, the Company recorded a pre-tax charge to operations of $2,000 to provide for plant closing costs. The Company's decision to shut-down certain harness segment plants was the result of a customer transitioning certain wire harness purchases to its own captive operations in Mexico and other third party suppliers. The plant closing costs include provisions for shutdown costs from the period of the plant closure to the date of disposal, commitment costs for leased equipment and severance related costs. 7. RETIREMENT BENEFITS Employees of Wire division, who are eligible under Section 414(q) of the Internal Revenue Code, may participate in the profit sharing plan sponsored by the Company. The plan qualifies under the Internal Revenue Code section 401(k), and the Company may at its discretion make contributions on a matching or non-matching basis. Employees of the Wire Division with approximately one year of service may also participate in a money purchase pension plan sponsored by the Company. The Company is required to make contributions to the money purchase pension plan equal to 3% of an employee's eligible compensation as defined in the plan document. Expense under these two plans amounted to approximately $363 for the six months ended May 31, 1995. 57 59 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. LEASES The Company leases certain of its manufacturing facilities and equipment under long-term lease agreements with lease terms expiring through February 2004. Rent expense applicable to the noncancelable operating leases aggregated $505 for the six months ended May 31, 1995. 9. CONTINGENCIES The Company is subject to various lawsuits and claims with respect to such matters as patents, product liabilities, government regulations, and other actions arising in the normal course of business. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on the Company's consolidated financial conditions and results of operations. 10. BUSINESS SEGMENT INFORMATION Certain information concerning the Company's operating segments for the six months ended May 31, 1995 and the year ended November 30, 1994 is presented below. Total revenue by segment includes both sales to customers and intersegment sales, which are accounted for at prices charged to customers and eliminated in consolidation.
WIRE HARNESS CONSOLIDATED ------- ------- ------------ Six Months Ended May 31, 1995 Total revenue...................................... $88,488 $88,620 Intersegment sales................................. 7,807 1,248 ------- ------- Sales to customers................................. $80,681 $87,372 $168,053 ======= ======= Operating income................................... 1,320 4,711 6,031 Depreciation and amortization...................... 2,534 3,940 6,474 Capital expenditures, net.......................... 1,636 1,278 2,914
11. SUBSEQUENT EVENT On June 12, 1995, International Wire Holding Company, through a series of mergers and acquisitions acquired all of the outstanding common stock of New Holdings (the "Transaction"). The Company has designated June 1, 1995, as the effective date of the Transaction for financial reporting purposes. In connection with the Transaction, the majority of the Company's long-term debt was repaid, the common stock of New Holdings was redeemed at $51,751, the Series A Senior Preferred Stock issued as part of the ECM acquisition (see Note 2) was redeemed at a liquidation value of $26,250 plus accrued dividends of $71 and the warrants and equity rights were retired at $10,133. As a result of the early repayment of certain long-term debt, $7,909 of deferred financing costs and $2,456 of OID were charged off and included as an extraordinary item in the accompanying Statements of Operations for the six months ended May 31, 1995. In addition, the Company paid a prepayment penalty of $2,400 to holders of subordinated notes. This amount has also been included in the accompanying statements of operations as an extraordinary item. The stock options granted pursuant to the Company's stock option plan were canceled for payment to the option holders who received cash. This amount totaled approximately $895 and has been included in the Statements of Operations as compensation expense for the six months ended May 31, 1995. In connection with the sale, the Company incurred expenses of $501 which has been recorded in the Statements of Operations as expenses related to sale. 58 60 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the six months ended May 31, 1995 to reflect certain adjustments. These adjustments relate primarily to corrections of certain depreciation and interest expenses and recognition of certain costs associated with plant closings. Additionally, adjustments were made to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary item. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE SIX MONTHS ENDING MAY 31, 1995 -------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item.... $ (1,099) $(3,646) Net income (loss)........................................... $(14,491) $(9,367) Retained earnings (deficit)................................. $ (8,917) $(3,793)
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 59 61 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Omega Wire Corp.: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 27, 1996 60 62 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF OPERATIONS TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS) Net sales................................................... $23,295 Operating expenses: Cost of goods sold........................................ 17,512 Selling, general and administrative....................... 1,639 Depreciation and amortization............................. 1,233 ------- Operating income............................................ 2,911 Other income (expense): Interest expense.......................................... (1,797) Amortization of deferred financing costs.................. (238) ------- Income before income tax provision and extraordinary item... 876 Income tax provision........................................ 171 ------- Income before extraordinary item............................ 705 Extraordinary item -- loss due to early extinguishment of debt net of income tax of $2,082.......................... (4,044) ------- Net loss.......................................... $(3,339) =======
See accompanying notes to the consolidated financial statements 61 63 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY TWO MONTHS ENDED MAY 31, 1995
CLASS A CARRYOVER OF COMMON COMMON PAID-IN PREDECESSOR ACCUMULATED STOCK STOCK CAPITAL BASIS DEFICIT TOTAL ------ ------- ------- ------------ ----------- -------- (IN THOUSANDS) Issuance of common stock....... $420 $41,580 $ -- $ -- $ 42,000 Issuance of Class A common stock........................ -- 63 -- -- -- 63 Issuance costs................. -- -- (675) -- -- (675) Carryover of predecessor basis........................ -- -- -- (20,000) -- (20,000) Net loss....................... -- -- -- -- (3,339) (3,339) ---- --- ------- -------- ------- -------- Balance May 31, 1995........... $420 $63 $40,905 $(20,000) $(3,339) $ 18,049 ==== === ======= ======== ======= ========
See accompanying notes to the consolidated financial statements 62 64 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF CASH FLOWS TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS) Cash flows provided by (used in) operating activities: Net loss.................................................. $ (3,339) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary item..................................... 6,126 Depreciation and amortization.......................... 1,233 Amortization of deferred financing costs............... 238 Deferred income taxes.................................. 120 Change in assets and liabilities, net of acquisitions: Accounts receivable.................................. 1,528 Inventories.......................................... (510) Prepaid expenses and other........................... (231) Accounts payable..................................... 919 Accrued and other liabilities........................ 10 Accrued interest..................................... 952 Income taxes payable/refundable...................... (2,033) Other long-term liabilities.......................... (26) --------- Net cash from operating activities................ 4,987 --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash.................................. (159,080) Capital expenditures, net................................. (581) --------- Net cash from investing activities................ (159,661) --------- Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term obligations........... 135,000 Contributed capital....................................... 34,653 Repayment of long-term obligations........................ (7,979) Financing fees and other.................................. (7,000) --------- Net cash from financing activities................ 154,674 --------- Net change in cash................................ -- Cash at beginning of the period............................. -- --------- Cash at end of the period................................... $ -- =========
See accompanying notes to the consolidated financial statements 63 65 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TWO MONTHS ENDED MAY 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY Omega Wire Corp. ("Omega" or the "Company"), a Delaware corporation, was formed to participate in the Acquisition (defined below). Omega had no operations prior to the Acquisition. On March 31, 1995, Omega acquired all of the issued and outstanding common stock of THL-Omega Holding Corporation ("THL-Omega") for a total consideration $167,300 (the "Acquisition"). Omega, through its subsidiaries, is engaged in the manufacturing and marketing of non-insulated copper wire and cable products. The Company's products are used by a wide variety of customers primarily in the automotive and computer and data communications industries. Omega has a fiscal year-end of December 31. The total purchase price of the Acquisition of approximately $174,300, which included the retirement of existing indebtedness and related fees and costs, is summarized as follows: Cash paid for all issued and outstanding common stock....... $102,762 Cash paid to retire existing indebtedness................... 55,439 Common stock of Omega issued................................ 7,410 Fees and costs.............................................. 8,689 -------- $174,300 ========
The Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost has been preliminarily allocated to the consolidated assets and liabilities based on their estimated respective fair values. In accordance with EITF 88-16, "Basis in Leveraged Buyout Transactions", a portion of the Acquisition has been accounted for at "predecessor basis". The application of predecessor basis reduced stockholders' equity and goodwill by $20,000. The purchase price allocations are still in process. It is not expected that the final allocation of the purchase cost will result in a materially different allocation than is presented herein. The total acquisition costs have been preliminarily allocated to the acquired net assets as follows: Current assets.............................................. $ 40,802 Property, plant and equipment............................... 38,974 Goodwill.................................................... 96,701 Fees and costs.............................................. 9,000 Other assets................................................ 54 Current liabilities......................................... (21,906) Other liabilities........................................... (9,325) Carryover of predecessor basis.............................. 20,000 -------- $174,300 ========
2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Omega and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. 64 66 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 to 40 years; building improvements 15 years; machinery and equipment -- 3 to 11 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired, which is being amortized using the straight-line method over forty years. Amortization of intangible assets amounted to $384 for the two months ended May 31, 1995. Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest and taxes paid for the two months ended May 31, 1995 were $845 and $2, respectively. In connection with the Acquisition, certain shares of common stock of THL-Omega were exchanged for common stock of Omega. The total amount of shares exchanged were $7,410, which was a non-cash investing and financing activity. 3. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisition, the Company incurred aggregate fees and costs of $7,000. Costs of $6,325 related to the debt financing are being amortized over the terms of the related borrowings. Costs of $675 related to the issuance of Omega's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the Acquisition and obtaining the related financing, Omega entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse") (an affiliate of the Company) pursuant to which the Company paid Hicks Muse a cash fee of $2,525 as compensation for financial advisory services. The fees have been allocated to the debt and equity securities issued in connection with the Acquisition as deferred financing costs or as a deduction from the cash proceeds received from the sale of the common stock of Omega. The agreement further provides that the Company shall pay Hicks Muse an annual fee of $200, for ten years for monitoring and oversight services adjusted annually at the end of each fiscal year to an amount equal to 0.1% of the consolidated net sales of the Company, but in no event less than $200 annually. 65 67 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. STOCKHOLDERS' EQUITY The authorized capital stock of the Company consists of 100,000,000 shares of common stock, 6,333,333 shares of Class A common stock, and 10,000,000 shares of preferred stock. In connection with the financing of the Acquisition, the Company issued 42,000,000 shares of common stock and 6,333,333 shares of Class A common stock. The Class A common stock may be converted into shares of common stock at the option of the holder at any time. In addition, shares of the Class A common stock (i) may be converted into common stock at the option of the Company effective immediately prior to the occurrence of a Triggering Event (as defined in the Company's Certificate of Incorporation) or (ii) shall automatically be converted on March 31, 2005. Such conversions are based on a formula set forth in the Company's Certificate of Incorporation. Dividends are payable to holders of the common stock and Class A common stock in amounts as and when declared by the Company's board of directors, subject to legally available funds and certain agreements governing the Company's indebtedness. In the event of any liquidation, dissolution or winding up of the Company, before any payment or distribution of the assets of the Company shall be made to the holders of the Class A common stock, each share of common stock shall be entitled to a liquidation preference based on a formula set forth in the Company's Certificate of Incorporation. The common stock and the Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. 5. INCOME TAXES The Company accounts for income taxes in accordance with provisions of SFAS No. 109. The provision for income taxes for the two months ended May 31, 1995 is as follows: Current: Federal................................................... $ 51 ---- Deferred: Federal................................................... 55 State..................................................... 65 ---- 120 ---- $171 ====
Reconciliation between the federal statutory income tax rate and the effective tax rate is summarized below: Federal taxes at statutory rate (34%)....................... $ 297 State taxes, net of federal effect.......................... 43 Other....................................................... (169) ----- Provision for income taxes.................................. $ 171 =====
6. RETIREMENT PLANS The Company has a profit sharing plan covering substantially all employees of Omega Wire Corp. Contributions are made to a trusteed fund to accumulate as a retirement benefit for employees. The profit sharing expense amounted to $113 for the two months ended May 31, 1995. Effective January 1, 1995, the Company implemented a savings plan permitting substantially all employees to contribute up to 15% of their salary on a pre-tax basis to any of the six investment options available. There are no required Company contributions to the plan. 66 68 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. COMMITMENTS The Company leases certain property, transportation vehicles and other equipment under operating leases. Total lease expense for the two months ended May 31, 1995 was approximately $290. Under the terms of the agreements in effect at May 31, 1995, the Company has future minimum lease commitments as follows: 1995........................................................ $ 979 1996........................................................ 1,262 1997........................................................ 1,202 1998........................................................ 1,159 1999........................................................ 1,108 Later years................................................. 9,198 ------- Total minimum lease commitments................... $14,908 =======
8. CONTINGENCIES The Company is subject to various lawsuits and claims with respect to such matters as patents, product liabilities, government regulations, and other actions arising in the normal course of business. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on the Company's consolidated financial conditions and results of operations. 9. SUBSEQUENT EVENT On June 12, 1995, International Wire Holding Company ("Holdings"), through a series of mergers and acquisitions acquired all of the outstanding common stock of the Company in exchange for certain of its common equity securities (the "Transaction"). In connection with the Transaction the Company has been renamed "International Wire Group, Inc." The Company has designated June 1, 1995, as the effective date of the Transaction for financial reporting purposes. In connection with the Transaction the Company's long-term debt was repaid. As a result of the early repayment of long-term debt, approximately $6,126 of deferred financing costs were charged off and included as an extraordinary item in the accompanying Statement of Operations. 10. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the two months ended May 31, 1995 to reflect adjustments principally related to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary items. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE TWO MONTHS ENDING MAY 31, 1995 -------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item.... $ 876 $ 876 Net income (loss)........................................... $(5,750) $(3,339) Retained earnings (deficit)................................. $(5,750) $(3,339)
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 67 69 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of THL-Omega Holding Corporation: We have audited the accompanying consolidated statements of operations and retained earnings and cash flows of THL-Omega Holding Corporation and its subsidiaries for the three months ended March 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of THL-Omega Holding Corporation and subsidiaries for the three months ended March 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND, L.L.P. St. Louis, Missouri January 27, 1996 68 70 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS) -------------- Net sales................................................... $38,736 Costs and expenses: Cost of products sold..................................... 30,638 Selling expenses.......................................... 1,430 General and administrative expenses....................... 1,493 Compensation expense...................................... 9,715 Expenses related to sale of Company....................... 1,689 ------- Loss from operations........................................ (6,229) Interest expense............................................ (1,478) Other income................................................ 32 ------- Loss before income taxes and extraordinary item............. (7,675) Provision for income taxes.................................. 484 ------- Loss before extraordinary item.............................. (8,159) Extraordinary item -- loss due to early extinguishment of debt net of income tax of $765............................ (1,148) ------- Net loss.................................................... (9,307) Retained earnings -- beginning of the year.................. 13,284 ------- Retained earnings -- March 31, 1995......................... $ 3,977 =======
See accompanying notes to the consolidated financial statements 69 71 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS) -------------- Cash flows provided by (used in) operating activities: Net loss.................................................. $(9,307) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary item..................................... 1,913 Compensation expense................................... 9,715 Depreciation and amortization.......................... 1,509 Change in assets and liabilities: Accounts receivable.................................. 1,222 Inventories.......................................... 2,826 Prepaid and other current assets..................... (485) Accounts payable..................................... (3,714) Accrued expenses..................................... (90) Income taxes payable................................. (5) Deferred compensation................................ 20 ------- Net cash from operating activities................ 3,604 ------- Cash flows provided by (used) investing activities: Capital expenditures, net................................. (1,597) ------- Net cash from investing activities................ (1,597) ------- Cash flows provided by (used in) financing activities: Repayment of long-term debt............................... (1,500) Net borrowing (repayment) under revolving credit facility............................................... (656) Issuance of notes payable, net............................ 678 Redemption of common stock................................ (58) ------- Net cash from financing activities................ (1,536) ------- Net increase in cash.............................. 471 Cash at beginning of period................................. 339 ------- Cash at end of period....................................... $ 810 =======
See accompanying notes to the consolidated financial statements 70 72 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS) 1. THE COMPANY THL-Omega Holding Corporation and its subsidiaries ("THL-Omega" or the "Company") are engaged in the manufacturing and marketing of non-insulated copper wire and cable products. The Company's products are used by a wide variety of customers primarily in the automotive and computer and data communications industries. THL-Omega has a fiscal year-end of December 31. 2. SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include the accounts of THL-Omega and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined primarily using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 to 40 years; building improvements -- 15 years; machinery and equipment -- 3 to 11 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired, which is being amortized using the straight-line method over forty years. Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest and taxes paid for the three months ended March 31, 1995 were $1,548 and $33, respectively. 71 73 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. The provision for income taxes for the three months ended March 31, 1995 is as follows: Current: Federal................................................... $384 State..................................................... 100 ---- $484 ====
Reconciliation between the statutory income tax rate and effective tax rate for the three months ended March 31, 1995 is summarized below: Statutory U.S. federal tax rate............................. $(2,610) State taxes, net of federal benefit......................... 66 Amortization on non-deductible goodwill and non-deductible expenses.................................................. 3,028 ------- $ 484 =======
4. RETIREMENT PLANS The Company has a profit sharing plan covering substantially all employees of THL-Omega. Contributions are made to a trusteed fund to accumulate as a retirement benefit for employees. The profit sharing expense amounted to $249 for the three months ended March 31, 1995. 5. COMMITMENTS AND CONTINGENCIES The Company leases certain property, transportation vehicles and other equipment under operating leases. Rent expense for these operating leases for the three months ended March 31, 1995 was approximately $433. Under the terms of the agreements in effect at March 31, 1995, the Company has future minimum lease commitments as follows: 1995........................................................ $ 979 1996........................................................ 1,262 1997........................................................ 1,202 1998........................................................ 1,159 1999........................................................ 1,108 Later years................................................. 9,198 ------- Total minimum lease commitments................... $14,908 =======
The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition or results of operations. 6. ACQUISITION On March 31, 1995, ownership of the Company transferred pursuant to the terms of a Stock Purchase Agreement. Substantially all of the Company's long-term debt has been repaid. As a result of the early repayment of certain long-term debt, $1,013 of deferred financing costs was charged off and included as an extraordinary item in the accompanying Statement of Operations and Retained Earnings for the three months 72 74 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ended March 31, 1995. In addition, the Company paid a prepayment penalty of $900 to holders of the subordinated notes. This amount also has been included in the accompanying Statement of Operations and Retained Earnings as an extraordinary item. Immediately prior to the sale of the Company, the Company sold common stock and granted stock options to certain officers and shareholders for consideration less than the fair value of the common stock. The difference between the fair value and the amount paid by the officers and shareholders has been included in the Statement of Operations and Retained Earnings as compensation expense for the three months ended March 31, 1995. In connection with the sale, the Company incurred expenses of $1,689 which has been included in the Statement of Operations and Retained Earnings as expenses related to the sale of the Company. 7. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the three months ended March 31, 1995 to reflect adjustments principally related to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary item. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE THREE MONTHS ENDING MARCH 31, 1995 ---------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item... $(7,675) $(7,675) Net income (loss).......................................... $(7,307) $(9,307) Retained earnings.......................................... $ 5,977 $ 3,977
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 73 75 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the names and positions of the directors and executive officers of Holding and the Company. All directors hold office until the next annual meeting of stockholders of Holding and the Company, and until their successors are duly elected and qualified. All officers serve at the pleasure of the Board of Directors.
NAME AGE POSITION(S) ---- --- ----------- James N. Mills................ 60 Chairman of the Board and Chief Executive Officer of Holding and the Company Charles W. Tate............... 53 Director of Holding and the Company Jack D. Furst................. 39 Director of Holding and the Company John A. Gavin................. 66 Director of Holding and the Company Thomas P. Danis............... 51 Director of Holding and the Company Richard W. Vieser............. 70 Director of Holding and the Company Joseph M. Fiamingo............ 48 Director, President and Chief Operating Officer of Holding and the Company Rodney D. Kent................ 50 Director of Holding and the Company, President and Chief Executive Officer of Omega David M. Sindelar............. 40 Senior Vice President and Chief Financial Officer of Holding, Senior Vice President of the Company Larry S. Bacon................ 51 Senior Vice President -- Human Resources of Holding and the Company W. Thomas McGhee.............. 61 Secretary and General Counsel of Holding and the Company Glenn J. Holler............... 50 Vice President -- Finance of the Company
James N. Mills is Chairman of the Board and Chief Executive Officer of Holding and the Company and has held such positions since April 1995. Mr. Mills serves as Chairman of the Board, President and Chief Executive Officer of Mills & Partners, Inc., a St. Louis-based investment and management services firm. Mr. Mills is also Chairman of the Board and Chief Executive Officer of Berg Electronics Corp., Chairman of the Board of Berg Electronics Group, Inc. and Chairman of the Board and Chief Executive Officer of Viasystems Group, Inc. Mr. Mills was Chairman of the Board and Chief Executive Officer of Crain Holding Corp. and Crain Industries, Inc. from August 1995 through December 1997, Jackson Holding Company and Jackson Products, Inc. from February 1993 through August 1995, Thermadyne Holdings Corporation from February 1989 through February 1995 and Thermadyne Industries, Inc. from 1987 to 1995. Mr. Mills was Executive Vice President of McGraw-Edison Company, a company engaged in the electronic, industrial, commercial and automotive industries, from 1978 to 1985, and served as Industrial Group President and President of the Bussmann Division of the McGraw-Edison Company from 1980 to 1984. Charles W. Tate is a director of Holding and the Company and has held such positions since April 1995. Mr. Tate is President of Hicks Muse. Before joining Hicks Muse as a Managing Director and Principal in 1991, Mr. Tate had over 19 years of experience in investment and merchant banking with Morgan Stanley & Co. Incorporated, including ten years in the mergers and acquisitions department and the last two and one-half years as a managing director in Morgan Stanley & Co. Incorporated's merchant banking group. Mr. Tate serves as a director of Berg Electronics Corp., International Home Foods, Inc., Seguros Comercial America, S.A. de C.V. and Vidrio Formas, S.A. 74 76 Jack D. Furst is a director of Holding and the Company and has held such positions since April 1995. Mr. Furst is a Managing Director and Principal of Hicks Muse and has held such position since 1989. Mr. Furst has approximately 16 years of private equity investment experience. At Hicks Muse, Mr. Furst is involved in all aspects of its business and has been actively involved in capital raising and originating, structuring and monitoring of investments. Mr. Furst is primarily responsible for managing the relationship with Mills & Partners. Prior to joining Hicks Muse, Mr. Furst was a vice president and subsequently a partner of Hicks & Haas Incorporated from 1987 to May 1989. From 1984 to 1986, Mr. Furst was a merger and acquisition/corporate finance specialist for The First Boston Corporation in New York. Before joining First Boston, Mr. Furst was a financial consultant at Price Waterhouse. Mr. Furst serves on the board of directors of Cooperative Computing, Inc., Viasystems, Inc., Hedstrom Corporation and OmniAmerica, Inc. John A. Gavin is a director of Holding and the Company and has held such positions since June 1995. Mr. Gavin is the founder and Chairman of the Board of Gamma Services, an international venture capital and consulting firm established in 1968, and is the Managing Director of Hicks, Muse, Tate & Furst (Latin America), Incorporated and has held such position since 1996. From 1987 to 1990, Mr. Gavin was President of Univisa Satellite Communications, a part of a Spanish-speaking broadcast network. Prior thereto, Mr. Gavin served as a Vice President of Atlantic Richfield Company from 1986. From 1981 to 1986, Mr. Gavin served as the United States Ambassador to Mexico. Mr. Gavin also serves as a director of Atlantic Richfield Company, Dresser Industries, Inc., Pinkerton's Inc., and the Hotchkis and Wiley Funds. Thomas P. Danis is a director of Holding and the Company and has held such positions since June 1995. Mr. Danis has been Chairman of the Board of AON Risk services of Missouri, Inc., a company engaged in the insurance brokerage business, since 1993. In 1979, Mr. Danis co-founded an insurance brokerage firm, a joint venture with Corroon & Black, which was ultimately purchased by Corroon & Black in 1984. Mr. Danis also serves as a director of Commerce Bank, N.A. Richard W. Vieser is a director of Holding and the Company and has held such positions since September 1995. Mr. Vieser is the retired Chairman of the Board, Chief Executive Officer and President of Lear Siegler, Inc. (a diversified manufacturing company), the former Chairman of the Board and Chief Executive Officer of FL Industries, Inc. and FL Aerospace (formerly Midland-Ross Corporation), also diversified manufacturing companies, and the former President and Chief Operating Officer of McGraw-Edison Co. He is also a director of Berg Electronics Corp., Ceridian Corporation (formerly Control Data Corporation), Dresser Industries, Inc., INDRESCO Inc., Sybron International Corporation and Varian Associates, Inc. He also served as a director of Berg Electronics Group, Inc. until August, 1996. Joseph M. Fiamingo is a director of Holding and the Company and has held such positions since October 1996. Mr. Fiamingo also serves as President and Chief Operating Officer of Holding and the Company and has held such positions since September 1996. Previously, Mr. Fiamingo held the position of Vice President of Operations and Technology of the Company from June 1996 and President and Chief Operating Officer of Wirekraft from October 1995. Prior thereto, Mr. Fiamingo was employed by General Cable Corporation from 1972 to 1995 where he held various senior management level positions including President and Vice President and General Manager of several divisions of General Cable and most recently, Executive Vice President of Operations. Rodney D. Kent is a director of Holding and the Company and has held such positions since April 1995. Mr. Kent also serves as President and Chief Executive Officer of Omega and has held such position since 1983. Mr. Kent served as Assistant to the President of Omega from 1974 to 1983. Prior to joining Omega, Mr. Kent was employed with Flexo Wire from 1973 to 1974 and Camden Wire Company from 1970 to 1973. Mr. Kent also serves as a director of Oneida Savings Bank. David M. Sindelar is Senior Vice President and Chief Financial Officer of Holding and Senior Vice President of the Company and has held such positions since April 1995. Mr. Sindelar is also Senior Vice President and Chief Financial Officer of Mills & Partners, Inc., Berg Electronics Corp., Viasystems Group, Inc., and Senior Vice President of Berg Electronics Group, Inc. Mr. Sindelar was Senior Vice President and Chief Financial Officer of Crain Industries, Inc. and Crain Holdings Corp. from August 1995 through December 1997. Mr. Sindelar was Senior Vice President and Chief Financial Officer of Jackson Holding 75 77 Company from February 1993 through August 1995. From 1987 to February 1995, Mr. Sindelar held various other positions at Thermadyne Holdings Corporation including Senior Vice President and Chief Financial Officer, Vice President -- Corporate Controller and Controller. Larry S. Bacon is Senior Vice President -- Human Resources of Holding and the Company and has held such positions since April 1995. Mr. Bacon is also Senior Vice President -- Human Resources of Mills & Partners, Inc., Berg Electronics Corp., Berg Electronics Group, Inc., and Viasystems Group, Inc. Mr. Bacon was Senior Vice President -- Human Resources of Crain Industries, Inc. and Crain Holdings Corp. from August 1995 through December 1997. Mr. Bacon was Senior Vice President -- Human Resources of Jackson Holding Company from February 1993 through August 1995. Previously, Mr. Bacon was Senior Vice President -- Human Resources of Thermadyne Holdings Corporation from September 1987 until February 1995. W. Thomas McGhee is Secretary and General Counsel of Holding and the Company and has held such positions since April 1995. Mr. McGhee is also a partner in the law firm of Herzog, Crebs and McGhee and has held that position since 1987. In addition, Mr. McGhee serves as Secretary and General Counsel of Berg Electronics Corp., Berg Electronics Group, Inc. and Viasystems Group, Inc. Mr. McGhee served as Secretary and General Counsel of Crain Industries, Inc. and Crain Holdings Corp. from August 1995 to December 1997. Glenn J. Holler is Vice President-Finance of the Company and has held such position since August 1996. Prior to joining the Company, Mr. Holler was employed by Vigoro Industries, Inc. as Vice President, Finance from 1994 to 1996 and Moog Automotive, Inc. from 1983 to 1994, most recently as Senior Vice President, Finance. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash and noncash compensation earned by the Chief Executive Officer and the four other most highly compensated executive officers of Holding and the Company. Such compensation was paid by or on behalf of Wirekraft and Omega during the first five months of 1995 and was paid by or on behalf of the Company during the remaining seven months of 1995, and during the years ended December 31, 1996 and December 31, 1997. The bonuses included in the annual compensation for each reported year were paid subsequent to year end. As of the date hereof, the Company has not granted any stock appreciation rights. 76 78 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ AWARDS ------------ ANNUAL COMPENSATION SECURITIES --------------------- UNDERLYING ALL OTHER YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($) ---- --------- -------- ------------ --------------- James N. Mills................... 1997 395,000 548,000 -- -- Chairman of the Board and 1996 485,281 548,000 412,188(2) -- Chief Executive Officer of 1995 250,000 97,500 988,725(2) -- Holding Joseph M. Fiamingo............... 1997 316,502 195,000 -- -- President and Chief Operating 1996 202,166 123,337 600,000(3) -- Officer of Holding and the 1995 32,685 8,500 400,000(3) -- Company Rodney D. Kent................... 1997 316,960 207,564 -- 153,196(4) President and Chief Executive 1996 323,911 193,714 -- 142,289(4) Officer of Omega 1995 285,479 70,000 400,000(3) 129,766(4) David M. Sindelar................ 1997 169,000 150,000 -- -- Senior Vice President and Chief 1996 201,422 121,000 309,143(2) -- Financial Officer of Holding, 1995 108,833 48,000 741,547(2) -- Senior Vice President of the Company Glenn J. Holler.................. 1997 217,579 103,144 -- -- Vice President -- Finance of 1996 86,072 50,000 250,000(3) -- the Company 1995 -- -- -- --
- --------------- (1) Holding and the Company provide to certain executive officers, a car allowance, reimbursement for club memberships, insurance policies and certain other benefits. The aggregate incremental cost of these benefits to Holding and the Company for each officer do not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for each such officer. (2) Reflects Performance Options (as hereinafter defined) granted by Holding. For a description of the material terms of such options, See "-- Benefit Plans -- Performance Options." (3) Reflects options to purchase common stock of Holding, par value $0.01 per share, ("Holding Common Stock") granted under the Option Plan (as hereinafter defined). The options vest in five equal annual installments commencing on the first anniversary date of the grant, subject to acceleration under certain circumstances, including a Change of Control (as defined in the Option Plan). (4) Represents (i) $45,792, $45,792, and $43,347 in premiums paid on life insurance policies for the benefit of Mr. Kent in 1997, 1996 and 1995 respectively and (ii) $47,888, $44,700 and $41,536 in annual deferred compensation and $59,516, $51,797 and $44,883 in annual interest accruals thereon earned by Mr. Kent in 1997, 1996 and 1995 respectively, pursuant to his employment agreement. OPTION GRANTS IN LAST FISCAL YEAR There were no options issued to the executive officers named above during fiscal 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES No options were exercised by the executive officers named above during fiscal 1997. The following table summarizes the value of unexercised options as of December 31, 1997. The per share fair market value of the Holding Common Stock used to make the calculations in the following table is $1.00, which is the per share price at which Holding Common Stock was sold in connection with the Wirekraft/Omega Combination and 77 79 the DWT Acquisition. Accordingly, the table indicates that the options had no value at the end of 1997 because the exercise price was equal to such fair market value.
NUMBER OF VALUE OF SECURITIES UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END SHARES ACQUIRED --------------------------- --------------------------- ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) ($) (#) (#) ($) ($) ---- --------------- -------------- ----------- ------------- ----------- ------------- James N. Mills......... 0 0 0 1,400,913 0 0 Joseph M. Fiamingo..... 0 0 280,000 720,000 0 0 Rodney D. Kent......... 0 0 160,000 240,000 0 0 David M. Sindelar...... 0 0 0 1,050,690 0 0 Glenn J. Holler........ 0 0 50,000 200,000 0 0
EMPLOYMENT AGREEMENTS James N. Mills Employment Agreement. Mr. James N. Mills entered into an employment agreement with Holding and the Company on June 12, 1995. Pursuant to such employment agreement, Mr. Mills will serve as the Chairman of the Board and Chief Executive Officer of Holding and the Company through June 11, 2000. Mr. Mills is required to devote such business time and attention to the transaction of the Company's business as is reasonably necessary to discharge his duties under the employment agreement. Subject to the foregoing limitation on his activities, Mr. Mills is free to participate in other business endeavors. The compensation provided to Mr. Mills under his employment agreement includes an annual base salary of not less than $300,000, subject to adjustment at the sole discretion of the Board of Directors of Holding, and such benefits as are customarily accorded the executives of Holding and the Company for as long as the employment agreement is in force. In addition, Mr. Mills is entitled to an annual bonus in an amount to be determined at the sole discretion of the Board of Directors of Holding. Mr. Mills' employment agreement also provides that if Mr. Mills' employment is terminated without cause, Mr. Mills will continue to receive his then current salary for the longer of the remainder of the employment period or 18 months following such termination. In addition, Mr. Mills' employment agreement provides that if Mr. Mills is terminated due to death or disability, Mr. Mills' estate, heirs, or beneficiaries, as applicable, will receive, in addition to any other benefits provided under any benefit plan, his then current salary for a period of 18 months from the date of termination. Joseph M. Fiamingo Employment Agreement. Mr. Joseph M. Fiamingo entered into an employment agreement with Holding and the Company on September 25, 1996. Pursuant to such employment agreement, Mr. Fiamingo will serve as President and Chief Operating Officer of Holding and the Company through September 24, 1999. The compensation provided to Mr. Fiamingo under his employment agreement includes an annual base salary of not less than $260,000, subject to adjustment at the sole direction of the Board of Directors of Holding, and such benefits as are customarily accorded the executives of Holding and the Company for as long as the employment agreement is in force. In addition, Mr. Fiamingo is entitled to an annual bonus in an amount to be determined by the Chairman of the Board of Holding of up to sixty-five percent of his base compensation. Mr. Fiamingo's employment agreement also provides that if Mr. Fiamingo's employment is terminated without cause, Mr. Fiamingo will continue to receive his then current salary for the remainder of such employment agreement. In addition, Mr. Fiamingo's employment agreement provides that if Mr. Fiamingo is terminated due to death or disability, Mr. Fiamingo's estate, heirs, or beneficiaries, as applicable, will receive, in addition to any other benefits provided under any benefit plan, his then current salary for a period of 12 months from the date of termination. 78 80 Rodney D. Kent Employment Agreement. Mr. Kent entered into an employment agreement with Omega on March 14, 1995. Pursuant to such employment agreement, Mr. Kent will serve as President and Chief Executive Officer of Omega through March 28, 1998. Mr. Kent is required to devote substantially all of his business time and attention to the performance of his duties under the employment agreement. The compensation provided to Mr. Kent under his employment agreement includes an annual base salary of not less than $286,000 for the period ended March 31, 1996, not less than $302,000 for the period ended March 31, 1997, and not less than $325,000 thereafter, subject to increase at the sole discretion of the Board of Directors of Omega, and certain other benefits for as long as the employment agreement is in force. In addition, during each year of employment, an additional 15% of the annual base salary is credited to a deferred compensation account for the benefit of Mr. Kent, which deferred compensation account is annually credited with an interest accrual of 8% on the balance of the account for the prior year. Further, Mr. Kent is entitled to an annual bonus in an amount to be determined at the sole discretion of the Chairman of the Board of Holding of up to sixty-five percent of his annual base salary. Mr. Kent's employment agreement also provides that if Mr. Kent's employment is terminated by Omega without cause or due to disability or death, Mr. Kent or his estate, heirs or beneficiaries, as applicable, will receive, in addition to any other benefits provided him or them under any benefit plan, Mr. Kent's then current salary for a period of 24 months from Mr. Kent's termination without cause or his disability or death. In the event that Mr. Kent terminates his employment and receives a bona fide offer of employment from a competitor of the Company, Mr. Kent will receive, in addition to any other benefits provided under any benefit plan, Mr. Kent's then current salary for a period of 24 months from such termination, but only in the event that Omega elects to enforce certain non-competition provisions of the employment agreement. David M. Sindelar Employment Agreement. Mr. David M. Sindelar entered into an employment agreement with Holding and the Company on June 12, 1995. Pursuant to such employment agreement, Mr. Sindelar will serve as the Senior Vice President and Chief Financial Officer of Holding and Senior Vice President of the Company through June 11, 2000. Mr. Sindelar is required to devote such business time and attention to the transaction of the Company's business as is reasonably necessary to discharge his duties under the employment agreement. Subject to the foregoing limitation on his activities, Mr. Sindelar is free to participate in other business endeavors. The compensation provided to Mr. Sindelar under his employment agreement includes an annual base salary of not less than $150,000, subject to adjustment at the sole discretion of the Board of Directors of Holding, and such benefits as are customarily accorded the executives of Holding and Senior Vice President of the Company for as long as the employment agreement is in force. In addition, Mr. Sindelar is entitled to an annual bonus in an amount to be determined at the sole discretion of the Board of Directors of Holding. Mr. Sindelar's employment agreement also provides that if Mr. Sindelar's employment is terminated without cause, Mr. Sindelar will continue to receive his then current salary for the longer of the remainder of the employment period or 18 months following such termination. In addition, Mr. Sindelar's employment agreement provides that if Mr. Sindelar is terminated due to death or disability, Mr. Sindelar's estate, heirs, or beneficiaries, as applicable, will receive, in addition to any other benefits provided under any benefit plan, his then current salary for a period of 18 months from the date of termination. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Compensation decisions are made by the Board of Directors. Messrs. James N. Mills, Joseph M. Fiamingo and Rodney D. Kent served as both executive officers and directors during 1997 and are expected to serve in such capacities in 1998. COMPENSATION OF DIRECTORS The directors of Holding and the Company did not receive compensation from either Holding or the Company for services rendered in that capacity during the period prior to the effective time of the Wirekraft/Omega Combination. Directors who are officers, employees or otherwise an affiliate of Holding or 79 81 the Company receive no compensation for their services as directors. Each director of Holding and the Company who is not also an officer, employee or an affiliate of Holding or the Company (an "Outside Director") will receive an annual retainer of $12,000 and a fee of $1,000 for each meeting of the board of directors at which the director is present. Directors of Holding and the Company are entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the board of directors or committees thereof. In 1995, Holding and the Company granted options to purchase 300,000 shares of Holding Common Stock at $1.00 per share to directors of the Company. BENEFIT PLANS Stock Option Plan Holding's qualified and non-qualified stock option plan (the "Option Plan") provides for the granting of up to 4,795,322 shares of Holding Common Stock to officers and key employees of Holding and the Company. Under the Option Plan, as of February 27, 1998, Holding has granted options to purchase 4,476,444 shares of Holding common stock, 3,075,000 at $1.00 per share, 1,350,000 at $1.40 per share and 51,444 at $1.625 per share, the fair market value of Holding Common Stock at the date of grant as determined by the Board of Directors of Holding. Such options vest ratably over a five year period commencing on the first anniversary date after the date of grant, subject to acceleration in the discretion of the committee appointed to administer the Option Plan in the event of a Change of Control (as defined in the Option Plan). Generally, an option may be exercised only if the holder is an officer or employee of Holding or the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution. Except as expressly provided otherwise in any optionee's agreement relating to the grant of options under the Option Plan, in the event an optionee's employment with Holding, the Company or a related entity terminates at any time, Holding or its designees shall have the right to repurchase from the optionee (or optionee's representatives) (i) the number of shares of Holding Common Stock acquired upon exercise of an option and (ii) the optionee's right to acquire that number of shares of Holding Common Stock which an optionee can acquire upon exercise immediately prior to such repurchase. The purchase price to be paid is calculated on the basis of the fair market value (as defined in the Option Plan) of Holding Common Stock multiplied by the number of shares of Holding Common Stock to be acquired (less the aggregate exercise price in the event such repurchase option is exercised by Holding with respect to the optionee's right to acquire Holding Common Stock). Performance Options On March 31, 1995, Omega granted options (the "Performance Options") to purchase 1,958,762 shares of common stock of Omega ("Omega Common Stock"). Mr. Mills was granted Performance Options to purchase 652,921 shares of Omega Common Stock, and Performance Options to purchase the remaining 1,305,841 shares of Omega Common Stock were granted to certain officers of Omega who are also affiliated with Mills & Partners. In connection with the Acquisitions and pursuant to the terms of the option agreements (the "Performance Option Agreements") related to the Performance Options, the Performance Options became options to purchase an identical number of shares of Holding Common Stock. On June 12, 1995, the Company granted Performance Options to purchase 1,007,416 shares of Holding Common Stock. Mr. Mills was granted Performance Options to purchase 335,804 shares of Holding Common Stock, and Performance Options to purchase the remaining 671,612 shares of Holding Common Stock were granted to certain officers of the Company who are also affiliated with Mills & Partners. On March 5, 1996, the Company granted Performance Options to purchase 1,236,566 shares of Holding Common Stock, Mr. Mills was granted Performance Options to purchase 412,188 shares of Holding Common Stock, and Performance Options to purchase the remaining 824,378 shares of Holding Common Stock were granted to certain officers of the Company who are also affiliated with Mills & Partners. 80 82 The Performance Options are exercisable only in the event that HM Fund II has realized an overall rate of return of at least 35% per annum, compounded annually, on all equity funds invested by it in Holding. Subject to the foregoing, the Performance Options are exercisable (i) immediately prior to a Liquidity Event (as hereinafter defined), (ii) concurrently with the consummation of a Qualified IPO (as hereinafter defined), or (iii) on December 31, 2004 (with respect to the Performance Options granted on March 31, 1995 and June 12, 1995) or on December 31, 2005 (with respect to the Performance Options granted on March 5, 1996). Notwithstanding the preceding sentence, the Performance Option Agreements provide that the Performance Options will not be exercisable as a result of the consummation of the Acquisitions. A "Liquidity Event" generally means (i) one or more sales or other dispositions of Holding Common Stock if, thereafter, the amount of Holding Common Stock owned by Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HM Fund II") is reduced by 50%, (ii) any merger, consolidation or other business combination of Holding pursuant to which any person or group acquires a majority of the common stock of the resulting entity, or (iii) any sale of all or substantially all of the assets of Holding. A "Qualified IPO" means a firm commitment underwritten public offering of Holding Common Stock for gross proceeds of at least $25.0 million. The exercise price for the Performance Options is initially equal to $1.00 per share and, effective each anniversary of the grant date, the per share exercise price for the Performance Options is equal to the per share exercise price for the prior year multiplied by 1.09. The exercise price of the Performance Options and the number of shares of Holding Common Stock for which the Performance Options are exercisable is subject to adjustment in the event of certain fundamental changes in the capital structure of Holding. The Performance Options terminate on the tenth anniversary of the date of grant. 81 83 ITEM 12. SECURITIES OWNERSHIP SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the issued and outstanding shares of common stock of the Company are held by Holding. The following table sets forth as of February 27, 1998 certain information regarding the beneficial ownership of the voting securities of Holding by each person who beneficially owns more than 5% of any class of Holding voting securities and by the directors and certain executive officers of Holding, individually, and by the directors and executive officers of Holding as a group. The Class A Common Stock, par value $0.01 per share, of Holding ("Holding Class A Common Stock") votes together with the Holding Common Stock as a single class and is entitled to one vote for each share.
SHARES BENEFICIALLY OWNED (1) --------------------------------------------------------------- HOLDING CLASS A HOLDING COMMON STOCK COMMON STOCK ------------------------ ----------------------- NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF SHARES CLASS SHARES CLASS TOTAL ----------- ---------- ---------- ---------- ---------- 5% STOCKHOLDERS: HM Parties(2)...................... 116,950,000 100.0% -- -- 90.0% c/o Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Rodney D. Kent(3).................. 5,860,000 5.0% -- -- 4.5% c/o Omega Wire, Inc. 12 Masonic Avenue Camden, New York 13316 OFFICERS AND DIRECTORS: James N. Mills(4).................. 1,702,034 1.5% 13,000,000 100.0% 11.3% Thomas P. Danis(5)................. 200,000 * -- -- * Jack D. Furst (2).................. 116,950,000 100.0% -- -- 90.0% John A. Gavin(6)................... 235,957 * -- -- * Charles W. Tate(2)................. 116,950,000 100.0% -- -- 90.0% Rodney D. Kent(3).................. 5,860,000 5.0% -- -- 4.5% Richard W. Vieser(7)............... 235,957 * -- -- * Joseph M. Fiamingo(8).............. 280,000 * -- -- * David M. Sindelar(9)............... -- -- 3,648,482 28.1% 2.8% Larry S. Bacon(10)................. -- -- 875,507 6.7% * W. Thomas McGhee(11)............... -- -- 875,505 6.7% * Glenn J. Holler(12)................ 50,000 * -- -- * All executive officers and directors as a group (12 persons)(13).................... 116,950,000 100.0% 13,000,000 100.0% 100.0%
- --------------- * Less than one percent. (1) Holding Class A Common Stock is convertible into Holding Common Stock (i) at the option of any holder thereof at any time, (ii) at the option of Holding upon the occurrence of a Triggering Event (as defined below), and (iii) mandatorily at March 31, 2005. A "Triggering Event" means any sale of substantially all of the assets of Holding or any merger, consolidation or other business combination of Holding in which Hicks Muse and its affiliates cease to own at least 50% of the resulting entity. Each share of Holding Class A Common Stock is convertible into a fraction of a share of Holding Common Stock equal to the quotient of (i) the fair market value of a share of Holding Common Stock at the time of conversion less the sum of $0.99 plus imputed interest thereon at a rate of 9% per annum, compounded annually, at the time of conversion, divided by (ii) the fair market value of a share of Holding Common Stock at the time of conversion. Because the fraction of a share of Holding Common 82 84 Stock into which Holding Class A Common Stock is convertible is determinable only at the time of a conversion, shares of Holding Common Stock are not included in the shares of Holding Common Stock beneficially owned in the foregoing table. (2) Includes (i) shares owned of record by HM Fund II, a limited partnership of which the sole general partner is HM2/GP Partners, L.P., a limited partnership of which the sole general partner is Hicks, Muse GP Partners, L.P., a limited partnership of which the sole general partner is Hicks, Muse, Tate & Furst Fund II Incorporated, a corporation affiliated with Hicks Muse; (ii) shares owned of record by HM2/Wire/Hunt Partners, L.P., HM2/Wire/Sunwestern Partners, L.P. and HM2/Wire/Hubbard Partners, L.P., limited partnerships of which the sole general partner is HM2/GP Partners, L.P.; (iii) shares owned of record by certain individuals that Hicks Muse has the power to direct the voting of with respect to the election of directors; and (iv) shares owned of record by certain individuals subject to an irrevocable proxy in favor of Hicks Muse. Thomas O. Hicks is a controlling stockholder of Hicks Muse and serves as Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner of Holding Common Stock held by HM Fund II. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D. Stuart, Michael J. Levitt, Alan B. Menkes, David B. Deniger and Dan H. Blanks are officers, directors and minority stockholders of Hicks Muse and as such may be deemed to share with Mr. Hicks the power to vote or dispose of Holding Common Stock held by HM Fund II. Each of Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt, Menkes, Deniger and Blanks disclaims the existence of a group and disclaims beneficial ownership of Holding Common Stock not respectively owned of record by him. (3) Includes 160,000 shares of Holding Common Stock issuable to Mr. Kent upon exercise of options granted under the Option Plan that are currently exercisable. Does not include 240,000 shares of Holding Common Stock issuable to Mr. Kent upon exercise of options granted under the Option Plan that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Option Plan." (4) Includes shares of Holding Class A Common Stock held by James N. Mills and shares of Holding Class A Common Stock that Mr. Mills has the power to vote by proxy. Does not include 1,400,913 shares of Holding Common stock issuable to Mr. Mills upon the exercise of Performance Options that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Performance Options." (5) Includes 100,000 shares of Holding Common Stock issuable to Mr. Danis upon exercise of options granted in 1995 that are currently exercisable. See "Directors Compensation." (6) Includes 100,000 shares of Holding Common Stock issuable to Mr. Gavin upon exercise of options granted in 1995 that are currently exercisable. See "Directors Compensation." (7) Includes 100,000 shares of Holding Common Stock issuable to Mr. Vieser upon exercise of options granted in 1995 that are currently exercisable. See "Directors Compensation." (8) Includes 280,000 shares of Holding Common Stock issuable to Mr. Fiamingo upon exercise of options granted under the Option Plan that are currently exercisable. Does not include 720,000 shares of holding Common Stock issuable to Mr. Fiamingo upon exercise of options granted under the option plan that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Option Plan." (9) Does not include 1,050,690 shares of Holding Common Stock issuable to Mr. Sindelar upon exercise of Performance Options that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Performance Options." (10) Does not include 700,457 shares of Holding Common Stock issuable to Mr. Bacon upon exercise of Performance Options that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Performance Options." (11) Includes 625,505 shares held of record by the W. Thomas McGhee Revocable Living Trust and 250,000 shares held of record by the McGhee Family Limited Partnership, for which Mr. McGhee exercises investment control. Does not include 700,456 shares of Holding Common Stock issuable to 83 85 Mr. McGhee upon exercise of Performance Options that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Performance Options." (12) Includes 50,000 shares of Holding Common Stock issuable to Mr. Holler upon exercise of options granted under the Option Plan that are currently exercisable. Does not include 200,000 shares of Holding Common Stock issuable to Mr. Holler upon exercise of options granted under the Option Plan that are not currently exercisable. See "Executive Compensation -- Benefit Plans -- Option Plan." (13) Includes (i) shares of Holding Class A Common Stock held by executive officers and directors and shares of Holding Class A Common Stock as to which Hicks Muse has the power to direct the voting of with respect to the election of directors and which Mr. Mills has the power to vote by proxy and (ii) 790,000 shares of Holding Common Stock issuable to executives and directors of the Company upon exercise of options that are currently exercisable. Does not include 5,652,516 shares of Holding Common Stock issuable to executive officers of Holding upon the exercise of Performance Options and options under the Option Plan that are not currently exercisable. See "Executive Compensation Benefit Plans -- Performance Options" and "Compensation of Directors." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIPS WITH HICKS MUSE Monitoring and Oversight Agreement On June 12, 1995, Holding and the Company entered into a ten-year agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), a limited partnership of which the sole general partner is HM Partners Inc., a corporation affiliated with Hicks Muse, pursuant to which they paid Hicks Muse Partners a cash financial advisory fee of approximately $3.7 million upon the closing of the Acquisitions as compensation for its services as financial advisor for the Acquisitions, pursuant to which they pay an annual fee of $500,000 for oversight and monitoring services to Holding and the Company. The annual fee is adjustable at the end of each fiscal year to an amount equal to 0.1% of the consolidated net sales of the Company, but in no event less than $500,000. Hicks Muse Partners also will be entitled to receive a fee equal to 1.5% of the transaction value (as defined) for each add-on transaction (as defined) in which the Company is involved. The term "transaction value" means the total value of any add-on transaction, including, without limitation, the aggregate amount of the funds required to complete the add-on transaction (excluding any fees payable pursuant to the Monitoring and Oversight Agreement and any fees, if any, paid to any other person or entity for financial advisory, investment banking, brokerage, or any other similar services rendered in connection with such add-on transaction) including the amount of any indebtedness, preferred stock or similar items assumed (or remaining outstanding). The term "add-on transaction" means any future proposal for a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring, or other similar transaction directly or indirectly involving Holding, the Company, or any of their respective subsidiaries and any other person or entity. On March 5, 1996, in connection with the DWT Acquisition, Holding and the company paid Hicks Muse Partners a cash financial advisory fee of approximately $2.5 million as compensation for its services as financial advisor. On February 12, 1997, in connection with the Camden Acquisition, Holding and the Company paid Hicks Muse Partners a cash financial advisory fee of approximately $900,000 as compensation for its services as financial advisor. Messrs. Tate and Furst, directors of Holding and the Company, are each principals of Hicks Muse Partners. In addition, Holding and the Company have agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Monitoring and Oversight Agreement. The Monitoring and Oversight Agreement makes available the resources of Hicks Muse Partners concerning a variety of financial and operational matters. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by Holding and the Company without the 84 86 addition of personnel or the engagement of outside professional advisors. In management's opinion, the fees provided for under this agreement reasonably reflect the benefits received and to be received by Holding and the Company. Stockholders Agreement Each investor in any class of common stock of Holding has entered into a stockholders agreement (the "Stockholders Agreement"). The Stockholders Agreement, among other things, grants preemptive rights and certain registration rights to the parties thereto and contains provisions requiring the parties thereto to sell their shares of common stock in connection with certain sales of Holding's common stock by Hicks Muse ("drag-along right") and granting the parties thereto the right to include a portion of their shares of common stock in certain sales in which Hicks Muse does not exercise its drag-along rights ("tag-along rights"). In addition, the Stockholders agreement contains an irrevocable proxy pursuant to which all parties to the Stockholders Agreement grant to Hicks Muse the power to vote all shares of Holding Common Stock held by such parties. The Stockholders Agreement terminates on its tenth anniversary date, although the preemptive rights, drag-along rights and tag-along rights contained therein terminate earlier upon the consummation of a firm commitment underwritten public offering of Holding Common Stock. Notes Repurchase On June 20, 1997, the Company repurchased $5.0 million in aggregate principle amount of the Company's 14% Notes due 2005 for 113% of the principle amount of such notes, plus accrued and unpaid interest, from HM Fund II, and certain affiliates and principles of Hicks Muse, including Messrs. Tate and Furst, directors of Holding and the Company. 85 87 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K. See Index to Financial Statements on page 22 of this report. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger dated as of June 2, 1995, among Omega Wire Corp., Wirekraft Holdings Corp., International Wire Holding Company, International Wire Group, Inc. and Wirekraft Acquisition Company.(1) 2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996, among Hoosier Wire, Inc., International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.3 -- Asset Purchase Agreement, dated as of March 5, 1996, among Dekko Automotive Wire, Inc., International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.4 -- Asset Purchase Agreement, dated as of March 5, 1996, among International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.5 -- Asset Purchase Agreement, dated as of March 5, 1996, among Silicones, International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.6 -- Stock Purchase Agreement dated as of January 2, 1997, among International Wire Group, Inc., Camden Wire Co., Inc. and Oneida Ltd.(6) 3.1 -- Restated Certificate of Incorporation of International Wire Group, Inc.(4) 3.2 -- By-Laws of International Wire Group, Inc.(1) 4.1 -- Indenture, dated as of June 12, 1995, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank & Trust Company, as Trustee.(1) 4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1, Exhibit B). 4.3 -- Exchange and Registration Rights Agreement, dated as of June 12, 1995, among International Wire Group, Inc., the Subsidiary Guarantors (as therein defined), Chemical Securities Inc. and BT Securities Corporation.(1) 4.4 -- First Supplemental Indenture, dated as of March 5, 1996, by and among International Wire Group, Inc., Wire Technologies, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank & Trust Company, as Trustee.(2) 4.5 -- Certificate of Designation of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock of International Wire Group, Inc.(2) 4.6 -- Second Supplemental Indenture, dated as of December 20, 1996, by International Wire Group, Inc. the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(5) 4.7 -- Indenture, dated as of February 12, 1997, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A).
86 88
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.9 -- Preferred Stock and Warrant Purchase Agreement dated as of March 5, 1996, by and among International Wire Holding Company, International Wire Group, Inc., Chemical Equity Associates and Hicks, Muse, Tate & Furst Equity Fund II, L.P.(6) 4.10 -- Third Supplemental Indenture, dated as of February 12, 1997, by and among International Wire Group, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.11 -- First Supplemental Indenture, dated as of June 10, 1997, by and among International Wire Group, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.12 -- Indenture, dated as of June 17, 1997, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.11, Exhibit B) 10.1 -- Parts Sourcing Contract, dated as of December 2, 1994, among Wirekraft Industries, Inc. and General Electric Company (Confidential treatment has been granted with respect to certain portions of this exhibit).(1) 10.2 -- Schedule of Substantially Identical Domestic Subsidiary Security Agreements.(1) 10.3 -- Agreement of Sublease, dated as of December 31, 1991, between Oneida County Industrial Development Agency and OWI Corporation.(1) 10.4 -- Agreement of Sublease, dated as of December 31, 1991, between Onondaga County Industrial Development Agency and OWI Corporation.(1) 10.5 -- Sublease Agreement, dated as of March 31, 1994, between Productos de Control, S.A. de C.V. and Wirekraft Industries, Inc.(1) 10.6 -- Lease Contract, dated as of August 1, 1994, between Parques Industriales Mexicanos, S.A. de C.V. and Electro Componentes de Mexico, S.A. de C.V..(1) 10.7 -- Lease Contract, dated as of March 15, 1998, between Parques Industriales Mexicanos, S.A. de C.V. and Electro Componentes de Mexico, S.A. de C.V..* 10.8+ -- Employment Agreement, dated as of June 12, 1995, among International Wire Holding Company, International Wire Group Inc. and certain of its subsidiaries and James N. Mills.(4) 10.9+ -- Employment Agreement, dated as of June 12, 1995, among International Wire Holding Company, International Wire Group Inc. and certain of its subsidiaries and David M. Sindelar.(4) 10.10+ -- Employment Agreement, dated as of March 14, 1995, between Omega Wire, Inc. and Rodney D. Kent.(1) 10.11+ -- Option Agreement, dated as of March 31, 1995, between Omega Wire Corp. and James N. Mills.(1) 10.12+ -- Option Agreement, dated as of March 31, 1995, between Omega Wire Corp. and David M. Sindelar.(1) 10.13+ -- Option Agreement dated as of June 12, 1995, between Omega Wire Corp. and David M. Sindelar.(1) 10.14+ -- Option Agreement dated as of June 12, 1995, between International Wire Group, Inc. and David M. Sindelar.(1)
87 89
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.15+ -- Option Agreement dated as of August 28, 1995, between International Wire Group, Inc. and Larry S. Bacon.(3) 10.16 -- Stockholders Agreement dated as of June 12, 1995, among International Wire Holding Company and the Stockholders signatories thereto.(1) 10.17 -- Monitoring and Oversight Agreement dated as of June 12, 1995, among International Wire Holding Company, International Wire Group, Inc. and Hicks, Muse & Co. Partners, L.P.(1) 10.18+ -- Option Agreement dated as of August 28, 1995 between International Wire Group, Inc. and W. Thomas McGhee.(3) 10.19+ -- 1995 Stock Option Plan of International Wire Holding Company.(4) 10.20+ -- Form of Option Agreement of International Wire Holding Company under 1995 Stock Option Plan.(4) 10.21 -- Agreement dated as of December 29, 1995 among Wirekraft Industries, Inc. and General Electric Company (Confidential treatment has been granted with respect to certain portions of this exhibit).(4) 10.22 -- Amended and Restated Credit Agreement, dated as of February 12, 1997, among International Wire Group, Inc. , International Wire Holding Company, the several lenders from time to time parties thereto, Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.(5) 10.23+ -- Employment Agreement, dated as of September 25, 1996, among International Wire Holding Company and International Wire Group, Inc. and Joseph M. Fiamingo.(5) 10.24+ -- Option Agreement, dated as of November 5, 1995, between International Wire Holding Company and Joseph M. Fiamingo.(5) 10.25+ -- Option Agreement, dated as of November 6, 1996, between International Wire Holding Company and Joseph M. Fiamingo.(5) 10.26 -- First Amendment to Amended and Restated Credit Agreement, dated as of June 17, 1997, among International Wire Group, Inc., International Wire Holding Company, the Several Lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.(6) 10.27 -- Second Amendment and Waiver to Amended and Restated Credit Agreement, dated as of September 29, 1997, among International Wire Group, Inc., International Wire Holding Company, the Several Lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.* 10.28+ -- Option Agreement dated as of August 6, 1996, between International Wire Holding Company and Glenn J. Holler.* 10.29+ -- Option Agreement dated as of November 8, 1995, between International Wire Holding Company and Rodney D. Kent.* 21.1 -- Subsidiaries of International Wire Group, Inc.* 27.1 -- Financial Data Schedule*
- --------------- (1) Incorporated by reference to the Registration Statement on Form S-1 (33-93970) of International Wire Group, Inc. as declared effective by the Securities and Exchange Commission on September 29, 1995. 88 90 (2) Incorporated by reference to the Current Report on Form 8-K of International Wire Group, Inc. as filed with the Securities Exchange Commission on March 20, 1996. (3) Incorporated by reference to the Quarterly Report on Form 10-Q of International Wire Group, Inc. for the fiscal quarter ended September 30, 1995. (4) Incorporated by reference to the Annual Report on Form 10-K of International Wire Group, Inc. for the fiscal year ended December 31, 1995. (5) Incorporated by reference to the Annual Report on Form 10-K of International Wire Group, Inc. for the fiscal year ended December 31, 1996. (6) Incorporated by reference to the Registration Statement on Form S-1 (333-26925) of International Wire Group, Inc. as declared effective by the Securities and Exchange Commission on November 12, 1997. * Filed herewith. + Indicates compensatory plan or arrangement. (B) REPORT ON FORM 8-K Neither Holding nor the Company filed any report on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 1997. 89 91 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL WIRE GROUP, INC. Date: March 26, 1998 By: /s/ GLENN J. HOLLER ----------------------------------- Glenn J. Holler Vice President-Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES N. MILLS Chairman of the Board of March 26, 1998 - ----------------------------------------------------- Directors and Chief (James N. Mills) Executive Officer (Principal Executive Officer) /s/ DAVID M. SINDELAR Senior Vice President March 26, 1998 - ----------------------------------------------------- and Chief Financial (David M. Sindelar) Officer (Principal Financial Officer) /s/ GLENN J. HOLLER Vice March 26, 1998 - ----------------------------------------------------- President -- Finance (Glenn J. Holler) (Principal Accounting Officer) /s/ THOMAS P. DANIS Director March 26, 1998 - ----------------------------------------------------- (Thomas P. Danis) /s/ JACK D. FURST Director March 26, 1998 - ----------------------------------------------------- Jack D. Furst /s/ JOHN A. GAVIN Director March 26, 1998 - ----------------------------------------------------- John A. Gavin /s/ CHARLES W. TATE Director March 26, 1998 - ----------------------------------------------------- Charles W. Tate /s/ RICHARD W. VIESER Director March 26, 1998 - ----------------------------------------------------- Richard W. Vieser
90 92
SIGNATURE TITLE DATE --------- ----- ---- /s/ RODNEY D. KENT Director March 26, 1998 - ----------------------------------------------------- Rodney D. Kent /s/ JOSEPH M. FIAMINGO Director, President and March 26, 1998 - ----------------------------------------------------- Chief Operating Joseph M. Fiamingo Officer
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT The registrant has not sent to its security holders any annual report to security holders covering the registrant's last fiscal year or sent any proxy statement, form of proxy or other proxy soliciting material with respect to any annual or special meeting of security holders to more than ten of the registrant's security holders. 91 93 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger dated as of June 2, 1995, among Omega Wire Corp., Wirekraft Holdings Corp., International Wire Holding Company, International Wire Group, Inc. and Wirekraft Acquisition Company.(1) 2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996, among Hoosier Wire, Inc., International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.3 -- Asset Purchase Agreement, dated as of March 5, 1996, among Dekko Automotive Wire, Inc., International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.4 -- Asset Purchase Agreement, dated as of March 5, 1996, among International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.5 -- Asset Purchase Agreement, dated as of March 5, 1996, among Silicones, International Wire Holding Company, International Wire Group, Inc., and Wire Technologies, Inc.(2) 2.6 -- Stock Purchase Agreement dated as of January 2, 1997, among International Wire Group, Inc., Camden Wire Co., Inc. and Oneida Ltd.(6) 3.1 -- Restated Certificate of Incorporation of International Wire Group, Inc.(4) 3.2 -- By-Laws of International Wire Group, Inc.(1) 4.1 -- Indenture, dated as of June 12, 1995, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank & Trust Company, as Trustee.(1) 4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1, Exhibit B). 4.3 -- Exchange and Registration Rights Agreement, dated as of June 12, 1995, among International Wire Group, Inc., the Subsidiary Guarantors (as therein defined), Chemical Securities Inc. and BT Securities Corporation.(1) 4.4 -- First Supplemental Indenture, dated as of March 5, 1996, by and among International Wire Group, Inc., Wire Technologies, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank & Trust Company, as Trustee.(2) 4.5 -- Certificate of Designation of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock of International Wire Group, Inc.(2) 4.6 -- Second Supplemental Indenture, dated as of December 20, 1996, by International Wire Group, Inc. the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(5) 4.7 -- Indenture, dated as of February 12, 1997, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A). 4.9 -- Preferred Stock and Warrant Purchase Agreement dated as of March 5, 1996, by and among International Wire Holding Company, International Wire Group, Inc., Chemical Equity Associates and Hicks, Muse, Tate & Furst Equity Fund II, L.P.(6) 4.10 -- Third Supplemental Indenture, dated as of February 12, 1997, by and among International Wire Group, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.11 -- First Supplemental Indenture, dated as of June 10, 1997, by and among International Wire Group, Inc., the subsidiary guarantors party thereto, and IBJ Schroder Bank and Trust Company, as Trustee.(6)
94
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.12 -- Indenture, dated as of June 17, 1997, among International Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as therein defined) and IBJ Schroder Bank and Trust Company, as Trustee.(6) 4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.11, Exhibit B) 10.1 -- Parts Sourcing Contract, dated as of December 2, 1994, among Wirekraft Industries, Inc. and General Electric Company (Confidential treatment has been granted with respect to certain portions of this exhibit).(1) 10.2 -- Schedule of Substantially Identical Domestic Subsidiary Security Agreements.(1) 10.3 -- Agreement of Sublease, dated as of December 31, 1991, between Oneida County Industrial Development Agency and OWI Corporation.(1) 10.4 -- Agreement of Sublease, dated as of December 31, 1991, between Onondaga County Industrial Development Agency and OWI Corporation.(1) 10.5 -- Sublease Agreement, dated as of March 31, 1994, between Productos de Control, S.A. de C.V. and Wirekraft Industries, Inc.(1) 10.6 -- Lease Contract, dated as of August 1, 1994, between Parques Industriales Mexicanos, S.A. de C.V. and Electro Componentes de Mexico, S.A. de C.V..(1) 10.7 -- Lease Contract, dated as of March 15, 1998, between Parques Industriales Mexicanos, S.A. de C.V. and Electro Componentes de Mexico, S.A. de C.V..* 10.8+ -- Employment Agreement, dated as of June 12, 1995, among International Wire Holding Company, International Wire Group Inc. and certain of its subsidiaries and James N. Mills.(4) 10.9+ -- Employment Agreement, dated as of June 12, 1995, among International Wire Holding Company, International Wire Group Inc. and certain of its subsidiaries and David M. Sindelar.(4) 10.10+ -- Employment Agreement, dated as of March 14, 1995, between Omega Wire, Inc. and Rodney D. Kent.(1) 10.11+ -- Option Agreement, dated as of March 31, 1995, between Omega Wire Corp. and James N. Mills.(1) 10.12+ -- Option Agreement, dated as of March 31, 1995, between Omega Wire Corp. and David M. Sindelar.(1) 10.13+ -- Option Agreement dated as of June 12, 1995, between Omega Wire Corp. and David M. Sindelar.(1) 10.14+ -- Option Agreement dated as of June 12, 1995, between International Wire Group, Inc. and David M. Sindelar.(1) 10.15+ -- Option Agreement dated as of August 28, 1995, between International Wire Group, Inc. and Larry S. Bacon.(3) 10.16 -- Stockholders Agreement dated as of June 12, 1995, among International Wire Holding Company and the Stockholders signatories thereto.(1) 10.17 -- Monitoring and Oversight Agreement dated as of June 12, 1995, among International Wire Holding Company, International Wire Group, Inc. and Hicks, Muse & Co. Partners, L.P.(1) 10.18+ -- Option Agreement dated as of August 28, 1995 between International Wire Group, Inc. and W. Thomas McGhee.(3) 10.19+ -- 1995 Stock Option Plan of International Wire Holding Company.(4) 10.20+ -- Form of Option Agreement of International Wire Holding Company under 1995 Stock Option Plan.(4) 10.21 -- Agreement dated as of December 29, 1995 among Wirekraft Industries, Inc. and General Electric Company (Confidential treatment has been granted with respect to certain portions of this exhibit).(4)
95
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.22 -- Amended and Restated Credit Agreement, dated as of February 12, 1997, among International Wire Group, Inc. , International Wire Holding Company, the several lenders from time to time parties thereto, Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.(5) 10.23+ -- Employment Agreement, dated as of September 25, 1996, among International Wire Holding Company and International Wire Group, Inc. and Joseph M. Fiamingo.(5) 10.24+ -- Option Agreement, dated as of November 5, 1995, between International Wire Holding Company and Joseph M. Fiamingo.(5) 10.25+ -- Option Agreement, dated as of November 6, 1996, between International Wire Holding Company and Joseph M. Fiamingo.(5) 10.26 -- First Amendment to Amended and Restated Credit Agreement, dated as of June 17, 1997, among International Wire Group, Inc., International Wire Holding Company, the Several Lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.(6) 10.27 -- Second Amendment and Waiver to Amended and Restated Credit Agreement, dated as of September 29, 1997, among International Wire Group, Inc., International Wire Holding Company, the Several Lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, and Bankers Trust Company, as Documentation Agent.* 10.28+ -- Option Agreement dated as of August 6, 1996, between International Wire Holding Company and Glenn J. Holler.* 10.29+ -- Option Agreement dated as of November 8, 1995, between International Wire Holding Company and Rodney D. Kent.* 21.1 -- Subsidiaries of International Wire Group, Inc.* 27.1 -- Financial Data Schedule*
- --------------- (1) Incorporated by reference to the Registration Statement on Form S-1 (33-93970) of International Wire Group, Inc. as declared effective by the Securities and Exchange Commission on September 29, 1995. (2) Incorporated by reference to the Current Report on Form 8-K of International Wire Group, Inc. as filed with the Securities Exchange Commission on March 20, 1996. (3) Incorporated by reference to the Quarterly Report on Form 10-Q of International Wire Group, Inc. for the fiscal quarter ended September 30, 1995. (4) Incorporated by reference to the Annual Report on Form 10-K of International Wire Group, Inc. for the fiscal year ended December 31, 1995. (5) Incorporated by reference to the Annual Report on Form 10-K of International Wire Group, Inc. for the fiscal year ended December 31, 1996. (6) Incorporated by reference to the Registration Statement on Form S-1 (333-26925) of International Wire Group, Inc. as declared effective by the Securities and Exchange Commission on November 12, 1997. * Filed herewith. + Indicates compensatory plan or arrangement. EX-10.7 2 LEASE CONTRACT DATED 3/15/98 1 LEASE CONTRACT LEASE CONTRACT entered into by and between PARQUE INDUSTRIAS DE AMERICA, S.A. DE C.V., a Mexican corporation having its principal offices in the City of Chihuahua, State of Chihuahua, Mexico, represented herein by Mr. Luis Lara Armendariz, in his capacity of Sole Administrator for said Corporation, hereinafter referred to as the "LESSOR"; and ELECTROCOMPONENTES DE MEXICO, S.A. DE C. V., represented herein by Mr. Bernard Boone, in his capacity of General Manager of said Corporation, hereinafter referred to as the "LESSEE", in accordance with the following: C L A U S E S: FIRST -- LEASED PROPERTY: Under the terms of this Lease Contract, the LESSOR hereby delivers in lease to the LESSEE, the temporary use and possession of a certain plot of land and the building for industrial use constructed thereon, situated on Calle 20(a) Numero 3300, Colonia Marmol, in the City of Chihuahua, State of Chihuahua, Mexico. Said Land consists of a surface area of approximately 23,548 square meters (equivalent to approximately 253,468 square feet) and is shown on the plan which is attached to this Contract as Exhibit "A". The building improvements thereon consist of an industrial building containing a total area of approximately 8,385 square meters (equivalent to approximately 90,829 square feet), said building and improvements which include but are not limited to two (2) transformers making a total of 1000 KVA's which are part of the Leased Property by the LESSEE from the LESSOR ("Building") also being shown on the plan which is attached to this Contract as Exhibit "A" (said land and building are herein jointly referred to as the "Leased Property"). SECOND -- OWNERSHIP OF THE LEASED PROPERTY: LESSOR has the clear and unrestricted control of the Leased Property and other common areas, and the LESSEE shall have the quiet enjoyment of same. Similarly, LESSOR and LESSEE agree that 2 -2- as provided by Article 2308 of the Civil Code of the State of Chihuahua, this Lease Contract shall survive any foreclosure of any lien or mortgage of LESSOR and that any default in payment of any such lien or mortgage shall in no way prejudice the terms of this Lease Contract; and that any amendments to such mortgages or any new mortgages on the Leased Property shall contain a provision acknowledging the existence and duration of this Lease Contract. THIRD -- DELIVERY OF THE LEASED PROPERTY: The LESSOR hereby delivers the Leased Property to LESSEE, for beneficial occupancy (hereinafter refereed to as the "Beneficial Occupancy") on February 15, 1998. LESSOR will deliver the Leased Property for final occupancy on or before March 15, 1998 (hereinafter referred to as the "Effective Date"), date in which the improvements set forth in Exhibit B (hereinafter referred to as the "Improvements") shall be completed. Provided however that the payment of rent hereunder will commence the date of completion of the Improvements by LESSOR and accepted by LESSEE. Such payment shall be calculated by deducting from the first month rent hereof an amount equal to one day of rent and until the delivery and acceptance of the Improvements. FOURTH -- USE OF THE LEASED PROPERTY: The LESSEE shall use the Leased Property only for light and clean industrial operations. Under no conditions whatsoever will the LESSEE be permitted to use the Leased Property for chemical, nuclear and heavy industrial operations. FIFTH -- ASSIGNMENT AND SUBLETTING: The LESSEE may not sublease the Leased Property or assign this Contract, unless LESSEE has the express written authorization of LESSOR, which authorization shall not be unreasonably withheld. LESSEE shall be permitted to assign this Lease Contract to a company affiliate or subsidiary, provided however that the Guaranty executed and delivered in favor of LESSOR from International Wire Group, Inc. will remain in full force and effect during the term of this Lease Contract and its extension hereof. 3 -3- SIXTH -- LEASE RENT: A. The initial lease term ("Initial Term") shall be for a period of 10 (ten) years beginning on the Effective Date. From the date of completion of the Improvements as provided in Clause Third hereof, and during the first five years of the Initial Term, the LESSEE will pay to the LESSOR the amount of $39,056.47 (THIRTY NINE THOUSAND AND FIFTY SIX DOLLARS 47/100), equivalent to forty three cents per square foot of the Building, per month. From year sixth to tenth of Initial Term, the LESSEE will pay to the LESSOR the amount of $43,597.92 (FORTY THREE THOUSAND FIVE HUNDRED NINETY SEVEN AND 92/100), equivalent to forty eight cents per square foot of the Building, per month, payable in advance the first day of each month. B. LESSEE agrees that its obligations under this Clause Sixth A) may be assigned to a Bank or another financial institution, and upon demand by such assignee, LESSEE will make such payments directly to assignee, for which purposes LESSEE may request the documents evidencing registration of the loan as may correspond. C. All payments hereunder shall be in U.S. dollars. This payments may be made in Mexican currency, computed at the exchange rate published in the Official Gazette of the Federation. SEVENTH -- TAXES AND UTILITIES: LESSEE shall be liable for the real estate property tax triggered by the Leased Property and the Value Added Tax imposed over the rental payments. The LESSOR will be responsible for the Income Tax levied on any rental income derived herefrom and the Net Asset Tax. LESSEE or LESSOR may bring appropriate proceedings in the name of the LESSOR, the LESSEE or both for contesting the validity of any assessment on the Leased Property or amount of the taxes imposed thereon, or to recover payment therefor. Each party shall cooperate with the other with respect to the proceedings so far as is reasonably necessary. The net amount of any taxes recovered, after the payment of all expenses in connection therewith, shall revert to the party incurring the expense. LESSEE shall also directly contract and pay for all utilities that it may require. LESSOR represents that all necessary utilities shall be available at the Building of the Leased Property and the 4 -4- LESSEE shall be responsible for any hook-up costs of all such utilities and for all utility consumption expenses. EIGHTH -- MAINTENANCE: Responsibility for maintenance, repair and replacement shall be governed by the following stipulations: 1. LESSOR shall at all times during the Lease term, maintain and repair, at its own cost and expense, the foundation of the building, the structure of the exterior, structure of the floors (excluding sealing), structure of the roofs, including supporting members. 2. It is the responsibility of the LESSEE to maintain and repair, at its own cost and expense, the interior and exterior of the Building including interior and exterior paint, all roofing and flashing, air conditioning and heating, and such landscaping as may be presently on the land, and the fire protection system. The maintenance of parking areas and the fire protection system is the responsibility of the LESSEE, except during the 12 (twelve) months period after the Effective Date of this Lease Contract, said maintenance is the responsibility of LESSOR. 3. LESSEE warrants and guarantees that during the term hereof the Leased Property will be maintained and LESSEE's operation will be conducted in accordance with the environmental and any other laws of Mexico applicable to said Building and operations. 4. Notwithstanding any contrary provision of this Lease Contract, if at any time during the term hereof or any extension thereof any component of the Lease Property originally provided by LESSOR, which is the obligation of LESSEE to maintain, requires replacement in the reasonable opinion of a contract reasonably acceptable to LESSEE and LESSOR, which contract will also do the replacement, the cost of which component shall be US$50,000 (Fifty Thousand Dollars) or more ("Major Component"), LESSEE and LESSOR shall share the cost of such replacement as hereinafter set forth; if the benefit or useful life of the Major Component extends beyond the term of this Lease (as such term may be extended by exercise of any options by LESSEE), the useful life of the Major Component shall be prorated over the remaining portion of the term of the Lease (as if extended), and LESSEE shall be liable only for the portion of the 5 -5- cost which is applicable to the term of the Lease (as if extended). For purpose of this provision, the useful life of any such Major Component shall be determined in accordance with generally accepted accounting principles and the opinion of the manufacturer of installer of such component. NINTH -- ALTERATIONS: LESSEE may not change the basic structure, the external appearance or basic utility services, nor make any major work alterations, without the express written authorization of LESSOR, which authorization shall not be unreasonably withheld. LESSEE is hereby authorized to make minor alterations or modifications to the Leased Property, at its own risk and expense, so long as said alterations and modifications do not alter or impair the structure of the Building or the basic nature thereof. Any such minor alterations may in no way create a greater risk of fire and they must in any case be approved in writing by the LESSOR's approved insurance carrier. All fixtures and/or equipment of whatsoever nature ("Trade Fixtures") as shall have been installed in the Leased Property by LESSEE, not permanently affixed thereto, shall continue to be the property of LESSEE, and shall be removed by LESSEE at the expiration or termination of this Lease Contract, unless the LESSEE receives the written consent of LESSOR, in advance, in each specific case, that such Trade Fixtures may remain on said property upon expiration of the Lease Contract. LESSEE shall at its own cost and expense repair any injury to the Leased Property resulting from the removal of said Trade Fixtures and shall deliver the Leased Property to the LESSOR in reasonable good condition of order, presentation and cleanliness, reasonable wear and tear excepted. Any construction, alteration or addition to the Building made by the LESSEE, as well as any fixtures and/or equipment of whatsoever nature as shall have been permanently installed in the Leased Property by the LESSEE, will be to the benefit of the Leased Property and will remain there on termination of the Lease Contract at no cost to LESSOR. 6 -6- TENTH - LIABILITIES OF THE PARTIES: In conformance with applicable law, LESSOR guarantees to LESSEE the use and peaceful enjoyment of the Leased Property during the full term of the Lease Contract, and the LESSEE covenants and agrees to use the Leased Property only for the purposes herein stipulated and in accordance with nature and intended usage of the Leased Property. The liabilities of the LESSOR and of the LESSEE, in each case, shall be ruled by the following stipulations: 1. The LESSOR or the LESSEE, respectively, shall be liable for damages to the Leased Property caused by their own fault or negligence, or that of their agents, employees or visitors, except for losses commonly insurable by fire insurance with extended coverage endorsement. 2. The responsibilities of the parties referred to in this Clause, shall be subject to the provisions of Clause Eleventh of this Contract. ELEVENTH -- INSURANCE: 1. During the term of the Lease, LESSOR shall contract for and pay the premiums on a fire insurance policy on the Leased Property (including the building and improvements thereof) with extended coverage, including insurance against any loss or damage by fire and against any loss or damage by lightning, explosion, hurricane and hail, airplanes, vehicles and smoke, earthquake and/or volcanic eruption, strikes, riots and vandalism and any other risks now or hereafter embraced by so called "Extended Coverage" (including glass and gas tank insurance) in amounts sufficient to prevent LESSOR or LESSEE from becoming a co-insurer under the terms of the applicable policies, but in any event in an amount not less than one hundred percent of the then "full insurable value" (replacement value indicated in US$) of the Building and improvements which exist on the Leased Property. LESSEE shall reimburse LESSOR annually for the reasonable cost of said insurance. For the purpose of this clause, replacement value shall be deemed to be the cost of replacing the Building less the cost of excavations, foundations, and footings and without any deductions for physical depreciation of the Building. Such "full insurable value" shall be determined from time to time, but not more frequently than once in every twelve months, by LESSOR's construction department. If LESSEE disagrees with such determination of replacement value, LESSEE at its expense may determine 7 -7- replacement value by hiring a licensed appraiser and certified by a Mexican credit institution authorized for that purpose. 2. LESSEE is obligated to contract and to maintain during the term of this Lease, at its cost and expense, the insurance coverage and policies listed below: a) General public liability insurance, covering claims, demands and actions for injury or death of any person, in an amount not less than $500,000.00 currency of the United States of America; and for accidental injury or death of more than one person from any one accident, and for any liability arising from damages to property of third parties, with a limit of $100,000.00 currency of the United States of America to cover all claims, demands, and actions arising from, related to, or connected with the use by LESSEE of the Leased Property. LESSOR shall be named as additional insured under this policy. b) Insurance against loss or damage by boiler (or compressor) malfunction or by internal explosion by boiler (compressor), for any high pressure vessel installed in the Building which is part of the Leased Property, in such amounts as LESSOR, from time to time, reasonably requires; and c) Rental interruption insurance, covering risk of loss of rentals due to occurrence of any hazard set forth in this clause in an amount required to pay the rent, taxes and insurance premiums then required hereunder for a twelve month period. 3. All insurance to be maintained pursuant to this Lease Contract shall be arranged through a reputable insurance company which has been previously approved by LESSOR. LESSEE shall cause such insurance company to promptly furnish LESSOR with duly executed certificates covering the insurance policies referred to above. Said certificates of insurance shall provide that the insurance may not be modified or canceled until after thirty (30) days written notice has been received by LESSOR, prior to the cancellation or modification. The certificates should 8 -8- also show that the insurance is in force and on the basis of a paid premium. 4. LESSOR hereby waives its right of recovery against LESSEE for damages caused by fire, explosion and other casualty to any of the Leased Property to the extent that recovery is made by LESSOR under insurance policies in effect at the time of loss. LESSEE hereby likewise waives its right of recovery against LESSOR for damages caused by fire, explosion and other casualty to the Leased Property if is covered by insurance policies in effect at the time of loss. This provision does not extend, and the waiver does not apply, to any damages suffered by either party hereto which are not covered by the insurance policies above mentioned, or which are under the deductible thereof. 5. The LESSOR and the LESSEE agree to use good faith efforts to have any and all fire extended insurance coverage, or any other material damage insurance, endorsed with a subrogation clause substantially as follows: "This insurance shall not be invalidated should the insured waive in writing, prior to a loss, any or all right of recovery against any party for loss occurring to the property described herein." 6. The LESSOR and LESSEE each waive all claims for recovery from the other party for any loss or damages (whether or not such loss or damage be caused by negligence of the other party and notwithstanding any provision contained in this Lease Agreement to the contrary) to any of its property insured under valid and collectible insurance policies. The foregoing is subject to the limitation that this waiver shall apply only when it is permitted by the applicable insurance policy. 7. All insurance provided for in this Clause shall be effected under valid and enforceable policies issued by insurers which have been approved by LESSOR and which are authorized to do business in Mexico, copies of which shall be provided to LESSOR. 8. All policies of insurance herein provided for shall, to the extent that LESSOR shall request, contain standard mortgage clauses in favor of the holders of mortgages on the Leased Property. 9. In case of casualty to the Leased Property resulting in damage or destruction to the Building, LESSEE shall promptly 9 -9- telephone the LESSOR within 24 hours after the casualty occurred and give written notice thereof to LESSOR. Adjustment proceedings shall be started immediately by LESSEE. 10. All insurance money paid on account of such damage or destruction, less the actual cost, fees and expenses, if any, incurred in connection with adjustment of the loss, shall be made available to the LESSOR or the LESSEE, as their respective interests appear under this Lease Contract, for the purpose of restoring, replacing, rebuilding or altering the Building as nearly as possible to its value, condition and character immediately prior to such damage or destruction. TWELFTH -- TERM: The initial term of this Lease Contract ("Initial Term") shall be for a period of 10 (ten) years, beginning on March 15, 1998, the Effective Date of this Contract, during which the LESSEE shall have the undisturbed use and enjoyment of the Leased Property. Additionally LESSOR agrees that LESSEE shall have an option to extend the Initial Term of this Contract for a period of 5 (five) years, (the "Extended Term") in order to continue leasing under the same terms and conditions, except the lease price, which will be increased to reflect one-half (50%) of any increase in the Consumer Price Index (CPI) from the sixth to the tenth year of the Initial Term. As used herein the Consumer Price Index shall mean the table "Consumer Price Index for all Urban Consumers", published by the Bureau of Labor Statistics of the U. S. Department of Labor. The parties agree to use the column for "All Items" (unadjusted) under such table. If LESSEE desires to exercise said option, shall notify LESSOR in writing at any time up to six months prior to the termination of the Initial Term. THIRTEENTH -- SURRENDER: LESSEE shall, on the last day of the term of this Lease or upon earlier termination, surrender and deliver the Leased Property into the possession and use of the LESSOR without delay, in good order, condition and repair, except for normal wear and tear due to normal use and the passage of time, and except for damage by fire or other casualty. All signs, inscriptions, canopies and installations of like nature made by LESSEE shall be removed at or prior to the expiration of the term of this Lease. 10 -10- All furniture and Trade Fixtures installed by LESSEE shall remain the property of the LESSEE and shall be removed by LESSEE at any time during or at the end of the term. Any personal property which shall remain in the Leased Property after the termination of the Lease may, at the option of LESSOR, be deemed to have been abandoned and either may be retained by LESSOR as its property or be disposed of, without liability, in such manner as LESSOR may see fit. FOURTEENTH -- HOLDOVER: In the event this Lease Contract is not duly extended prior to the termination date, the LESSEE shall at the termination of the Lease by lapse of time or otherwise, yield up immediate possession to LESSOR, and failing to do so it will be considered that the Lease Term is extended for an indefinite period of time during which the LESSEE will pay as rent for the whole time such possession is withheld a sum equal to twice the daily rental payment by LESSEE as computed on the last day of the initial or extended term hereof, however the provisions of this clause shall not be deemed to be a waiver by LESSOR of any right of reentry as herein set forth; nor shall the receipt of said payment or any part thereof, operate as waiver of the right of LESSOR to recover the Leased Property. FIFTEENTH -- RIGHT TO PERFORM OTHER PARTY'S COVENANTS: If LESSEE shall at any time fail to perform any one or more of its agreements made in this Lease Contract, LESSOR, after ten (10) days written notice to LESSEE (or without notice in the case of an emergency) and without waiving or releasing LESSEE from any obligation of LESSEE contained in this Lease Contract, may but shall be under no obligation to perform any act on LESSEE's part to be performed as provided in this Lease Contract, and may enter upon the Leased Property for that purpose and take all such actions thereon as may be necessary therefor. All reasonable sums paid by LESSOR and all reasonable costs and expenses incurred by LESSOR in connection with the performance of any such obligation of LESSEE, shall be payable by LESSEE to LESSOR on demand. The LESSEE will be entitled to the same right with respect to the obligations breached by the LESSOR. 11 -11- If LESSOR shall at any time fail to perform any one or more of its agreements made in this Lease Contract, LESSEE, after ten (10) days written notice to LESSOR (or without notice in the case of an emergency) and without waiving or releasing LESSOR from any obligation of LESSOR contained in this Lease Contract, may but shall be under no obligation to perform any maintenance act on LESSOR'S part to be performed as provided in this Lease Contract, and may enter upon the Leased Property for that purpose and take all such actions thereon as may be necessary therefor; provided, however, that LESSEE may not under the authority of this Clause undertake major structural construction or modification of the Building. All reasonable sums paid by LESSEE and all reasonable costs and expenses incurred by LESSEE in connection with the performance of any such obligation of LESSOR, shall be payable by LESSOR to LESSEE on demand. SIXTEENTH -- ENTRY ON LEASED PROPERTY BY LESSOR: LESSEE shall permit LESSOR and its authorized representatives to enter the Leased Property at all reasonable times for the purpose of inspecting the same and performing any work therein that may be required of it or that may be necessary by reason of LESSEE's failure to make repairs or perform such work or for the purpose of showing the same to prospective purchasers, as well as for the purpose of determining the hazards of occupancy which may exist and to instruct the LESSEE as to how to eliminate or reduce such hazards of occupancy, which reasonable instructions shall be complied with by the LESSEE forthwith. LESSOR shall exercise its authority under this provision in such a way so as not to interfere with the business operations of the LESSEE. SEVENTEENTH -- SUBROGATION: LESSEE agrees, at the request of LESSOR, to subordinate this Lease Contract to any mortgage placed upon the Leased Property, provided that the holder agrees not to disturb the possession and other rights of LESSEE under this Lease Contract so long as LESSEE continues to perform its obligations hereunder; and in the event of acquisition of title by said holder through foreclosure proceedings or otherwise, said holder agrees to accept LESSEE as tenant of lease and to perform the LESSOR's obligations hereunder (but only while 12 -12- owner of the Leased Property); and LESSEE agrees to recognize such holder or any other persons acquiring title to the Leased Property. LESSEE and LESSOR agree to execute and deliver any appropriate instruments necessary to carry out the agreements contained herein. EIGHTEENTH -- GUARANTY: LESSEE (being a subsidiary of International Wire Group) shall obtain and deliver to LESSOR, at the execution of this Lease Contract, a Guaranty in substantially the same form of the document attached hereto as Exhibit "C", duly signed by a representative of International Wire Group, a U. S. A. corporation, as Guarantor and certified by a Notary Public, whereby Guarantor shall guaranty to LESSOR compliance by LESSEE with all and each of the obligations accepted by the LESSEE under this Lease and such guaranty shall be valid and binding for all the then unexpired terms of this Lease. LESSOR intends to collaterally assign this Lease to lender. LESSEE and Wire Harness Industries Inc. agree to sign such documents as are in the form attached hereto as Exhibit "C", or in such other comparable form as a lender might require. NINETEENTH -- ASSIGNMENT: This Lease Contract may be assigned by LESSOR, provided that LESSOR shall remain liable hereunder. TWENTIETH -- MODIFICATIONS TO CONTRACTUAL DOCUMENT: No modification, release or discharge of this Lease Contract or waiver of any of the provisions hereof shall be of any force or effect except by an agreement in writing signed by LESSOR and LESSEE. TWENTY FIRST -- APPLICABLE LAW AND JURISDICTION: This Lease Contract shall be bound by and subject to the provisions of the Civil Code of the State of Chihuahua and both parties hereto expressly submit to the jurisdiction of the Courts of Chihuahua, State of Chihuahua, Mexico. 13 -13- TWENTY SECOND -- ARBITRATION: Any controversy regarding this Lease Contract will be settled jointly by the parties through arbitration under the following procedure: The Arbitration will be subject to the rules of arbitration as set forth by Mexican Commercial Code. There will be three arbitrator, one arbitrator to be selected by LESSOR, one to be selected by LESSEE and other arbitrator to be selected by the two arbitrator so selected by the parties. If a party fails to nominate the arbitrator within fifteen (15) days from the date of notification made to it of the other party's request for arbitration, or if the two arbitrators fail, within fifteen days from the date of their appointment, to reach agreement on the third arbitrator, then COPARMEX, in the City of Chihuahua, Chihuahua, will appoint arbitrator that was not nominated by the failing party, or will appoint the third arbitrator as the case may be. The place of arbitration will be the City of Chihuahua, Chihuahua, Mexico. The substantive national law applicable to the arbitration will be that of Mexico. The language of the arbitration proceedings will be English or Spanish without the need for translation from one to another of such languages. The award issued under the paragraph will be final and binding upon the parties. TWENTY THIRD -- OPTION TO BUY: LESSEE shall have the option to buy the Leased Property only at the end of the fifth year and at the end of the tenth year of the Initial Term. In order to exercise said option to buy, LESSEE, shall notify, in writing to LESSOR of its intention to buy, within the six months prior to the date to exercise the option to buy. The purchase price shall be the amount of US$3,488,000.00 at the end of the fifth year. The purchase price at the end of the tenth year will be based upon the rent for the Extended Term which rent will be equal to 15% of the Purchase Price. TWENTY FOURTH -- NOTICES: All notices, demands and requests required under this Lease Contract shall be in writing. All such notices, demands and requests shall be deemed to have been properly given if served personally or if sent by registered or certified mail, return receipt requested, addressed to LESSOR or LESSEE as the case may be, at its respective address last designated by notice to the other 14 -14- party for that purpose. Until LESSOR and LESSEE shall designate other addresses, their addresses shall be as follows: LESSOR: PARQUE INDUSTRIAS DE AMERICA, S.A. DE C.V. Attn: Mr. Luis Lara Armendariz Prolong. Ave. Americas S/N Parque Industrial Las Americas Chihuahua, Chih. 31200 and with a copy to: Terry L. Johnson Scott & Hulse 13th. Floor, Texas Commerce Bank Building El Paso, Texas 79901 LESSEE: ELECTROCOMPONENTES DE MEXICO, S.A. DE C.V. Attn: Mr. Bernard Boone Chimeneas s/n y Fernando Borreguero Parque Industrial Juarez Apdo Postal 1595-D Ciudad Juarez, Chihuahua, Mexico and with copy to: Lic. Humberto Gayou-Madrigal Paseo San Jeronimo 1665 - Despacho 1 Fraccionamiento San Jeronimo Ciudad Juarez, Chihuahua., Mexico TWENTY FOUR -- OFFICIAL TEXT AND TRANSLATION: The parties execute this Lease Contract in the Spanish language as the official text, and also execute a translation of this Lease Contract in the English language. If either party submits Lease Contract to any court or other authority, the Spanish version shall control in case of any disputes related to the interpretation of a given section. Executed in Ciudad Juarez, Chihuahua, Mexico effective as of March 15th, 1998. LESSOR: LESSEE: PARQUE INDUSTRIAS DE AMERICA, ELECTROCOMPONENTES DE MEXICO, S.A. DE C.V. S.A. DE C.V. 15 -15- /s/ MR. LUIS LARA ARMENDARIZ /s/ MR. BERNARD BOONE - ---------------------------- ---------------------------- By: Mr. Luis Lara Armendariz By: Mr. Bernard Boone Sole Administrator General Manager Exhibits A - Plot of Leased Property B - Improvements of the Leased Property. C - Guaranty 16 -16- [FLOOR PLAN] 17 -17- EXHIBIT B LIST OF IMPROVEMENTS TO THE LEASE PROPERTY 1. - Modification of Restrooms 2. - Addition of 60 parking spaces 3. - Addition of loading docks and extension of truck road 4. - Addition of a diesel storage tank 5. - Resealing production floor 18 -18- EXHIBIT C GUARANTY FROM INTERNATIONAL WIRE GROUP 19 GUARANTY THIS GUARANTY (hereinafter referred to as "Guaranty") made effective March 15th, 1998, by and between International Wire Group, Inc., a U.S.A. corporation (hereinafter referred to as the "Guarantor"), and PARQUE INDUSTRIAS DE AMERICA, S.A. DE C.V., a Mexican corporation (hereinafter referred to as the "Lessor"). P R E M I S E S WHEREAS, Lessor is the owner of certain real property (hereinafter referred to as the "Property"), located in Calle 20a Numero 3300, Colonia Marmol in the City of Chihuahua, State of Chihuahua, Mexico, consisting in an industrial building with 90,829 sq. ft. approx.; WHEREAS, Guarantor is the parent of, or an affiliated corporation with, ELECTROCOMPONENTES DE MEXICO, S.A. DE C.V. (hereinafter referred to as "Company"); WHEREAS, Guarantor executes this Guaranty in favor of Lessor, to induce Lessor to enter into that certain lease agreement (hereinafter referred to as the "Lease Agreement") between Lessor and Company, dated effective March 15th, 1998; and WHEREAS, Guarantor directly or indirectly receives, utilizes and/or benefits from, manufactured products or parts made by Company in Mexico, and therefore Guarantor directly or indirectly benefits from making this Guaranty; now, therefore, in consideration of the foregoing, and of other good and valuable consideration, the receipt of which is acknowledged by Guarantor, IT IS HEREBY AGREED AS FOLLOWS: 1. Guarantor unconditionally guarantees to Lessor, and to Lessor's successors and assigns, the prompt, full, complete and punctual payment and performance to Lessor of all of the terms, conditions, covenants, obligations, liabilities and agreements of Initials: JF ---- 20 Company as set forth in the Lease Agreement or any renewals, amendments, expansions, and modifications thereof between Lessor and Company. This Guaranty extends to and includes any and all interest due or to become due, together with all reasonable attorney's fees, costs and expenses of collection incurred by Lessor in connection with any matter covered by this Guaranty. This Guaranty shall include any liability of Company which shall accrue under the Lease Agreement for any period preceding as well as any period following the term of the Lease Agreement. Guarantor represents that Guarantor directly or indirectly benefits from making this Guaranty. 2. The liability of Guarantor shall continue until payment is made and performance given pursuant to every obligation of Company now due or hereafter to become due in accordance with the terms of the Lease Agreement or any extension thereof, between Lessor and Company, and until payment is made of any loss or damage incurred by Lessor with respect to any matter covered by this Guaranty. This Guaranty shall be irrevocable. The obligations of Guarantor under this Guaranty shall not be released or otherwise affected by reason of any sublease, assignment, or other transfer of Company's interest under the Lease Agreement, whether or not Lessor consents to such sublease, assignment, or other transfer. 3. Guarantor consents, without affecting Guarantor's liability to Lessor hereunder, that Lessor may, without notice to or consent of Guarantor, upon such terms as Lessor may deem advisable: a. Extend, in whole or in part, by renewal or otherwise, any time of payment or performance on the part of Company, provided for in the Lease Agreement; b. Release, surrender, exchange, modify, impair, or extend any period or duration, or any time for performance, or payment on the part of Company, required by the Lease Agreement; c. Settle or compromise any claim of Lessor against Company, or against any other person, firm or corporation whose obligation Lessor holds as security for Company's obligation to Lessor under the Lease Agreement; 2 Initials: JF ---- 21 d. Renew, compromise, extend, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof under the Lease Agreement, including increase or decrease of any amount due thereunder or any level of rent specified therein; or e. Release or substitute any one or more of Company or Guarantor. Guarantor hereby ratifies and affirms any such extension, renewal, release, surrender, exchange, modification, impairment, settlement or compromise and all such acts shall be binding upon Guarantor who hereby waives all defense, counterclaims or offsets which Guarantor might have solely by reason thereof. 4. Guarantor waives: a. Notice of acceptance of this Guaranty by Lessor; b. Notice of presentment, notice of nonperformance, notices of dishonor and notices of the existence, creation or incurring of new or additional indebtedness or obligations, demands for payment of performance or protest of any obligations of Company to Lessor under the Lease Agreement; c. Notice of the failure of any person, firm or corporation to pay to Lessor any indebtedness held by Lessor as collateral security for any obligation of Company to Lessor under the Lease Agreement; d. Any right to require Lessor to (i) proceed against Company; (ii) proceed against or exhaust any security or other lien or right held by Lessor; or (iii) pursue any other remedy in the power of Lessor whatsoever; e. Any requirement that Lessor mitigate damages under the Lease Agreement; f. Any defense or right arising by reason of any disability or lack of authority or power of Company, and Guarantor shall remain liable hereunder if Company or any other 3 Initials: JF ---- 22 party shall not be liable under the Lease Agreement for such reason; g. Any defense, offsets of claims arising from any strikes, riots, acts of God, shortages of labor or materials, war, or governmental action or intervention which wholly or partially frustrates any or all of the purpose for which the Lease Agreement was entered into; h. Any defense, offsets or claims arising from any economic or social conditions in Mexico, or changes in Mexican law, including without limitation, devaluations or other changes regarding currency or regarding payment of any rentals under the Lease Agreement; i. Any defects in perfection of the assignment and pledge of the rents by failure to record the Lease Agreement or any instrument or assignment and pledge in the Public Registry under Mexican Law; j. The benefit of any statute of limitations affecting Guarantor's liability under the Guaranty; and 5. Guarantor's obligation hereunder is primary and independent of Company's obligations under the Lease Agreement. In the event of any default on the part of Company as defined in the Lease Agreement, Lessor may at its option proceed first against Guarantor, jointly and severally, to collect any obligation covered by this Guaranty, without first proceeding against Company or any other person, firm or corporation and without first resorting to any property at any time held by Lessor as collateral security. 6. Until all of Company's obligations in the Lease Agreement are fully performed, Guarantor: (a) shall have no right of subrogation against Company by reason of any payments or acts of performance by the Guarantor, in compliance with the obligations of Guarantor hereunder; (b) waives any right to enforce any remedy which Guarantor now or hereafter shall have against Company by reason of any one or more payments or acts of performance in compliance with the obligations of Guarantor hereunder; and (c) subordinates any liability or indebtedness of Company now or 4 Initials: JF ---- 23 hereafter held by Guarantor to the obligations of Company to the Lessor under the Lease Agreement. 7. The liability of Guarantor hereunder shall not be released or otherwise affected by: a. The release or discharge of Company in any insolvency, bankruptcy, reorganization, receivership, or other debtor relief proceeding involving Company (collectively referred to herein as "Proceeding for Relief"); b. The impairment, limitation, or modification of the liability of Company or the estate of Company in any Proceeding for Relief, or of any remedy for the enforcement of Company's liability under the Lease Agreement, resulting from the operation of any law relating to bankruptcy, insolvency, or similar proceeding or other law or from the decision in any court; c. The rejection or disaffirmance of the Lease Agreement in any Proceeding for Relief; This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment by Company to Lessor under the Lease Agreement is rescinded or must otherwise be returned by Lessor in a Proceeding for Relief involving Company, all as though such payment had not been made. Nothing contained in this Guaranty shall alter any of the rights or remedies of Lessor against Company. 8. This Guaranty shall be governed by and construed in accordance with the internal laws of the State of Texas excluding any principles of conflicts of laws. In any action prosecuted by Lessor for the interpretation and performance of this Guaranty, Guarantor agrees to and hereby submits Guarantor to the personal and subject matter jurisdiction of the Federal District Court of the Western District of Texas, or the State Courts in the County of El Paso, State of Texas, United States of America. Guarantor expressly waives the right to any other jurisdiction that Guarantor may have as a result of Guarantor's present or future domicile, or due to any other cause whatsoever. At Lessor's request, this Guaranty may be translated into Spanish, and Guarantor agrees to 5 Initials: JF ---- 24 execute a Spanish language version of this Guaranty; however the English version shall be determinative in any court proceeding. GUARANTOR WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LESSOR AND GUARANTOR ARISING OUT OF THIS GUARANTY OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION HEREWITH OR ANY TRANSACTION RELATED TO THIS GUARANTY. 9. Guarantor agrees to pay to Lessor a reasonable attorney's fee and all other costs and expenses which may be incurred by Lessor in the collection or efforts to collect or enforcement of the sums due under this Guaranty. If any provision hereof shall be deemed invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision herein. If Guarantor is more than one person or entity, the liability of each such Guarantor shall be joint and several. Lessor may assign the Guaranty in whole or in part. Guarantor may not assign this Guaranty in whole or in part without Lessor's prior written consent; Guarantor shall remain liable for its obligations hereunder unless released therefrom in writing by Lessor. 10. Guarantor represents and warrants that (a) Guarantor is authorized to execute and deliver this Guaranty, (b) the person executing this Guaranty is authorized to execute the same for and on behalf of Guarantor, (c) Guarantor has all requisite power and authority to enter into this Guaranty, (d) neither the execution or delivery of this Guaranty, nor the performance of the terms, conditions or provisions of this Guaranty, constitute a default under, or result in the creation of any lien pursuant to, any other agreement or instrument under which Guarantor is obligated, and (e) at the time of execution and delivery of this Guaranty, nothing exists to impair the effectiveness of the liability of Guarantor to Lessor hereunder, or to impair the immediate taking effect of this Guaranty as the sole Agreement between Guarantor and Lessor with respect to guaranteeing all of Company's obligations to Lessor under the Lease Agreement. At Lessor's request, Guarantor upon execution hereof, or during the term hereof, shall be obligated to provide to Lessor a corporate resolution of Guarantor acknowledging the authority to enter into the Guaranty, and the benefit to Guarantor of making the Guaranty. At any time during the term of the Lease Agreement, upon request of Lessor, Guarantor shall be 6 Initials: JF ---- 25 obligated to provide to Lessor an acknowledgment that the Guaranty remains in effect. 11. Guarantor acknowledges that no special fiduciary or trust relationship exists between Lessor and Guarantor. Guarantor agrees that no such special relationship shall exist, unless pursuant to, and only to the extent set forth in, a written agreement that is signed by Lessor and Guarantor and that expressly states such special relationship. 12. The rights and remedies of Lessor under this Guaranty, and the rights and remedies of Lessor created under any other document or applicable law, are cumulative and may be exercised singly or concurrently, and the exercise of any one or more of them will not be a waiver of any other. Lessor may concurrently pursue actions against Guarantor in the United States and in Mexico, and may recover a judgment in one without waiving its right to pursue the other, provided however that Lessor shall not obtain double or duplicate recovery of Lessor's damages. 13. This Guaranty is binding jointly and severally upon Guarantor and its legal representatives and successors and shall inure to the benefit of Lessor its legal representatives, successors and assigns, provided however that Guarantor shall not assign its obligations hereunder. 14. The whole of this Guaranty is set forth herein and there is no verbal or other written agreement and no understanding or custom affecting the terms hereof. This Guaranty can be amended only by a written instrument specifically referencing this Guaranty and executed by both parties hereto. 15. In the event Lessor discounts, collaterally assigns or assigns the Lease Agreement and the Guaranty to a bank or other lending institution (hereinafter referred to as "Lender"), Guarantor shall furnish to Lender a letter stating that Guarantor acknowledges receipt of notice of an assignment by Lessor of the Guaranty; that the Guaranty is in full force and effect; that no changes to the Guaranty as originally executed have been made; that Guarantor will not enter into any modification of the Guaranty without first obtaining Lender's prior written approval; that Lender may rely solely upon the Guaranty with respect to Lender's right to receive the rents in accordance with the terms of the 7 Initials: JF ---- 26 Lease Agreement; and that all payment made thereafter shall be made to Lender or its assigns in U.S. Dollars, at such times and at such places as directed by Lender or its assigns. Guarantor shall execute and furnish to Lender such other acknowledgments, consents or other documents as Lender may reasonably require in order to facilitate the discount, collateral assignment or assignment of the Lease Agreement and the Guaranty. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES; THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, Guarantor has signed this Guaranty effective as of March 15th, 1998. GUARANTOR: International Wire Group Inc. By: /s/ JOSEPH M. FIAMINGO -------------------------------------- Printed Name: Joseph M. Fiamingo -------------------------------------- Its: President -------------------------------------- Address of Guarantor: International Wire Group, Inc. -------------------------------------- 101 So. Hanley Rd. -------------------------------------- St. Louis, MO 63105 -------------------------------------- ATTEST: By: /s/ GLENN J. HOLLER ------------------------------ Printed Name: Glenn J. Holler ------------------------------ Its: VP VP Finance & CFO ------------------------------ 8 Initials: JF ---- 27 ACKNOWLEDGMENT STATE OF MISSOURI ) ) COUNTY OF ST. LOUIS ) This Guaranty was acknowledged before me on the 17th day of February, 1998, by Joseph M. Fiamingo, of International Wire corporation, on behalf of said corporation. Notary's Official Seal: /s/ THERESA M. JACKSON ----------------------------- NOTARY PUBLIC IN AND FOR THE STATE OF MISSOURI [SEAL] THERESA MARIE JACKSON NOTARY PUBLIC, STATE OF MISSOURI ST. LOUIS COUNTY MY COMMISSION EXPIRES SEPT. 11, 1999 9 Initials: JF ---- EX-10.27 3 2ND AMEND & WAIVER TO AMEND & RESTATED CREDIT AGMT 1 EXHIBIT 10.27 EXECUTION COPY ================================================================================ SECOND AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT among INTERNATIONAL WIRE GROUP, INC., as Borrower, INTERNATIONAL WIRE HOLDING COMPANY, as Guarantor, CAMDEN WIRE CO., INC., THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, THE CHASE MANHATTAN BANK, as Administrative Agent, and BANKERS TRUST COMPANY, as Documentation Agent ------------------------- CHASE SECURITIES INC. and BT SECURITIES CORPORATION, as Arrangers ------------------------- DATED AS OF SEPTEMBER 29, l997 ================================================================================ 2 SECOND AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDMENT AND WAIVER, dated as of September 29, 1997, to the Amended and Restated Credit Agreement, dated as of February 12, 1997 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), among INTERNATIONAL WIRE GROUP, INC., a Delaware corporation (the "Borrower"), INTERNATIONAL WIRE HOLDING COMPANY, a Delaware corporation ("Holdings"), CAMDEN WIRE CO., INC., a New York corporation ("Camden"), the several banks and other financial institutions from time to time parties thereto (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders thereunder (in such capacity, the "Administrative Agent"), and BANKERS TRUST COMPANY, as documentation agent for the Lenders thereunder (in such capacity, the "Documentation Agent"). Unless otherwise defined herein, terms which are defined in the Credit Agreement and used herein are so used as so defined. WITNESSETH: WHEREAS, the Borrower, Holdings, the Lenders, the Administrative Agent and the Documentation Agent are parties to the Credit Agreement; WHEREAS, the Borrower desires to establish the Philippines Project and to secure Philippines Project Indebtedness (as hereinafter defined) in connection therewith; WHEREAS, the Borrower has requested certain amendments to the Credit Agreement to permit the Philippines Project Indebtedness; and WHEREAS, the Borrower has requested a waiver of certain provisions of the Credit Agreement as described below; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: 1. Amendments to Section 1.1 of the Credit Agreement. Section 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the proper alphabetical order: "Philippines Project": an insulated wire facility located in the city of Cebu in the Republic of the Philippines." "Philippines Project Documentation": certain loan, security, real property lease, supply and other related agreements and documents entered into by the Borrower, its Subsidiaries or its Affiliates in connection with the Philippines Project and the terms of which shall be reasonably satisfactory to the Administrative Agent." "Philippines Project Indebtedness": up to $18,000,000 in aggregate of Indebtedness secured by any Foreign Subsidiary from the Borrower, any Domestic 3 Page 2 Subsidiary of the Borrower, or a third party (subject to Section 8.2(i)(ii) in the case of any intercompany Indebtedness) for the purpose of financing the construction and working capital needs of the Philippines Project and in accordance with the Philippines Project Documentation." 2. Amendment to Subsection 8.2 of the Credit Agreement. Subsection 8.2(i) of the Credit Agreement is hereby amended by inserting a semicolon at the end of subsection 8.2(i)(ii), deleting the remainder of subsection 8.2(i) in its entirety and inserting the following in lieu thereof: (iii) of ECM and any other Foreign Subsidiary of the Borrower to local financial institutions for working capital purposes other than the Philippines Project Indebtedness and (iv) of any Foreign Subsidiary of the Borrower for financing under the Philippines Project Indebtedness; provided that the aggregate principal amount of Indebtedness described in clauses (i) and (ii) above plus the aggregate commitments of all working capital facilities described in subclause (iii) shall in no event exceed $17,000,000 at any one time and provided further that the aggregate amount of the Philippines Project Indebtedness described in subclause (iv) shall in no event exceed $18,000,000 at any one time. 3. Amendment to Subsection 8.3 of the Credit Agreement. Subsection 8.3(p) of the Credit Agreement is hereby amended by deleting the phrase "subsections 8.2(i)(ii) and (iii)" and inserting in lieu thereof the phrase "subsections 8.2(i)(ii), (iii) and (iv)". 4. Amendment to Subsection 8.4 of the Credit Agreement. (a) Subsection 8.4(i) of the Credit Agreement is hereby amended by deleting the word "and" at the end of said subsection. (b) Subsection 8.4(j) of the Credit Agreement is hereby amended by deleting the period at the end of said subsection and inserting in lieu thereof a semi-colon followed by the word "and". (c) Subsection 8.4 of the Credit Agreement is hereby amended by adding the following subsection 8.4(k) immediately after subsection 8.4(j): "(k) unsecured guarantees of the Philippines Project Indebtedness, if any." 5. Amendment to Subsection 8.8 of the Credit Agreement. (a) Subsection 8.8(c) of the Credit Agreement is hereby amended by deleting the phrase "paragraph (d)" and inserting in lieu thereof the phrase "paragraphs (d) and (e)". (b) Subsection 8.8 of the Credit Agreement is hereby amended by inserting the following subsection 8.8(e) immediately after subsection 8.8(d): (e) In addition to the Capital Expenditures permitted pursuant to paragraphs (a), (b) and (d) of this subsection 8.8, the Borrower and/or any of its 4 Page 3 Subsidiaries may make Capital Expenditures of up to $15,000,000 in the aggregate in connection with the Philippines Project during the Borrower's 1997 and 1998 fiscal years pursuant to the terms of the Philippines Project Documents. 6. Waiver of Subsection 7.9 of the Credit Agreement. The Lenders hereby waive the obligation of the Borrower and/or any Domestic Subsidiary to pledge all property acquired after the Second Amendment Closing Date pursuant to Subsection 7.9 of the Credit Agreement only to the extent that the Borrower shall not be required to pledge to the Administrative Agent for the ratable benefit of the Lenders certain Promissory Notes (as the same may be amended, supplemented or restated) acquired pursuant to that certain Note Purchase Agreement issued by Camden Associates, Edon Associates, Onedia Associates, Jordan Associates, and Onondaga Associates in the aggregate principal amount of $5,791,831.98 and secured by mortgages on certain properties located in the Villages of Jordan and Camden, New York. 7. Conditions to Effectiveness of this Amendment and Waiver. The agreement of each Lender party to this Amendment and Waiver is subject to the satisfaction of the following conditions precedent: (a) Amendment and Waiver. The Administrative Agent shall have received this Amendment and Waiver, executed and delivered by a duly authorized officer of the Borrower, Holdings and Camden with a counterpart for each Lender. (b) Pledged Stock. The Administrative Agent shall have received issued and outstanding shares of all classes of the Capital Stock of any new Subsidiary created in connection with the Philippines Project and held by the Borrower or any of its Subsidiaries to the extent required under Subsection 7.12 of the Credit Agreement. (c) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the transactions contemplated herein. (d) Representations and Warranties. Each of the representations and warranties made by the Credit Parties and their Subsidiaries in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of the date hereof as if made on and as of the date hereof, except for any representation and warranty which is expressly made as of an earlier date, which representation and warranty shall have been true and correct in all material respects as of such earlier date. 8. Miscellaneous. (a) Effect. Except as expressly amended or waived hereby, all of the representations, warranties, terms, covenants and conditions of the Loan Documents shall remain unamended and not waived and shall continue to be in full force in effect. (b) Counterparts. This Amendment and Waiver may be executed by one or more of the parties to this Amendment and Waiver on any number of separate counterparts, and all of 5 Page 4 said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment and Waiver signed by all the parties shall be lodged with the Borrower and the Administrative Agent. (c) Severability. Any provision of this Amendment and Waiver which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (d) Integration. This Amendment and Waiver and the other Loan Documents represent the agreement of the Credit Parties, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. (e) GOVERNING LAW. THIS AMENDMENT AND WAIVER AND ANY NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT AND WAIVER AND ANY NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written. INTERNATIONAL WIRE GROUP, INC., as Borrower By: /s/ DAVID J. WEBSTER -------------------------- Name: David J. Webster Title: Vice President INTERNATIONAL WIRE HOLDING COMPANY, as Guarantor By: /s/ DAVID J. WEBSTER -------------------------- Name: David J. Webster Title: Vice President CAMDEN WIRE CO., INC. By: /s/ DAVID J. WEBSTER -------------------------- Name: David J. Webster Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender, as Swing Line Lender and as Issuing Lender By: /s/ TIMOTHY J. STORMO -------------------------- Name: Timothy J. Stormo Title: Managing Director BANKERS TRUST COMPANY By: /s/ -------------------------- Name: Title: 7 AERIES FINANCE LTD. By: /s/ ANDREW IAN WIGNALL -------------------------------- Name: Andrew Ian Wignall Title: Director THE BANK OF NEW YORK By: /s/ CHRISTOPHER C. JACOBS -------------------------------- Name: Christopher C. Jacobs Title: Assistant Treasurer BANK OF SCOTLAND By: /s/ ANNIE CHIN TAT -------------------------------- Name: ANNIE CHIN TAT Title: VICE PRESIDENT BANQUE FRANCAISE DU COMMERCE EXTERIEUR By: /s/ DEVIN DOOLEY -------------------------------- Name: Kevin Dooley Title: Vice President By: /s/ WILLIAM C. MAIER -------------------------------- Name: WILLIAM C. MAIER Title: VP-GROUP MANAGER BANQUE PARIBAS By: /s/ PIERRE-JEAN DE FILIPPIS -------------------------------- Name: PIERRE-JEAN de FILIPPIS Title: General Manager By: /s/ DEANNA C. WALKER -------------------------------- Name: DEANNA C. WALKER Title: Assistant Vice President 8 CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ DEAN BALICE -------------------------------- Name: DEAN BALICE Title: SENIOR VICE PRESIDENT BRANCH MANAGER CERES FINANCE LTD. By: /s/ DAVID EGGLISHAW -------------------------------- Name: David Egglishaw Title: DIRECTOR DEBT STRATEGIES FUND, INC. By: -------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J. K. WILLIAMS -------------------------------- Name: Title: HELLER FINANCIAL, INC. By: /s/ PATRICK HAYES -------------------------------- Name: PATRICK HAYES Title: VICE PRESIDENT THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ TAKUYA HONJO -------------------------------- Name: TAKUYA HONJO Title: SENIOR VICE PRESIDENT 9 KZH HOLDING CORPORATION III By: /s/ VIRGINIA R. CONWAY ------------------------------------- Name: Virginia R. Conway Title: Authorized Agent KZH-CRESCENT CORPORATION By: /s/ VIRGINIA R. CONWAY ------------------------------------- Name: Virginia R. Conway Title: Authorized Agent THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: /s/ SHUICHI TAJIMA ------------------------------------- Name: Shuichi Tajima Title: Deputy General Manager MEDICAL LIABILITY MUTUAL INSURANCE CO. By: CHANCELLOR LGT SENIOR SECURED MANAGEMENT, INC. as Investment Manager By: /s/ TIMOTHY DALLEADER ------------------------------------- Name: Timothy Dalleader Title: Assistant Vice President MERRILL LYNCH PRIME RATE PORTFOLIO By: ------------------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ------------------------------------- Name: Title: 10 THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ TOSHIHIRO HAYASHI ----------------------------- Name: Toshihiro Hayashi Title: Senior Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ PETER J. STEARN ----------------------------- Name: Peter J. Stearn Title: Assistant Vice President PRIME INCOME TRUST By: /s/ RAFAEL SCOLARI ----------------------------- Name: RAFAEL SCOLARI Title: V.P. PORTFOLIO MANAGER SENIOR DEBT PORTFOLIO By: BOSTON MANAGEMENT & RESEARCH, as Investment Advisor By: /s/ PAYSON F. SWAFFIELD ----------------------------- Name: Payson F. Swaffield Title: Vice President STRATA FUNDING LTD. By: /s/ DAVID EGGLISHAW ----------------------------- Name: David Egglishaw Title: DIRECTOR 11 VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: /s/ JEFFREY W. MAILLET ------------------------------- Name: JEFFREY W. MAILLET Title: Senior Vice President & Director DEEPROCK & COMPANY by: Eaton Vance Management, as Investment Advisor By: ------------------------------- Name: Title: CITY NATIONAL BANK By: /s/ SAMI AMBAR ------------------------------- Name: Sami Ambar Title: Vice President 12 STRATA FUNDING LTD. By: ------------------------------- Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: ------------------------------- Name: Title: DEEPROCK & COMPANY by: Eaton Vance Management, as Investment Advisor By: /s/ PAYSON F. SWAFFIELD ------------------------------- Name: Payson F. Swaffield Title: Vice President CITY NATIONAL BANK By: ------------------------------- Name: Title: 13 KZH-SOLEIL CORPORATION (formerly known as KZH Holding Corporation) By: ------------------------------- Name: Title: CAPTIVA II FINANCE LTD. By: /s/ DAVID EGGLISHAW ------------------------------- Name: David Egglishaw Title: DIRECTOR EX-10.28 4 OPTION AGREEMENT DATED AS OF 8/6/96 1 INTERNATIONAL WIRE HOLDING COMPANY NONSTATUTORY STOCK OPTION AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into between International Wire Holding Company, a Delaware corporation ("Holdings"), and the undersigned (the "Holder") in connection with the grant of an Option (hereinafter defined) under the INTERNATIONAL WIRE HOLDING COMPANY 1995 STOCK OPTION PLAN (the "Plan"). W I T N E S S E T H: WHEREAS, the Holder is an employee of Holdings or a subsidiary corporation thereof (subsidiary corporations sometimes referred to herein as "Related Entities"; Holdings and the Related Entities are collectively referred to herein as the "Corporation") in a key position or is an officer and/or director of the Corporation and Holdings desires to grant the Holder an Option through the Plan to purchase shares of Stock (hereinafter defined) of Holdings and Holder desires to accept the Option based upon all of the terms, conditions and covenants, including but not limited to, Holder agreeing to confidentiality, non-competition and non-solicitation of employees of the Corporation. NOW, THEREFORE, in consideration of these premises, the parties agree that the following shall constitute the agreement between the Corporation and the Holder: 1. DEFINITIONS. For purpose of this Agreement, the following terms shall have the meanings specified below: 1.1 "Board of Directors" shall mean the board of directors of Holdings. 1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.3 "Committee" shall mean the committee appointed pursuant to Section 2 of the Plan or the Board of Directors, if no committee is appointed. 1.4 "Confidential Information" shall mean information disclosed to or known by the Holder as a direct or indirect consequence of or through the employment about the Corporation or its respective businesses, products, practices, customers and suppliers. However, Confidential Information shall not include under any circumstances any information with respect to the foregoing matters which is (i) available to the public from a source other than Holder, (ii) released in writing by the Corporation to the public or intentionally to persons who are not under a similar obligation of confidentiality to the Corporation and who are not parties to this Agreement or a similar agreement, (iii) obtained by Holder from a third party not under a similar obligation of confidentiality to the Corporation, (iv) required to be disclosed by any court process or any government or agency or department of any government, or (v) the subject of a written waiver executed by the Corporation for the benefit of Holder. 2 1.5 "Disability" shall be construed under the appropriate provisions of the long-term disability plan maintained for the benefit of employees of the Corporation who are regularly employed on a salaried basis. The determination of a Holder's Disability, and the date of its commencement, shall be determined in good faith solely by the Committee. 1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.7 "Fair Market Value" shall mean, if the Stock is traded on one or more established markets or exchanges, the average of the opening and closing prices of the Stock in the primary market or exchange on which the Stock is traded, and if the Stock is not so traded or the Stock does not trade on the relevant date, the value as determined in good faith by the Board of Directors. 1.8 "Securities Act" shall mean the Securities Act of 1933, as amended. 1.9 "Stock" shall mean Holdings' authorized par value $0.01 per share Common Stock together with any other securities with respect to which Options granted hereunder may become exercisable. 2. GRANT OF NONSTATUTORY OPTION. Subject to the terms and conditions set forth herein, Holdings grants to the Holder an Option (the "Option") to purchase from Holdings at a price per share (the "Exercise Price") the number of shares of Stock (the "Option Shares") as both are set out on the final page hereof subject to adjustments as provided in Paragraph 9 hereof. The Option is not intended to be an incentive option within the meaning of Section 422A of the Code. 3. NOTICE OF EXERCISE. This Option may be exercised in accordance with Paragraph 8, to purchase all or a portion of the applicable number of Option Shares exercisable by written notice to Holdings as provided in Paragraph 12, which notice shall: (a) specify the number of shares of Stock to be purchased at the Exercise Price; (b) if the person exercising this Nonstatutory Option is not the named Holder, contain or be accompanied by evidence satisfactory to the Committee of such person's right to exercise this Option; and (c) be accompanied by (i) payment in full of the Exercise Price in the form of a certified or cashier's check payable to the order of Holdings, (ii) with the Committee's approval, a promissory note for the full Exercise Price, (iii) with the Committee's approval, payment in the form of shares of Stock owned by the Holder which are of at least equal value to the aggregate exercise price payable in connection with such exercise, (iv) with the Committee's approval, a share or shares of Stock owned by the Holder and/or surrendered for actual or deemed multiple exchanges of shares of Option Shares, or (v) with the Committee's approval, a combination of any of (i) - (iv). The Committee may grant or withhold its approval under any or all of the foregoing in its sole and absolute discretion. -2- 3 4. INVESTMENT LETTER. Unless there is in effect a registration statement under the Securities Act, with respect to the issuance of the Option Shares (and, if required, there is available for delivery a prospectus meeting the requirements of Section 10(a)(3) of the Securities Act), the Holder (or, in the event of his death, the person exercising the Option) shall, as a condition to his right to exercise the Option, deliver to Holdings an agreement or certificate containing such representations, warranties, and covenants as Holdings may deem necessary or appropriate to ensure that the issuance of shares of Stock pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities law. It is understood and agreed that under no circumstance shall Holdings be obligated to file any registration statement under the Securities Act or any applicable state securities law to permit exercise of the Option or to issue any Stock in violation of the Securities Act or any applicable state securities law. 5. TRANSFER AND EXERCISE OF NONSTATUTORY OPTION. The Option is not transferable by the Holder otherwise than by will or the laws of descent and distribution, and is exercisable, during the Holder's lifetime, only by the Holder. The Option may not be assigned, transferred (except by will or the laws of descent and distribution), pledged, or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, or similar proceeding. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of the Option, contrary to the provisions hereof, and the levy of any attachment or similar proceeding upon the Option, shall be null and void and without effect. 6. STATUS OF HOLDER. This Agreement is not a contract of employment and the terms of the Holder's employment shall not be affected hereby or by any agreement referred to herein except to the extent specifically so provided herein or therein. Nothing herein shall be construed to impose any obligation on the Corporation to continue the Holder's employment. The Holder shall not be deemed a stockholder of Holdings with respect to any of the shares of Stock subject to this Option, except to the extent that such shares shall have been purchased and issued. Holdings shall not be required to issue or transfer any certificates for shares of Stock purchased upon exercise of this Option until there is compliance with all applicable requirements of law and this Agreement. 7. NO EFFECT ON CAPITAL STRUCTURE. This Option shall not affect the right of Holdings to reclassify, recapitalize or otherwise change its capital or debt structure or to merge, consolidate, convey any or all of its assets, dissolve, liquidate, windup, or otherwise reorganize and, by acceptance of this Agreement, Holder agrees that Holder has no standing before any court to object to or contest any such action. 8. CONDITIONS AND SCHEDULE FOR EXERCISE. Except as otherwise provided herein, all options shall expire no later than ten (10) years from the date of this Agreement, which ten (10) year period is the term of this Agreement. Subject to the provisions of Paragraph 9, Holder shall be entitled to exercise the options granted herein as follows: (a) twenty percent (20%) of the Option Shares may be exercised on or after the first anniversary date of this Agreement, and (b) thereafter, an additional twenty percent (20%) of the Option Shares shall become exercisable upon or after each of the next four (4) anniversary dates of this Agreement. Notwithstanding the -3- 4 provisions of the immediately preceding sentence, (a) all Option Shares shall become exercisable immediately prior to a change of Control (as defined in the Plan) and (b) in the event of the death or determination of Disability of Holder, an additional twenty percent (20%) of the Option Shares (or such lesser number as to cause the total shares subject to exercise not to exceed the total Option Shares) shall become exercisable as of or after the date of death or date of Disability. There shall not be any pro-rata rating of exercisability between anniversary dates. All other provisions of this Agreement to the contrary notwithstanding, in the event of the termination of Holder's employment with the Corporation (other than as a result of Holder's death or Disability, or in the event of termination of Holder's employment without good cause (as defined in the Plan) or upon retirement (with the Corporation's prior written consent)), all rights under this Agreement and the Option shall terminate and shall thereupon be null and void effective upon such termination; provided however, any shares of Stock obtained through exercise prior to such effective date in accordance with the terms of this Agreement shall remain the sole and absolute property of the Holder subject to the Repurchase Right set forth in Section 19. In the event of the termination of Holder's employment with the Corporation as a result of Holder's death or Disability, or in the event of the termination of Holder's employment without good cause or upon retirement (with the Corporation's prior written consent), all rights under this Agreement and the Option shall terminate and shall be null and void effective thirty (30) days after such termination of employment (during such thirty (30) day period, Holder shall have the right to exercise Holder's Option with respect to all or any part of the shares of Stock which such Holder was entitled to purchase immediately prior to the date of such termination of employment); provided however any shares of Stock obtained through exercise prior to such effective date of termination of employment in accordance with the terms of this Agreement shall remain the sole and absolute property of the Holder. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER, ETC. AND ACCELERATION OF EXERCISABILITY. In the event that, by reason of any merger, consolidation, combination, liquidation, reorganization, recapitalization, stock divided, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of Holdings (collectively, a "Reorganization"), the Stock is substituted, combined, or changed into any cash, property, or other securities, or the shares of Stock are changed into a greater or lesser number of shares of Stock, the number and/or kind of shares and/or, interests subject to an Option and the Exercise Price or value thereof shall be appropriately adjusted by the Committee to give appropriate effect to such Reorganization. Any fractional shares or interests resulting from such adjustment shall be eliminated. All of the provisions of this Paragraph to the contrary not withstanding, Holdings shall have the right to grant stock appreciation right agreements, to issue additional stock options and/or to issue additional shares of stock. If any such stock appreciation right agreements are granted, additional stock options issued and/or additional shares of stock are issued to others out of authorized but unissued shares, even though the result of such stock appreciation right agreements granted, stock options issued and/or stock issues dilute either the percentage of -4- 5 ownership of the Holder or the value per share of any stock or Option herein granted and, in any such event, Holder's rights hereunder shall not be increased in any way. 10. COMMITTEE AUTHORITY. Any question concerning the interpretation of this Agreement, any adjustments required to be made under Paragraph 9 of this Agreement, and any controversy which may arise under this Agreement and/or any paragraph thereof shall be finally determined by the Committee in its sole and absolute discretion. 11. PLAN CONTROLS. The terms of this Agreement are governed by the terms of the Plan, which is made a part hereof as if fully set forth herein, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. 12. NOTICE. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered, sent by mail or sent by overnight courier. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid or next business day after it is sent by overnight courier in each case, addressed to the person who is to receive it. Holdings or Holder may change, at any time and from time to time, by written notice to the other, the address previously so specified. Until changed in accordance herewith, Holdings and the Holder specify their respective addresses as set forth below the signature lines on the last page hereof. 13. CERTIFICATE RETENTION. In the event that Holder gives notice of exercise in whole or in part in accordance with the provisions of this Agreement, Holdings shall have the right to demand that the Holder execute and deliver a Stock Power to Holdings and to then issue the certificate and to hold the certificate in Holdings' possession together with the Stock Power so to assure protection of Holdings' Repurchase Right. 14. AWARD INFORMATION CONFIDENTIAL. As partial consideration for the granting of this Option, the Holder agrees that Holder will keep confidential all information and knowledge that Holder has relating to the manner and amount of participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Holder's spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan. 15. TAX WITHHOLDING. By acceptance hereof, Holder hereby (i) agrees to reimburse the Corporation by which Holder is employed for any federal, state, or local taxes required by any government to be withheld or otherwise deducted by such Corporation in respect of Holder's exercise of all or a portion of the Option; (ii) authorizes the Corporation by which the Holder is employed to withhold from any cash compensation paid to the Holder or in the Holder's behalf, an amount sufficient to discharge any federal, state, and local taxes imposed on the Corporation by which the Holder is employed, in respect of the Holder's exercise of all or a portion of the Option; and (iii) agrees that Holdings may, in its discretion, hold the stock certificate to which -5- 6 Holdings is entitled upon exercise of the Option as security for the payment of the aforementioned withholding tax liability, until cash sufficient to pay that liability has been accumulated, and may, in its discretion, effect such withholding by retaining shares issuable upon the exercise of the Option having a fair market value on the date of exercise which is equal (in the judgment of such corporation) to the amount to be withheld. 16. CONFIDENTIAL INFORMATION. As partial consideration of the granting of this Option, the Holder agrees that during Holder's employment with the Corporation or at any time thereafter, irrespective of the time, manner or cause of the termination of this Agreement, Holder will not directly or indirectly reveal, divulge, disclose or communicate to any person or entity, other than authorized officers, directors and employees of the Corporation, in any manner whatsoever, any Confidential Information of the Corporation or any direct or indirect subsidiary or parent of the Corporation without the prior written consent of the Chairman of the Board of Holdings. 17. AGREEMENT NOT TO COMPETE. As partial consideration of the granting of this Nonstatutory Option, Holder agrees: (a) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that the Holder is terminated for Cause or voluntarily terminates employment with the Corporation prior to the expiration of the term of this Agreement, Holder hereby agrees that for a period of one (1) year following such termination, he shall not, either in Holder's own behalf or as a partner, officer, director, employee, agent or shareholder engage in, invest in or render services to any person or entity engaged in the businesses in which the Corporation or any subsidiary of the Corporation is then engaged and situated within the United States of America. Nothing contained in this Section 17(a) shall be construed as restricting the Holder's right to sell or otherwise dispose of any business or investments owned or operated by the Holder as of the date hereof. (b) TERMINATION WITHOUT CAUSE OR FOR DISABILITY. In the event that the employment of the Holder is terminated by the Corporation without Cause or as a result of the total disability of the Holder, Holder hereby agrees that only during the period that the Holder accepts continued disability and/or severance compensation payments from the Corporation, he shall not, either in Holder's own behalf or as a partner, officer, director, employee, agent or shareholder engage in, invest in or render services to any person or entity engaged in the businesses in which the Corporation is then engaged and situated within the United States of America. Nothing contained in this Section 17(b) shall be construed as restricting the Holder's right to sell or otherwise dispose of any business or investments owned or operated by the Holder as of the date hereof. 18. AGREEMENT NOT TO SOLICIT EMPLOYEES. Holder agrees that, for a period of two (2) years following the termination of Holder's employment by the Corporation, Holder shall not, for Holder or on behalf of any business engaged in a business competitive with the Corporation, solicit or induce, or in any manner attempt to solicit or induce, any person employed by, or any agent of the Corporation to terminate employment or agency, as the case may be, with the Corporation. -6- 7 19. REPURCHASE RIGHT. If Holder's employment with the Corporation terminates for any reason at any time (other than as a result of Holder's death or Disability, or in the event of termination of Holder's employment without good cause (as defined in the Plan) or upon retirement (with the Corporation's prior written consent)), Holdings and/or its designee(s) shall have the option (the "Purchase Option") to purchase, and if an Option is exercised, Holder (or the Holder's executor or the administrator of Holder's estate, in the event of the Holder's death, or Holder's legal representative in the event of the Holder's incapacity (hereinafter, collectively with such Holder, the "Grantor")) shall sell to Holdings and/or its assignee(s), all or any portion (at Holding's Option) of the shares of Stock and/or exercised Options held by the Grantor (such shares of Stock and exercised Options collectively being referred to as the "Purchasable Shares"). Holdings shall give notice in writing to the Grantor of the exercise of the Purchase Option within one (1) year from the date of the termination of the Holder's employment. Such notice shall state the number of Purchasable Shares to be purchased and the determination of the Board of Directors of the Fair Market Value (as defined in the Plan) per share of such Purchasable Shares. If no notice is given within the time limit specified above, the Purchase Option shall terminate. The purchase price to be paid for the Purchasable Shares purchased pursuant to the Purchase Option shall be, in the case of any Stock, the Fair Market Value per share times the number of shares being purchased, and in the case of any Option, the Fair Market Value per share times the number of vested shares subject to such Options which are being purchased, less the applicable per share Option exercise price. The purchase price shall be paid in cash. The closing of such purchase shall take place at Holding's principal executive offices within ten (10) days after the purchase price has been determined. At such closing, the Grantor shall deliver to the purchaser(s) the certificates or instruments evidencing the Purchasable Shares being purchased, duly endorsed (or accompanied by duly executed stock powers) and otherwise in good form for delivery, against payment of the purchase price by check of the purchaser(s). In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any pledge or other encumbrance or any Purchasable Shares by the scheduled closing date, at the option of Holdings, the closing shall nevertheless occur on such scheduled closing date, with the cash purchase price being reduced to the extent of all unpaid indebtedness for which such Purchasable Shares are then pledged or encumbered. To assure the enforceability of Holding's rights under this Paragraph 19, each certificate or instrument representing Stock or an Option held by Holder and/or the certificate or instrument shall bear a conspicuous legend in substantially the following form: "THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE INTERNATIONAL WIRE HOLDING COMPANY 1995 STOCK OPTION PLAN AND A NONSTATUTORY STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND -7- 8 OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES." Holding's rights under this Section 19 shall terminate upon the consummation of an underwritten public offering of the Stock, registered and effective under the Securities Act of 1993, as amended, pursuant to which Holdings receives aggregate cash sales proceeds, before underwriting discount, of at least $25 million or such lesser amount as the Committee shall determine. 20. SUCCESSORS. Except as otherwise provided herein, this Agreement is binding on and enforceable by the heirs, successors, and assigns of the parties. 21. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware, except to the extent that Delaware Law is preempted by Federal Law. IN WITNESS WHEREOF, Holdings has caused this Agreement to be executed and the Holder has hereunto set Holder's hand as of the 6th day of August, 1996. HOLDINGS: INTERNATIONAL WIRE HOLDING COMPANY By: /s/ JAMES N. MILLS --------------------------------- James N. Mills Chairman and Chief Executive Officer 101 South Hanley St. Louis, Missouri 63105 HOLDER: /s/ GLENN J. HOLLER --------------------------------- Glenn J. Holler 226 Grimsley Station Bluff Drive St. Louis, Missouri 63129 Number of Option Shares subject to the grant in Paragraph 2 hereof is two hundred fifty thousand (250,000) and the Exercise Price is One Dollar ($1.00) per share. -8- EX-10.29 5 OPTION AGREEMENT 1 EXHIBIT 10.29 INTERNATIONAL WIRE HOLDING COMPANY NONSTATUTORY STOCK OPTION AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into between International Wire Holding Company, a Delaware corporation ("Holdings"), and the undersigned (the "Holder") in connection with the grant of an Option (hereinafter defined) under the INTERNATIONAL WIRE HOLDING COMPANY 1995 STOCK OPTION PLAN (the "Plan"). W I T N E S S E T H: WHEREAS, the Holder is an employee of Holdings or a subsidiary corporation thereof (subsidiary corporations sometimes referred to herein as "Related Entities"; Holdings and the Related Entities are collectively referred to herein as the "Corporation") in a key position or is an officer and/or director of the Corporation and Holdings desires to grant the Holder an Option through the Plan to purchase shares of Stock (hereinafter defined) of Holdings and Holder desires to accept the Option based upon all of the terms, conditions and covenants, including but not limited to, Holder agreeing to confidentiality, non-competition and non-solicitation of employees of the Corporation. NOW, THEREFORE, in consideration of these premises, the parties agree that the following shall constitute the agreement between the Corporation and the Holder: 1. DEFINITIONS. For purpose of this Agreement, the following terms shall have the meanings specified below: 1.1 "Board of Directors" shall mean the board of directors of Holdings. 1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.3 "Committee" shall mean the committee appointed pursuant to Section 2 of the Plan or the Board of Directors, if no committee is appointed. 1.4 "Confidential Information" shall mean information disclosed to or known by the Holder as a direct or indirect consequence of or through the employment about the Corporation or its respective businesses, products, practices, customers and suppliers. However, Confidential Information shall not include under any circumstances any information with respect to the foregoing matters which is (i) available to the public from a source other than Holder, (ii) released in writing by the Corporation to the public or intentionally to persons who are not under a similar obligation of confidentiality to the Corporation and who are not parties to this Agreement or a similar agreement, (iii) obtained by Holder from a third party not under a similar obligation of confidentiality to the Corporation, (iv) required to be disclosed by any court process or any government or agency or department of any government, or (v) the subject of a written waiver executed by the Corporation for the benefit of Holder. 2 1.5 "Disability" shall be construed under the appropriate provisions of the long-term disability plan maintained for the benefit of employees of the Corporation who are regularly employed on a salaried basis. The determination of a Holder's Disability, and the date of its commencement, shall be determined in good faith solely by the Committee. 1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.7 "Fair Market Value" shall mean, if the Stock is traded on one or more established markets or exchanges, the average of the opening and closing prices of the Stock in the primary market or exchange on which the Stock is traded, and if the Stock is not so traded or the Stock does not trade on the relevant date, the value as determined in good faith by the Board of Directors. 1.8 "Securities Act" shall mean the Securities Act of 1933, as amended. 1.9 "Stock" shall mean Holdings' authorized par value $0.01 per share Common Stock together with any other securities with respect to which Options granted hereunder may become exercisable. 2. GRANT OF NONSTATUTORY OPTION. Subject to the terms and conditions set forth herein, Holdings grants to the Holder an Option (the "Option") to purchase from Holdings at a price per share (the "Exercise Price") the number of shares of Stock (the "Option Shares") as both are set out on the final page hereof subject to adjustments as provided in Paragraph 9 hereof. The Option is not intended to be an incentive option within the meaning of Section 422A of the Code. 3. NOTICE OF EXERCISE. This Option may be exercised in accordance with Paragraph 8, to purchase all or a portion of the applicable number of Option Shares exercisable by written notice to Holdings as provided in Paragraph 12, which notice shall: (a) specify the number of shares of Stock to be purchased at the Exercise Price; (b) if the person exercising this Nonstatutory Option is not the named Holder, contain or be accompanied by evidence satisfactory to the Committee of such person's right to exercise this Option; and (c) be accompanied by (i) payment in full of the Exercise Price in the form of a certified or cashier's check payable to the order of Holdings, (ii) with the Committee's approval, a promissory note for the full Exercise Price, (iii) with the Committee's approval, payment in the form of shares of Stock owned by the Holder which are of at least equal value to the aggregate exercise price payable in connection with such exercise, (iv) with the Committee's approval, a share or shares of Stock owned by the Holder and/or surrendered for actual or deemed multiple exchanges of shares of Option Shares, or (v) with the Committee's approval, a combination of -2- 3 any of (i) - (iv). The Committee may grant or withhold its approval under any or all of the foregoing in its sole and absolute discretion. 4. INVESTMENT LETTER. Unless there is in effect a registration statement under the Securities Act, with respect to the issuance of the Option Shares (and, if required, there is available for delivery a prospectus meeting the requirements of Section 10(a)(3) of the Securities Act), the Holder (or, in the event of his death, the person exercising the Option) shall, as a condition to his right to exercise the Option, deliver to Holdings an agreement or certificate containing such representations, warranties, and covenants as Holdings may deem necessary or appropriate to ensure that the issuance of shares of Stock pursuant to such exercise is not required to be registered under the Securities Act or any applicable state securities law. It is understood and agreed that under no circumstance shall Holdings be obligated to file any registration statement under the Securities Act or any applicable state securities law to permit exercise of the Option or to issue any Stock in violation of the Securities Act or any applicable state securities law. 5. TRANSFER AND EXERCISE OF NONSTATUTORY OPTION. The Option is not transferable by the Holder otherwise than by will or the laws of descent and distribution, and is exercisable, during the Holder's lifetime, only by the Holder. The Option may not be assigned, transferred (except by will or the laws of descent and distribution), pledged, or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, or similar proceeding. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of the Option, contrary to the provisions hereof, and the levy of any attachment or similar proceeding upon the Option, shall be null and void and without effect. 6. STATUS OF HOLDER. This Agreement is not a contract of employment and the terms of the Holder's employment shall not be affected hereby or by any agreement referred to herein except to the extent specifically so provided herein or therein. Nothing herein shall be construed to impose any obligation on the Corporation to continue the Holder's employment. The Holder shall not be deemed a stockholder of Holdings with respect to any of the shares of Stock subject to this Option, except to the extent that such shares shall have been purchased and issued. Holdings shall not be required to issue or transfer any certificates for shares of Stock purchased upon exercise of this Option until there is compliance with all applicable requirements of law and this Agreement. 7. NO EFFECT ON CAPITAL STRUCTURE. This Option shall not affect the right of Holdings to reclassify, recapitalize or otherwise change its capital or debt structure or to merge, consolidate, convey any or all of its assets, dissolve, liquidate, windup, or otherwise reorganize and, by acceptance of this Agreement, Holder agrees that Holder has no standing before any court to object to or contest any such action. -3- 4 8. CONDITIONS AND SCHEDULE FOR EXERCISE. Except as otherwise provided herein, all options shall expire no later than ten (10) years from the date of this Agreement, which ten (10) year period is the term of this Agreement. Subject to the provisions of Paragraph 9, Holder shall be entitled to exercise the options granted herein as follows: (a) twenty percent (20%) of the Option Shares may be exercised on or after the first anniversary date of this Agreement, and (b) thereafter, an additional twenty percent (20%) of the Option Shares shall become exercisable upon or after each of the next four (4) anniversary dates of this Agreement. Notwithstanding the provisions of the immediately preceding sentence, (a) all Option Shares shall become exercisable immediately prior to a change of Control (as defined in the Plan) and (b) in the event of the death or determination of Disability of Holder, an additional twenty percent (20%) of the Option Shares (or such lesser number as to cause the total shares subject to exercise not to exceed the total Option Shares) shall become exercisable as of or after the date of death or date of Disability. There shall not be any pro- rata rating of exercisability between anniversary dates. All other provisions of this Agreement to the contrary notwithstanding, in the event of the termination of Holder's employment with the Corporation (other than as a result of Holder's death or Disability, or in the event of termination of Holder's employment without good cause (as defined in the Plan) or upon retirement (with the Corporation's prior written consent)), all rights under this Agreement and the Option shall terminate and shall thereupon be null and void effective upon such termination; provided however, any shares of Stock obtained through exercise prior to such effective date in accordance with the terms of this Agreement shall remain the sole and absolute property of the Holder subject to the Repurchase Right set forth in Section 19. In the event of the termination of Holder's employment with the Corporation as a result of Holder's death or Disability, or in the event of the termination of Holder's employment without good cause or upon retirement (with the Corporation's prior written consent), all rights under this Agreement and the Option shall terminate and shall be null and void effective thirty (30) days after such termination of employment (during such thirty (30) day period, Holder shall have the right to exercise Holder's Option with respect to all or any part of the shares of Stock which such Holder was entitled to purchase immediately prior to the date of such termination of employment); provided however any shares of Stock obtained through exercise prior to such effective date of termination of employment in accordance with the terms of this Agreement shall remain the sole and absolute property of the Holder. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER, ETC. AND ACCELERATION OF EXERCISABILITY. In the event that, by reason of any merger, consolidation, combination, liquidation, reorganization, recapitalization, stock divided, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of Holdings (collectively, a "Reorganization"), the Stock is substituted, combined, or changed into any cash, property, or other securities, or the shares of Stock are changed into a greater or lesser number of shares of Stock, the number and/or kind of shares and/or, interests subject to an Option and the Exercise Price or value thereof shall be appropriately adjusted by the Committee to give -4- 5 appropriate effect to such Reorganization. Any fractional shares or interests resulting from such adjustment shall be eliminated. All of the provisions of this Paragraph to the contrary not withstanding, Holdings shall have the right to grant stock appreciation right agreements, to issue additional stock options and/or to issue additional shares of stock. If any such stock appreciation right agreements are granted, additional stock options issued and/or additional shares of stock are issued to others out of authorized but unissued shares, even though the result of such stock appreciation right -5- 6 agreements granted, stock options issued and/or stock issues dilute either the percentage of ownership of the Holder or the value per share of any stock or Option herein granted and, in any such event, Holder's rights hereunder shall not be increased in any way. 10. COMMITTEE AUTHORITY. Any question concerning the interpretation of this Agreement, any adjustments required to be made under Paragraph 9 of this Agreement, and any controversy which may arise under this Agreement and/or any paragraph thereof shall be finally determined by the Committee in its sole and absolute discretion. 11. PLAN CONTROLS. The terms of this Agreement are governed by the terms of the Plan, which is made a part hereof as if fully set forth herein, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. 12. NOTICE. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered, sent by mail or sent by overnight courier. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid or next business day after it is sent by overnight courier in each case, addressed to the person who is to receive it. Holdings or Holder may change, at any time and from time to time, by written notice to the other, the address previously so specified. Until changed in accordance herewith, Holdings and the Holder specify their respective addresses as set forth below the signature lines on the last page hereof. 13. CERTIFICATE RETENTION. In the event that Holder gives notice of exercise in whole or in part in accordance with the provisions of this Agreement, Holdings shall have the right to demand that the Holder execute and deliver a Stock Power to Holdings and to then issue the certificate and to hold the certificate in Holdings' possession together with the Stock Power so to assure protection of Holdings' Repurchase Right. 14. AWARD INFORMATION CONFIDENTIAL. As partial consideration for the granting of this Option, the Holder agrees that Holder will keep confidential all information and knowledge that Holder has relating to the manner and amount of participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Holder's spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan. 15. TAX WITHHOLDING. By acceptance hereof, Holder hereby (i) agrees to reimburse the Corporation by which Holder is employed for any federal, state, or local taxes required by any government to be withheld or otherwise deducted by such Corporation in respect of Holder's exercise of all or a portion of the Option; (ii) authorizes the Corporation by which the Holder is -6- 7 employed to withhold from any cash compensation paid to the Holder or in the Holder's behalf, an amount sufficient to discharge any federal, state, and local taxes imposed on the Corporation by which the Holder is employed, in respect of the Holder's exercise of all or a portion of the Option; and (iii) agrees that Holdings may, in its discretion, hold the stock certificate to which Holdings is entitled upon exercise of the Option as security for the payment of the aforementioned withholding tax liability, until cash sufficient to pay that liability has been accumulated, and may, in its discretion, effect such withholding by retaining shares issuable upon the exercise of the Option having a fair market value on the date of exercise which is equal (in the judgment of such corporation) to the amount to be withheld. 16. CONFIDENTIAL INFORMATION. As partial consideration of the granting of this Option, the Holder agrees that during Holder's employment with the Corporation or at any time thereafter, irrespective of the time, manner or cause of the termination of this Agreement, Holder will not directly or indirectly reveal, divulge, disclose or communicate to any person or entity, other than authorized officers, directors and employees of the Corporation, in any manner whatsoever, any Confidential Information of the Corporation or any direct or indirect subsidiary or parent of the Corporation without the prior written consent of the Chairman of the Board of Holdings. 17. AGREEMENT NOT TO COMPETE. As partial consideration of the granting of this Nonstatutory Option, Holder agrees: (a) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that the Holder is terminated for Cause or voluntarily terminates employment with the Corporation prior to the expiration of the term of this Agreement, Holder hereby agrees that for a period of one (1) year following such termination, he shall not, either in Holder's own behalf or as a partner, officer, director, employee, agent or shareholder engage in, invest in or render services to any person or entity engaged in the businesses in which the Corporation or any subsidiary of the Corporation is then engaged and situated within the United States of America. Nothing contained in this Section 17(a) shall be construed as restricting the Holder's right to sell or otherwise dispose of any business or investments owned or operated by the Holder as of the date hereof. (b) TERMINATION WITHOUT CAUSE OR FOR DISABILITY. In the event that the employment of the Holder is terminated by the Corporation without Cause or as a result of the total disability of the Holder, Holder hereby agrees that only during the period that the Holder accepts continued disability and/or severance compensation payments from the Corporation, he shall not, either in Holder's own behalf or as a partner, officer, director, employee, agent or shareholder engage in, invest in or render services to any person or entity engaged in the businesses in which the Corporation is then engaged and situated within the United States of America. Nothing contained in this Section 17(b) shall be construed as restricting the Holder's right to sell or otherwise dispose of any business or investments owned or operated by the Holder as of the date hereof. -7- 8 18. AGREEMENT NOT TO SOLICIT EMPLOYEES. Holder agrees that, for a period of two (2) years following the termination of Holder's employment by the Corporation, Holder shall not, for Holder or on behalf of any business engaged in a business competitive with the Corporation, solicit or induce, or in any manner attempt to solicit or induce, any person employed by, or any -8- 9 agent of the Corporation to terminate employment or agency, as the case may be, with the Corporation. 19. REPURCHASE RIGHT. If Holder's employment with the Corporation terminates for any reason at any time (other than as a result of Holder's death or Disability, or in the event of termination of Holder's employment without good cause (as defined in the Plan) or upon retirement (with the Corporation's prior written consent)), Holdings and/or its designee(s) shall have the option (the "Purchase Option") to purchase, and if an Option is exercised, Holder (or the Holder's executor or the administrator of Holder's estate, in the event of the Holder's death, or Holder's legal representative in the event of the Holder's incapacity (hereinafter, collectively with such Holder, the "Grantor")) shall sell to Holdings and/or its assignee(s), all or any portion (at Holding's Option) of the shares of Stock and/or exercised Options held by the Grantor (such shares of Stock and exercised Options collectively being referred to as the "Purchasable Shares"). Holdings shall give notice in writing to the Grantor of the exercise of the Purchase Option within one (1) year from the date of the termination of the Holder's employment. Such notice shall state the number of Purchasable Shares to be purchased and the determination of the Board of Directors of the Fair Market Value (as defined in the Plan) per share of such Purchasable Shares. If no notice is given within the time limit specified above, the Purchase Option shall terminate. The purchase price to be paid for the Purchasable Shares purchased pursuant to the Purchase Option shall be, in the case of any Stock, the Fair Market Value per share times the number of shares being purchased, and in the case of any Option, the Fair Market Value per share times the number of vested shares subject to such Options which are being purchased, less the applicable per share Option exercise price. The purchase price shall be paid in cash. The closing of such purchase shall take place at Holding's principal executive offices within ten (10) days after the purchase price has been determined. At such closing, the Grantor shall deliver to the purchaser(s) the certificates or instruments evidencing the Purchasable Shares being purchased, duly endorsed (or accompanied by duly executed stock powers) and otherwise in good form for delivery, against payment of the purchase price by check of the purchaser(s). In the event that, notwithstanding the foregoing, the Grantor shall have failed to obtain the release of any pledge or other encumbrance or any Purchasable Shares by the scheduled closing date, at the option of Holdings, the closing shall nevertheless occur on such scheduled closing date, with the cash purchase price being reduced to the extent of all unpaid indebtedness for which such Purchasable Shares are then pledged or encumbered. To assure the enforceability of Holding's rights under this Paragraph 19, each certificate or instrument representing Stock or an Option held by Holder and/or the certificate or instrument shall bear a conspicuous legend in substantially the following form: -9- 10 "THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE INTERNATIONAL WIRE HOLDING COMPANY 1995 STOCK OPTION PLAN AND A NONSTATUTORY STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES." Holding's rights under this Section 19 shall terminate upon the consummation of an underwritten public offering of the Stock, registered and effective under the Securities Act of 1993, as amended, pursuant to which Holdings receives aggregate cash sales proceeds, before underwriting discount, of at least $25 million or such lesser amount as the Committee shall determine. 20. SUCCESSORS. Except as otherwise provided herein, this Agreement is binding on and enforceable by the heirs, successors, and assigns of the parties. 21. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware, except to the extent that Delaware Law is preempted by Federal Law. IN WITNESS WHEREOF, Holdings has caused this Agreement to be executed and the Holder has hereunto set Holder's hand as of the 8th day of November, 1995. HOLDINGS: INTERNATIONAL WIRE HOLDING COMPANY By: /s/ JAMES N. MILLS -------------------------------------- James N. Mills Chairman and Chief Executive Officer 101 South Hanley St. Louis, Missouri 63105 HOLDER: /s/ RODNEY D. KENT -------------------------------------- Rodney D. Kent 3859 Pratt Drive Oneida Castle, NY 13421 -10- 11 Number of Option Shares subject to the grant in Paragraph 2 hereof is four hundred thousand (400,000) and the Exercise Price is One and 00/100 Dollar ($1.00) per share. -11- EX-21.1 6 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.1 SUBSIDIARIES OF INTERNATIONAL WIRE GROUP, INC.
JURISDICTION OF INCORPORATION OR SUSIDIARY ORGANIZATION Wirekraft Industries, Inc. . . . . . . . . . . . . . Delaware ECM Holding Company . . . . . . . . . . . . . . . . . Delaware Wirekraft Employment Company . . . . . . . . . . . . Delaware Electro Componentes de Mexico, S.A. de C.V. . . . . . Mexico Wirekraft Industries de Mexico, S.A. de C.V. . . . . Mexico Omega Wire, Inc. . . . . . . . . . . . . . . . . . . Delaware OWI Corporation . . . . . . . . . . . . . . . . . . . New York Wire Technologies, Inc. . . . . . . . . . . . . . . . Indiana Wire Harness Industries, Inc. . . . . . . . . . . . . Delaware Camden Wire Company, Inc. . . . . . . . . . . . . . . New York IWG-Philippines, Inc. . . . . . . . . . . . . . . . . Philippines
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 0 0 89,279 2,078 74,406 188,880 257,127 91,888 628,048 117,209 519,302 0 0 0 (45,828) 628,048 695,148 695,148 530,310 530,310 36,026 0 54,871 6,635 2,654 3,981 0 (2,991) 0 990 0 0
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