As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 8911 39-1766857
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
2855 S. James Drive
New Berlin, Wisconsin 53151
(414) 860-7000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John W. Splude
Chairman, President and Chief Executive Officer
HK Systems, Inc.
2855 S. James Drive
New Berlin, Wisconsin 53005
(414) 860-7000 Facsimile: (414) 860-7010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
John R. Kuhnmuench, Jr. Patrick G. Quick James J. Junewicz
HK Systems, Inc. Foley & Lardner Mayer, Brown & Platt
2855 S. James Drive 777 E. Wisconsin Avenue 190 South LaSalle St.
New Berlin, Wisconsin 53151 Milwaukee, WI 53202 Chicago, IL 60606
(414) 860-7000 (414) 271-2400 (312) 782-0600
Fax: (414) 860-7010 Fax: (414)297-4900 Fax: (312)701-7711
__________________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
______________________________
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [_]
If this Form if filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
____________________________
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
Common Stock, $.01 par value . $115,000,000 $33,925
(1) Estimated in accordance with Rule 457(o) under the Securities Act of
1933 solely for the purpose of calculating the registration fee
pursuant to Section 6(b) hereunder and includes the proposed maximum
aggregate offering price associated with shares deliverable upon
exercise of options granted by a shareholder to the Underwriters to
cover over-allotments.
____________________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: (i)
one to be used in connection with a United States and Canadian offering
(the "U.S. Prospectus") and (ii) one to be used in connection with a
concurrent international offering outside the United States and Canada
(the "International Prospectus"). The U.S. Prospectus and the
International Prospectus will be identical in all material respects except
for the front cover page and the back cover page. The form of U.S.
Prospectus is included herein and is followed by those pages to be used in
the International Prospectus that differ from those in the U.S.
Prospectus. Each of the pages for the International Prospectus included
herein is labeled "Alternate Page for International Prospectus."
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated December 23, 1997
PROSPECTUS
__________ Shares
[HK Systems, Inc. Logo]
Common Stock
__________________________
Of the ________ shares of Common Stock offered hereby, _______ are
being sold by the Company and ________ are being sold by the Selling
Shareholders. See "Principal and Selling Shareholders." The Company will
not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. Of the shares of Common Stock offered, _________
shares are being offered initially in the United States and Canada by the
U.S. Underwriters (the "U.S. Offering"), and _________ shares are being
offered initially outside the United States and Canada by the
International Managers (the "International Offering" and, together with
the U.S. Offering, the "Offering"). The initial public offering price and
underwriting discounts and commissions will be identical for both
offerings. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
list of the factors to be considered in determining the initial public
offering price. Application will be made to list the Common Stock on the
New York Stock Exchange under the symbol "HKS."
__________________________
SEE "RISK FACTORS" BEGINNING ON PAGE _____ FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATESECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
Per Share . . . $00.00 $0.00 $00.00 $00.00
Total(3) . . . $00,000,000 $0,000,000 $00,000,000 $00,000,000
(1) The Company and the Selling Shareholders have agreed to indemnify the
U.S. Underwriters and International Managers (together, the
"Underwriters") against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $ .
(3) Certain of the Selling Shareholders and the Company have granted the
U.S. Underwriters a 30-day option to purchase up to additional
shares of Common Stock on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. Certain of the
Selling Shareholders and the Company have granted the International
Managers a similar option to purchase up to additional
shares of Common Stock to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ , $
and $ , respectively. The Company will not receive
any of the proceeds from the sale of Common Stock by the Selling
Shareholders. See "Underwriting" and "Principal and Selling
Shareholders." __________________________
The Common Stock offered by this Prospectus is offered by the U.S.
Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by
the U.S. Underwriters and to certain further conditions. It is expected
that delivery of certificates representing the shares of Common Stock will
be made at the offices of Lehman Brothers Inc., New York, New York, on or
about , 1998.
____________________________
Lehman Brothers
Robert W. Baird & Co.
INCORPORATED Furman Selz
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK
FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE
COMMON STOCK, OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
HK SYSTEMS, STOCKMASTER and VON GAL are registered trademarks of the
Company. This Prospectus also refers to additional trademarks of the
Company and trademarks of corporations other than the Company. See
"Business--Intellectual Property and Other Proprietary Rights."
AUTOMATED MATERIAL HANDLING & SUPPLY CHAIN MANAGEMENT SOLUTIONS
WORKING TOGETHER IN THREE TARGETED MARKETS
[picture illustrating Integrated Systems services and products with the
following text:]
INTEGRATED SYSTEMS
Integrated Systems provides solutions to complex material handling
requirements of a wide array of businesses and industries. These
solutions include the design, development, implementation and integration
of customized software, manufactured and purchased material handling
equipment, and purchased components such as microprocessor and PLC
controls and optical scanning and laser positioning devices.
[picture illustrating Customer Services services and products with the
following text:]
CUSTOMER SERVICES
Customer Services provides comprehensive aftermarket support for HK
Systems' large installed base of automated material handling systems as
well as the installed systems of competitors. Services includes
modernization of system software, controls and equipment; replacement
parts support; and around-the-clock customer services.
[picture illustrating Logistics and Software Systems services and products
with the following text:]
LOGISTICS AND SOFTWARE SYSTEMS
Logistics and Software Systems provides (i) advanced warehouse management
systems ("WMS") software for both Windows/NT and UNIX operating systems
that allow customers to manage the planning, scheduling, tracking and
related logistics of the manufacturing and warehousing process, (ii)
pallet and container loading software systems that assist customers in
determining efficient ways to configure pallet and truck loads to maximize
space utilization and (iii) customized logistics software for specific
supply chain applications.
<PAGE>
[logo]
INTEGRATING SUPPLY CHAIN MANAGEMENT SOLUTIONS
FROM INITIAL CONCEPT THROUGH LIFE CYCLE SUPPORT
[cutaway drawing of a combined manufacturing/warehouse/distribution
facility, with different areas of the drawing representing or illustrating
the Company's various services and products and the following narrative
descriptions keyed to correspond to the appropriate portions of the
drawing:]
From initial concept and design to system implementation and ongoing
customer support, HK Systems integrates automated material handling
systems, provides related aftermarket support and develops and implements
advanced WMS software to provide solutions that enable its customers to
improve product quality, reduce inventory and delivery time and lower the
overall costs of manufacturing and distribution.
1. STOCKMASTER/R/ 2000 Warehouse Management Software Systems provide full
warehouse management functionality that enables improved inventory
control, increased efficiency and reduced delivery time.
2. Loadbuilder/TM/ Pallet and Container Loading Software Systems configure
pallet and truck loads to maximize space utilization and reduce
shipping costs.
3. HK Systems' high performance Automated Storage and Retrieval Machines
(Unitload, Miniload, Microload and Powermast/R/) store and retrieve
loads ranging from 50 to 100,000 pounds with accuracy, control and
speed.
4. With its state-of-the-art wireless inertial guidance systems, Eagle
Technology/TM/ Automated Guided Vehicles transport loads up to 8,000
pounds at speeds of up to 200 feet per minute.
5. Automated Electrified Monorail Systems efficiently transport materials
ranging in size from compact discs to automobile bodies.
6. Case and Pallet Conveyors are economical and reliable.
7. Customized, high-speed Conveyor Sortation Systems sort even the most
hard-to-handle products quickly, efficiently and reliably.
8. Versatile von Gal/R/ Palletizers automatically stack a wide variety of
packages on pallets according to customer specifications.
9. Self-contained Totestacker/TM/ Systems place small parts at the point-
of-use, maximizing operator productivity and accuracy.
10. Utilizing portable terminals and bar code technology, STOCKMASTER/R/
2000 directs operators and assigns tasks through real-time radio
frequency communication to improve employee productivity and
efficiency.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus: (i) assumes no exercise of the
over-allotment options granted to the Underwriters and (ii) is based on an
assumed initial offering price of $_____ per share. All references herein
to (a) "Common Stock" refer to the common stock, $.01 par value, of the
Company and (b) "fiscal year," "year" and "fiscal" refer to the 52-week or
53-week period ending on the Saturday closest to October 31, unless the
context otherwise requires.
The Company
HK Systems, Inc. ("HK Systems" or the "Company") is a leading
provider of supply chain solutions. The Company develops, implements and
supports integrated solutions to the complex material handling and supply
chain needs of a wide array of industries. The Company's solutions enable
its customers to implement advanced supply chain strategies to improve
product quality, reduce inventory and delivery time and lower overall
costs of manufacturing and distribution.
The Company delivers its supply chain solutions through three
principal activities. First, the Company designs, installs and integrates
automated material handling systems that include customized software,
manufactured equipment, and purchased components such as microprocessor
and PLC controls and optical scanning and laser positioning devices. The
Company is a leading supplier of integration services for automated
material handling systems in North America. Second, the Company provides
aftermarket services for owners of systems and equipment the Company has
installed and for other customers. The Company's installed base of
equipment and software systems, which numbers over 3,000, presents
significant opportunities to expand its aftermarket business. Third, the
Company develops and implements advanced software systems, including
warehouse management systems ("WMS") for Windows/NT and UNIX operating
environments and customized logistics software for specific supply chain
applications. The Company believes it is one of the leading WMS software
providers in North America.
The Company's commitment to customer satisfaction, from the initial
design of a system through implementation to ongoing support and
maintenance, has enabled the Company to create strong customer
relationships with leading U.S. corporations. The Company's customers
include manufacturers, distributors, processors and retailers whose needs
are as diverse as the warehousing of semi-conductors and the temporary
storage and retrieval of automobile bodies for an assembly line. These
customers include a diverse base of Fortune 500 companies and industry
leaders, including American Airlines, Anheuser-Busch, Ball Foster Glass,
Boeing, Caterpillar, Chrysler, The Coca-Cola Company, Coca-Cola
Enterprises, Estee Lauder, Ford, Frito-Lay, Gillette, Hewlett-Packard,
IBM, Kimberly-Clark, Lucent Technologies, Motorola, The New York Times,
J.C. Penney, Philip Morris, Procter & Gamble, Sara Lee, Sony and United
Airlines.
The Company's services and products address the needs of large and
growing markets for industrial technology. The Company believes sales of
automated material handling systems, integration services and related
aftermarket support in North America should exceed $2.0 billion in 1998
and will grow by 7% to 10% annually through the year 2000. The Company
also estimates that the North American market for supply chain management
("SCM") software will be approximately $1.9 billion in 1998 and is
currently growing at approximately 45% annually. The Company believes the
growth of these markets will be driven by two principal trends. First, to
respond to increasing customer demands for faster, more efficient and
customized product delivery, more businesses are implementing practices
that will increase the demand for integrated supply chain solutions. Such
practices include demand-pull manufacturing systems (which rely on real-
time sales information to coordinate and control manufacturing and
distribution across the entire supply chain) as well as third-party
distribution, mixed-load shipments and more frequent, smaller quantity
deliveries. Second, as competition in many industries makes it
increasingly difficult to achieve revenue growth, businesses are focusing
more on reducing supply chain costs as a means of increasing profits.
Companies are increasingly finding that, through the implementation of
automated material handling and supply chain software systems and
outsourcing of system maintenance, they can achieve improvements in
through-put, reduce inventory and manpower levels, and rationalize
supplier relationships.
Services and products of HK Systems include (i) systems integration
services that include both systems engineering (to conceptualize, design,
computer simulate and implement automated material handling systems) and
advanced software and controls (which automate equipment operation and
provide real-time feedback with respect to equipment performance and
materials processing); (ii) a broad range of automated material handling
equipment such as automated storage and retrieval systems ("AS/RS"),
automated guided vehicle systems ("AGVS"), automated electrified monorail
systems ("AEMS"), palletizers, conveyors and sortation equipment; (iii)
aftermarket services, including modernization and upgrades for automated
material handling systems, replacement parts and maintenance outsourcing;
and (iv) advanced supply chain software systems, including WMS and
customized logistics software for specific supply chain applications.
Strategy
HK Systems intends to build upon its position as a market leader by
capitalizing on its competitive strengths, which include (i) extensive
internal resources, including a large and experienced engineering staff
and diverse automated material handling equipment product line; (ii)
proven project management and implementation skills that enable the
Company to deliver turnkey integrated supply chain solutions on time,
within specifications and budget; (iii) a large, diverse blue chip
customer base that provides the Company with a source of recurring
revenue; (iv) a large installed base and demonstrated aftermarket
expertise that position the Company to further build its higher margin
aftermarket business; and (v) a solid foundation from which to expand the
Company's supply chain services and products.
From its base of competitive strengths, HK Systems has developed a
business strategy that includes the following elements:
- Leverage the Company's large installed base and extensive customer
relationships to grow supply chain software and aftermarket services
revenues;
- Maintain its focus on providing fully integrated supply chain
solutions for complex material handling needs;
- Expand supply chain services and products offerings through selective
acquisitions and internal development; and
- Complete integration and continue to improve profitability of
acquired businesses.
History
The Company was formed in October 1993 when its senior management
team ("Management") led the acquisition of Harnischfeger Engineers, Inc.,
the systems integration business that Harnischfeger Industries, Inc. began
in 1969 (the "HEI Acquisition"). Management's objective was to develop
the preeminent, single-source provider of automated material handling
systems and WMS software. In February 1995, the Company purchased the
business of Eaton-Kenway, Inc., a wholly-owned subsidiary of Eaton
Corporation, gaining advanced AGVS technology and equipment and
replacement parts manufacturing capability (the "Eaton-Kenway
Acquisition"). In November 1996, the Company acquired the Material
Handling Systems and VantageWare software divisions of Western Atlas Inc.,
formerly a part of the Litton Automation Group of Litton Industries,
providing it with recognized conveyor, palletizer and sortation equipment
product lines (the "Western Atlas Acquisition"). Through these
acquisitions, the Company assembled an installed base of integrated,
automated material handling systems that the Company believes is one of
the largest in North America. The Company also achieved a higher level of
control over the marketing, design and implementation of the critical
supply chain solutions it was already providing to its customers and, in
the process, added qualified and experienced engineering, project
management and other personnel.
The Company's principal executive offices are located at 2855 S.
James Drive, New Berlin, Wisconsin 53151 and its telephone number is (414)
860-7000.
The Offering
Common Stock offered by the Company . . . _________(1)
Common Stock offered by the Selling
Shareholders . . . . . . . . . . . . . . . _________(1)
Total Common Stock offered . . . . . . . _________(1)(2)
Common Stock outstanding immediately after _________(1)
the Offering . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . To repay indebtedness and
to pay accrued dividends
on preferred stock.
Proposed New York Stock Exchange Symbol . . HKS
________________
(1) Assumes that the Underwriters' over-allotment options are not
exercised. See "Underwriting."
(2) Excludes (i) Common Stock issuable upon the exercise of options
outstanding under the HK Systems, Inc. 1993 Executive Stock Option
Plan (the "1993 Plan") which as of October 31, 1997 aggregated
1,063,800 shares issuable at a weighted average exercise price of
approximately $2.23 per share; (ii) an aggregate of ________ shares
of Common Stock reserved for future grants or purchases pursuant to
the HK Systems, Inc. 1997 Stock Plan for Outside Directors (the
"Directors Plan"); and (iii) outstanding warrants to purchase
approximately ______ shares of Common Stock at 115% of the initial
public offering price. See "Management--Stock Option Plan" and
"Description of Capital Stock--Warrants."
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
Set forth below is certain summary historical and pro forma
consolidated financial data for the years ended and as of the dates
indicated. The historical data is derived from, and should be read in
conjunction with, the Company's Consolidated Financial Statements and
related notes thereto and "Management's Discussion of Results of
Operations and Financial Condition" appearing elsewhere in this
Prospectus. The pro forma financial data has been derived from Summary
Pro Forma Consolidated Financial Data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 (1) 1996 1997 (1)
<S> <C> <C> <C>
Statement of Income Data:
Net revenues:
Integrated systems . . . . . . . . . . . . . . . . . . . . . $70,689 $87,150 $163,472
Customer services . . . . . . . . . . . . . . . . . . . . . . 40,501 49,792 65,200
Logistics and software systems . . . . . . . . . . . . . . . 15,413 13,143 17,478
------- ------- --------
Total net revenues . . . . . . . . . . . . . . . . . . . . . 126,603 150,085 246,150
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 18,077 26,731 52,504
Selling, general & administrative expenses . . . . . . . . . . 13,492 16,255 34,019
Amortization of goodwill . . . . . . . . . . . . . . . . . . . 1,033 1,225 1,684
Income from operations . . . . . . . . . . . . . . . . . . . 3,552 9,251 16,801
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 3,108 3,545 5,570
Income before income taxes . . . . . . . . . . . . . . . . . . 622 5,715 11,311
Net income (loss) applicable to common shareholders . . . . (1,094) 2,115 5,841
Primary and fully diluted net income (loss) per share of
common stock . . . . . . . . . . . . . . . . . . . . . . . . (0.40) 0.36 0.77
Pro Forma Data (2):
Net income applicable to common shareholders . . . . . . . . . NA NA 8,735
Primary and fully diluted net income per share of
common stock . . . . . . . . . . . . . . . . . . . . . . . . NA NA [ ]
Other Data:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 1,429 3,145 4,086
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 2,851 3,852 5,224
EBITDA (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 9,271 15,994 27,044
Backlog (at end of years) . . . . . . . . . . . . . . . . . . . 89,871 97,218 85,654
<CAPTION>
As of October 31, 1997
Pro Forma
Actual Pro Forma (2) As Adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $131,361 $131,361 $131,361
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . 51,960 69,075 23,325
Redeemable preferred stock . . . . . . . . . . . . . . . . . . 18,068 - -
Total shareholders' equity . . . . . . . . . . . . . . . . . 3,522 5,064 50,814
____________________
(1) On February 13, 1995, the Company consummated the Eaton-Kenway Acquisition. On November 15, 1996, the Company
consummated the Western Atlas Acquisition. Operating results of the acquired businesses are included in the Company's
consolidated operations from the respective dates of acquisition.
(2) The pro forma statement of income data give effect to (i) the conversion of the Company's Class B Cumulative Redeemable
Preferred Stock ("Class B Preferred Stock") into common stock of the Company and the reclassification of all common stock
of the Company into Common Stock simultaneous with the Offering (the "Conversion"); (ii) the establishment of the HK
Systems, Inc. Employee Stock Ownership Plan ("ESOP") and stock repurchases and other transactions in connection with the
establishment of the ESOP in December 1997 and January 1998 (the "ESOP Transactions" and, together with the Conversion,
the "Recapitalization"); and (iii) the Offering and the application of the Company's net Offering proceeds to repay
certain indebtedness and Class B Preferred Stock accrued dividends. The pro forma balance sheet data give effect to the
Recapitalization. See "Summary Pro Forma Consolidated Financial Data".
(3) EBITDA is defined as income (loss) before taxes plus fixed charges. Fixed charges consist of interest, depreciation and
amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles and should
not be considered as an alternative to net income as a measure of performance nor as an alternative to cash flow as a
measure of liquidity. EBITDA is a performance measure in the Company's primary debt financing instrument.
</TABLE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby. This Prospectus contains certain forward-
looking statements that involve substantial risks and uncertainties.
These forward-looking statements can generally be identified as such
because the context of the statement includes words such as the Company
"believes," "anticipates," "expects," "estimates," "intends" or other
words of similar import. Similarly, statements that describe the
Company's future plans, objectives and goals are also forward-looking
statements. The Company's actual results, performance or achievements
could differ materially from those expressed or implied in these forward-
looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus.
Fluctuations in Operating Results; Effects of Large Contracts. The
revenues associated with an individual contract for certain of the
Company's services and products can exceed several million dollars.
Therefore, a relatively small number of contracts can represent a
significant percentage of the Company's revenues and profits in any one
period, and a relatively small reduction in the number of large contracts
can have a material adverse effect on the Company's revenues and profits
in any one quarter or fiscal year. As a result, the Company's operating
results can vary significantly from quarter to quarter due to the
uncertain timing associated with customers' awards of contracts to the
Company and other factors out of the Company's control. In addition, due
to the nature of the Company's contracts, and the fact that such contracts
account for a substantial portion of the Company's revenues, the Company
must continually rebuild its revenue base by adding significant new
contracts. Further, cost overruns or other difficulties in implementing a
single large contract could have a material adverse effect on the
Company's revenues and profits in any particular period.
Historically, single customers or a small group of customers have
represented a large percentage of the Company's revenues for a particular
fiscal year due to the revenues that are associated with large contracts
with those customers. For example, for fiscal 1997 and 1996, two
customers together accounted for 23% and 24% of the Company's total
revenues, respectively, pursuant to seven principal contracts in fiscal
1997 and five principal contracts in fiscal 1996. One customer accounted
for approximately 13% and 15% of the Company's total revenues for fiscal
1997 and 1996, respectively. The loss of any large customer could have a
material adverse effect on the Company's business, operating results or
financial condition. In addition, there can be no assurance that the
Company will continue to be able to attract such customers in future
years.
Risks Associated with Fixed Price Contracts. A substantial portion of
the Company's projects are performed on a fixed price basis, and contracts
related to these projects generally have performance requirements that the
Company must satisfy. The cost of satisfying the performance requirements
of any particular contract may vary from the amount the Company originally
estimated due to a variety of factors, including unforeseen events,
changes in job conditions and variations in labor and equipment
productivity over the term of the contract. As a result, the revenue and
profit realized on a fixed price contract can vary from estimated amounts.
Such variations can be material and may result in the Company experiencing
losses on projects, which in turn could have a material adverse effect on
the Company's business, operating results or financial condition in any
quarter or fiscal year.
Competition. Certain of the Company's markets are highly competitive.
The Company faces competition from a number of different companies,
especially in the SCM software market. Certain of the Company's
competitors are large and have significant financial, marketing and
technical resources. In addition, the Company may encounter competition
from new market entrants. There can be no assurance that the Company will
be able to continue to compete successfully in its markets in the future.
Future Acquisitions. The Company believes the consummation of one or
more acquisitions is essential for the Company to achieve its strategic
goals, especially in the area of SCM software. Future acquisitions may be
large, and there can be no assurance that the Company will be able to
locate or acquire suitable acquisition candidates on acceptable terms or
that the Company will effectively and profitably integrate into the
Company any business it may acquire in the future. Moreover, additional
indebtedness incurred to pay for such acquisitions could adversely effect
the Company's liquidity and financial stability, and Common Stock issued
to effect acquisitions could result in dilution to the Company's
shareholders.
Rapid Technological Change and New Product Introduction. The markets
for the Company's software products are characterized by rapidly changing
technologies, evolving industry standards, changes in customer
requirements and frequent new product introductions, applications and
enhancements. The introduction by competitors of products embodying new
technologies and the emergence of new industry standards could adversely
affect the Company's ability to sell its software applications. By
continually developing enhancements for its software products, competitors
have developed, or are in the process of developing, products that may
offer features similar or superior to the Company's current software
products. The Company expects that the continued development of software
products by competitors will require that the Company develop new and/or
enhanced applications on an ongoing basis to meet the demands of these
markets. However, there can be no assurance that the Company will be able
to continue to develop and introduce new and/or enhanced products or to
respond otherwise appropriately to changing customer needs.
Risks Associated with Percentage of Completion Accounting. As required
by generally accepted accounting principles, the Company uses the
percentage of completion method of accounting under which it recognizes
contract revenues generally based on the percentage that costs to date
bear to total estimated costs and recognizes estimated contract losses in
full when determined. This method is subjective, as revenue and profit
recognition are dependent on the use of management estimates of a
project's total costs and its ongoing progress towards completion. The
Company reviews its contract estimates as work progresses and makes any
necessary adjustments on a current basis, which may result in a reduction
or elimination of previously reported contract profits. Thus, depending
on the size of a project, variations from estimated contract performance
could have a material adverse effect on the Company's operating results
for any quarter or fiscal year.
Dependence on Key Personnel. The Company's future success will depend
in large part upon the continued service of its highly qualified and
experienced engineering, sales and senior management personnel. The loss
of any of the Company's key senior management or its key engineering and
sales personnel could have a material adverse effect on the Company's
business, operating results or financial condition. The Company currently
maintains a limited amount of life insurance on its CEO and other members
of senior management. The Company actively recruits qualified personnel
with industry experience as well as advanced engineering degrees
displaying a potential to contribute to the future development of
software, controls and equipment. Competition for such personnel is
intense; therefore, there can be no assurance that the Company will
experience continued success in the recruitment or retention of qualified
engineering, sales and managerial personnel in the future.
Liability Associated with Services and Products. Inherent in the sale
of the Company's services and products is the potential for the Company to
be liable for consequential or incidental damages that a customer incurs
as a result of the failure of the Company's product to perform as
required. An award of consequential or incidental damages could have a
material adverse effect on the Company's business, operating results or
financial condition. The Company attempts to limit its exposure to
liability for such consequential or incidental damages through terms and
conditions contained in warranties and customer contracts. However, these
limitations may be modified or limited based on individual customer
requirements, and there can be no assurance that such terms or conditions
may be enforceable in each state or other jurisdiction in which the
Company does business.
Litigation Relating to Assumed Eaton-Kenway Contract. As part of the
February 13, 1995 Eaton-Kenway Acquisition, the Company assumed a contract
dated July 1, 1992 between Eaton-Kenway, Inc. ("Eaton-Kenway") and the
Federal Reserve Bank of San Francisco (the "SF Fed") relating to the
installation of a material handling system in two existing bank vaults
(the "Fed Contract"). On April 7, 1995, the SF Fed filed a lawsuit (the
"Fed Suit") against the Company, Eaton Corporation ("Eaton") and Eaton-
Kenway, which remains a subsidiary of Eaton, alleging, among other things,
a breach of the Fed Contract and seeking not less than $3.55 million as
restitution for the consideration it paid under the Fed Contract, not less
than $6.4 million for incidental and consequential damages and not less
than $46.7 million to cover the costs of constructing two new bank vaults.
The court granted partial summary judgment on the issue of liability in
favor of the SF Fed and against the Company and the other defendants on
two counts of the SF Fed's complaint. Although this order is subject to
appeal after the entry of final judgement in the action, there can be no
assurance that any such appeal would be successful. It is anticipated
that a jury trial on the damage issues on the contract claim against the
Company and Eaton-Kenway, if not all the remaining claims against all the
parties, will be scheduled in 1998. While the Company believes it has
meritorious defenses in the Fed Suit, the Fed Suit could have a material
adverse effect on the Company's business, results of operations and
financial condition. See "Business--Legal Proceedings."
Intellectual Property. The Company relies primarily on a combination
of copyright, trademark and trade secret laws, confidentiality procedures
and contractual provisions to protect its proprietary rights. The Company
believes the foregoing measures afford only limited protection. Despite
the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. The Company
may increasingly be subject to claims of intellectual property
infringement as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different
industry segments overlaps. Although the Company is not aware that any of
its products infringes upon the proprietary rights of third parties, there
can be no assurance that third parties will not claim infringement by the
Company with respect to current or future products. Any such claims, with
or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at
all, which could have a material adverse effect upon the Company's
business, operating results or financial condition.
The Company resells certain software that it licenses from third
parties. There can be no assurance that these third party software
licenses will continue to be available to the Company on commercially
reasonable terms. The loss of or inability to maintain or obtain any of
these software licenses could result in delays or reductions in product
implementation until equivalent software could be identified, licensed and
integrated or independently developed by the Company, which could
adversely affect the Company's business, operating results or financial
condition.
Potential for Undetected Errors in Customized Systems and Software.
Implementing the Company's systems and software for automated material
handling systems and its logistics software systems involves varying
degrees of customization to meet each customer's specific needs. While
the Company performs extensive testing of such customized systems and
software, they may nonetheless be more prone to error than systems and
software designed for general applications and previously implemented at
other sites. Undetected errors may cause the Company to incur substantial
costs to modify or repair a system and could have a material adverse
effect on the Company's business, operating results or financial
condition. In addition, the Company's software applications, like software
products in general, may contain undetected errors or "bugs" when current
or enhanced versions are released which may cause delays in product
introduction or contract performance, require design modifications or
result in a loss of the product or substantial maintenance costs, any of
which could adversely affect the Company's business, operating results or
financial condition.
Year 2000. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code
field. To distinguish 21st century dates from 20th century dates, these
date code fields must be able to accept four digit entries. As a result,
computer systems and software programs used by many companies, including
the Company and companies to whom the Company has provided its services
and products, may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists concerning the potential
effects associated with such compliance, and Year 2000 issues could have a
material adverse effect on the Company's business, operating results or
financial condition due, among other things, to the following: (i) the
Company has warranted, and may in the future warrant, to certain customers
that its products will be Year 2000 compliant, and the failure of such
products to be Year 2000 compliant would adversely affect the Company;
(ii) because the Company relies on outside vendors to provide computer
hardware components that the Company in turn sells to customers, and many
of the Company's products and services are integrated or interface with
other software systems of a customer at the time of initial installation
or thereafter, to some degree Year 2000 compliance is beyond the Company's
control; and (iii) the possibility that products that the Company uses in
internal operations may not be Year 2000 compliant.
Environmental Compliance. The Company is subject to various federal,
state and local environmental laws, including, but not limited to, those
governing air emissions, water discharges and the storage, handling,
disposal and remediation of petroleum and hazardous substances. The
Company may in the future incur material expenditures to ensure compliance
with environmental laws. If environmental laws change or if there are
unanticipated factual or regulatory developments, the amounts of future
environmental expenditures could become material. Moreover, certain of
the Company's facilities have been in operation for many years and, over
such time, predecessor operators of such facilities may have generated and
disposed of wastes that are or may be considered hazardous. Accordingly,
it is possible that future environmental requirements or facts not
currently known will require unanticipated efforts and expenditures that
would have a material adverse effect on the Company's business, operating
results or financial condition.
Potential Cyclicality. The Company's business is likely to be affected
by the state of the U.S. economy in general and by the varying cyclicality
of the industries in which its customers participate. A downturn in the
U.S. economy in general or in any industry the Company serves could have a
material adverse effect on the Company's business, operating results or
financial condition.
Anti-Takeover Provisions; Company Control. The Company's Amended and
Restated Articles of Incorporation and By-laws contain provisions that,
among other things, establish staggered terms for members of the Company's
Board of Directors, place certain restrictions on the removal of
directors, authorize the Board of Directors to issue preferred stock in
one or more series without shareholder approval, impose procedural
requirements in connection with the calling of special meetings of
shareholders, require advance notice for director nominations and certain
other matters to be considered at meetings of shareholders, impose
supermajority voting requirements on amendments to the By-laws and impose
supermajority voting and "fair price" requirements on certain
transactions. These provisions and the prohibition against certain
business combinations and other provisions contained in the Wisconsin
Business Corporation Law (the "WBCL") could have the effect of delaying,
deferring or preventing a change in control or the removal of existing
management of the Company.
Upon the consummation of the Offering, Management and two institutional
investors will in the aggregate own approximately [ %] of the
outstanding Common Stock (approximately [ %] if the Underwriters' over-
allotment options are exercised in full). Accordingly, if they act
collectively, then Management and such investors may have the practical
ability to elect the entire Board of Directors of the Company and to
determine the outcome of certain other matters submitted to the Company's
shareholders for approval. See "Principal and Selling Shareholders" and
"Description of Capital Stock."
Shares Eligible for Future Sales. Future sales of Common Stock by the
Company or its existing shareholders could adversely affect the prevailing
market price of the Common Stock. The Company, its officers and directors
and the Selling Shareholders have entered into "lock-up" agreements with
Lehman Brothers Inc. ("Lehman Brothers") whereby the Company, such
officers and directors and the Selling Shareholders have agreed not to
sell any Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock for 180 days following the date of this
Prospectus without the consent of Lehman Brothers, except in the case of
the Company for shares delivered under certain compensation plans. After
the expiration of such 180-day period, or earlier with the written consent
of Lehman Brothers, approximately _________ shares of Common Stock will be
eligible for sale by existing shareholders subject to Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"),
including approximately _________ shares of Common Stock owned by
shareholders, directors and officers of the Company that have been held in
excess of requisite holding period under Rule 144 (measured with respect
to participants in the ESOP from the date shares are allocated to their
accounts), but are subject to resale volume limitations imposed under Rule
144. Although holders of options to purchase 1,063,800 shares of Common
Stock (as of October 31, 1997) that will become exercisable upon
consummation of the Offering generally will not execute such lock-up
agreements, it is the Company's current intent not to file a registration
statement under the Securities Act with respect to such shares until the
expiration of at least 180 days after the date of this Prospectus.
Assuming the Company files a registration statement, such shares will be
eligible for sale commencing immediately after an option is exercised. In
addition, the ESOP holds 497,487 shares of Common Stock, approximately
78,548 of which have been allocated to employee accounts and the remainder
of which are held for future allocation to employee accounts. The ESOP
will distribute shares from time to time to ESOP participants, but
currently only following their retirement or other termination of
employment. Shares that the ESOP distributes may be freely traded without
restriction under the Securities Act. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales may
occur, could have a material adverse effect on the market price of the
Common Stock. See "Shares Eligible for Future Sale" and "Description of
Capital Stock."
Absence of a Prior Public Market for the Common Stock and Possible
Volatility of Stock Prices. Prior to the Offering, there has been no
public market for the Common Stock. The Company has applied to have the
Common Stock listed on the New York Stock Exchange; however, there can be
no assurance that an active trading market will develop or be sustained
upon approval. The initial public offering price of the Common Stock will
be determined by negotiations among the Company, the Underwriters, the
Selling Shareholders and their representatives, and there can be no
assurance that the market price of the Common Stock after the Offering
will not fall below the initial public offering price. The market price
of the Common Stock may be highly volatile depending on a number of
factors. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price.
Dilution. The initial public offering price will be substantially
higher than the book value per share of Common Stock. Investors
purchasing Common Stock in the Offering will therefore incur immediate and
substantial dilution in net tangible book value per share. See
"Dilution."
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock. The
Company currently anticipates that it will retain its future earnings for
use in the expansion and operation of its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
In addition, the Company is essentially prohibited by the current terms of
its revolving credit facility from declaring or paying any dividends on or
making any other distributions on any class or series of its capital stock
other than dividends payable solely in its capital stock. The Company may
in the future enter into loan or other agreements or issue debt securities
or preferred stock that restrict the payment of cash dividends on its
capital stock. Any future determination to pay cash dividends will be at
the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's results of operations, financial
condition, contractual restrictions and such other factors deemed relevant
by the Board of Directors.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock being
offered by the Company in the Offering are estimated to be approximately
$46 million based on the assumed public offering price $____ per share
after deducting the underwriting discounts and commissions and estimated
offering expenses. The net proceeds to the Company of the Offering will
be used to repay certain indebtedness as described below and to pay
dividends on the Class B Preferred Stock accrued from October 31, 1997
through the consummation of the Offering. Such dividends, which accrue at
a rate of approximately $94,000 per month, will be paid to certain of the
Selling Shareholders. See "Certain Transactions; Relationships with
Selling Shareholders; Compensation Committee Interlocks and Insider
Participation."
The Company intends to repay all of the amounts the Company owes on a
subordinated promissory note due in 2003, with a principal amount of $8.0
million that bears interest at a rate of 10% per annum through November
15, 1998, that the Company issued in 1996 to Western Atlas Inc. ("Western
Atlas") in connection with the Western Atlas Acquisition. The Company
also intends to repay a portion of the amount the Company owes to its
banks pursuant to the Company's revolving credit facility. As of October
31, 1997, the Company owed approximately $34.0 million under this facility
bearing interest at rates ranging from 7.06% to 8.5% per annum. In
December 1997 and January 1998, the Company incurred additional
indebtedness under this facility in connection with the ESOP Transactions
as follows: (i) the Company borrowed approximately $6.5 million to
repurchase 420,000 shares of common stock of the Company from a former
employee to liquidate his interest after the employee exercised
contractual "put" rights, of which the Company contributed 42,000 shares
to the ESOP; and (ii) the Company borrowed approximately $4.7 million to
pay accrued dividends on and redeem shares of Class D Cumulative
Redeemable Preferred Stock of the Company ("Class D Preferred Stock")
outstanding as of October 31, 1997 held by certain of the Selling
Shareholders. See "Certain Transactions; Relationships with Selling
Shareholders; Compensation Committee Interlocks and Insider
Participation."
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Shareholders.
CAPITALIZATION
The following table sets forth the total capitalization of the Company
as of October 31, 1997 (i) on a pro forma basis to reflect the
Recapitalization and the related changes in the Company's authorized
capital and (ii) as adjusted to reflect the sale of _________ shares of
Common Stock offered by the Company hereby (at an assumed public offering
price of $_____ per share and after deducting the underwriting discounts
and commissions and estimated offering expenses) and the application of
the Company's net Offering proceeds to repay certain indebtedness and pay
accrued dividends on Class B Preferred Stock. See "Summary Pro Forma
Consolidated Financial Data," "Certain Transactions; Relationships with
Selling Shareholders; Compensation Committee Interlocks and Insider
Participation" and "Use of Proceeds."
<TABLE>
<CAPTION>
October 31, 1997
Pro Forma After As Adjusted for
Recapitalization the Offering
(in thousands)
<S> <C> <C>
Long-term debt:
Revolving line of credit . . . . . . $45,075 $7,325
Subordinated Promissory Note due 2003 8,000 --
Subordinated Promissory Note due 2005 10,000 10,000
Term Note relating to ESOP due 2002 . 6,000 6,000
------ ------
Total long-term debt . . . . . . . . 69,075 23,325
------ ------
Redeemable Preferred Stock:
Class D Cumulative Redeemable
Preferred Stock (2,000,000 shares
designated; no shares issued and
outstanding after Recapitalization) -- NA
Shareholders' equity:
Preferred Stock, par value $.01 per
share; 10,000,000 shares authorized;
no shares issued and outstanding . . -- --
Common Stock, par value $.01 per
share; 40,000,000 shares authorized;
8,615,360 shares issued and
outstanding after Recapitalization;
_________ shares issued and
outstanding after Offering (1) . . . 86 [86]
Additional paid-in capital . . . . . 14,547 [60,297]
Treasury stock, at cost, 420,000
shares of Common Stock . . . . . . . (6,458) (6,458)
Unearned compensation . . . . . . . . (6,000) (6,000)
Retained earnings . . . . . . . . . . 2,889 2,889
------- -------
Total shareholders' equity . . . . . 5,064 50,814
------- -------
Total capitalization . . . . . . . $74,139 $74,139
======= =======
__________________
(1) Does not include (a) outstanding options to purchase 1,063,800 shares
of Common Stock and (b) outstanding warrants to purchase an aggregate
of ________ shares of Common Stock (based on an assumed initial
public offering price of $_____ per share).
</TABLE>
DILUTION
The net tangible book value of the Company as of October 31, 1997 was
$(34.3) million, or $(4.38) per outstanding share of Common Stock after
giving effect to the Recapitalization. Net tangible book value per share
represents the amount of the Company's tangible net worth (total tangible
assets less total liabilities) divided by the total number of shares of
Common Stock outstanding after giving effect to the Recapitalization.
After giving effect to the sale of ____________ shares of Common Stock in
the Offering at an assumed initial public offering price of $_____ per
share and the application of the net proceeds therefrom (after deduction
of estimated offering expenses), the pro forma net tangible book value as
of October 31, 1997 would have been $11.5 million or $______ per share.
This represents an immediate increase in net tangible book value of $_____
per share to existing shareholders and an immediate dilution of $______
per share to new investors purchasing shares in the Offering.
The following table illustrates the per share dilution:
Initial public offering price per
share . . . . . . . . . . . . . . . $[ ]
Net tangible book value per share
before the Offering . . . . . . . (4.38)
Increase per share attributable to
new investors . . . . . . . . . . . [ . ]
-----
Pro forma net tangible book value per
common share after the Offering . [ . ]
------
Dilution per share to new investors $[ . ]
======
The following table sets forth, on an adjusted basis as of October
31, 1997, the differences in the number and percentage of shares of stock
purchased, the amount and percentage of consideration paid and the average
price per share that the Company's existing shareholders paid to the
Company and that new investors purchasing shares in the Offering will pay
at an assumed initial public offering price of $_____ per share (before
deducting the underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
Number of Percent Average
Shares of Shares Price
Purchased Purchased Amount Paid Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing shareholders . . 7,829,506 -% $14,445,901 -% $1.85
New investors . . . . . . [ ] [ ] [ ] [ ] [ ]
Total . . . . . . . [ ] [ ] [ ] [ ] [ ]
</TABLE>
The above assumes no exercise of any stock options outstanding as of
October 31, 1997 under the 1993 Plan. As of that date, there were options
outstanding to purchase a total of 1,063,800 shares of Common Stock at an
average exercise price of $2.23 per share. See "Management - Stock Option
Plans." If all options outstanding as of that date had been exercised as
of such date, then the dilution per share to new investors in the Offering
would be $______. The foregoing tables also exclude shares reserved for
future grants or purchases pursuant to the Directors Plan. See
"Management - Director Compensation and Stock Option Plans." New
investors may experience further dilution to the extent that options are
granted and exercised, or shares are otherwise issued under these Plans,
at a price that does not exceed the initial public offering price.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial and other data for the Company and Predecessor as of and for
each of the five years ended October 31, 1997. The historical
consolidated financial and other data as of and for the four years ended
October 31, 1997 were derived from the Consolidated Financial Statements
of the Company, which were audited by Arthur Andersen LLP, independent
public accountants. The historical consolidated financial and other data
as of and for the year ended October 31, 1993 have not been audited. In
the opinion of the Company, the historical consolidated financial and
other data of the Company as of and for the year ended October 31, 1993
include all adjusting entries necessary to present fairly the information
set forth therein.
The following selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the Company's Consolidated
Financial Statements and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Predecessor (1) Company (1)
Year ended October 31 Year ended October 31,
1993 1994 1995 (2) 1996 1997 (3)
Statement of Income Data:
Net revenues:
Integrated systems . . . . . . . $93,404 $67,886 $70,689 $87,150 $163,472
Customer services . . . . . . . . 9,965 13,171 40,501 49,792 65,200
Logistics and software systems . 4,522 6,674 15,413 13,143 17,478
------- ------- ------- ------- -------
Total net revenues . . . . . . . 107,891 87,731 126,603 150,085 246,150
Cost of sales . . . . . . . . . . . 97,330 76,600 108,526 123,354 193,646
------- ------- ------- ------- -------
Gross profit . . . . . . . . . . 10,561 11,131 18,077 26,731 52,504
Selling expenses . . . . . . . . . 6,469 5,700 8,907 9,981 21,977
General & administrative expenses . 5,053(4) 3,279 4,585 6,274 12,042
Amortization of goodwill . . . . . - $4,753(5) 1,033 1,225 1,684
------- ------- ------- ------- -------
Income (loss) from operations . . (961) (2,601) 3,552 9,251 16,801
Interest expense . . . . . . . . . 641(6) 1,683 3,108 3,545 5,570
Other, net . . . . . . . . . . . . - (109) (178) (9) (80)
------- ------- ------- ------- -------
Income (loss) before income taxes (1,602) (4,175) 622 5,715 11,311
Provision (credit) for income taxes (467) (1,646) 398 2,288 4,051
------- ------- ------- ------- -------
Net income (loss) before minority
interest . . . . . . . . . . . . (1,135) (2,529) 224 3,427 7,260
Minority interest expense (7) . . . - 620 187 - -
------- ------- ------- ------- -------
Net income (loss) before dividends
on preferred stock . . . . . . . (1,135) (3,149) 37 3,427 7,260
Dividends on preferred stock . . . - 824 1,131 1,312 1,419
------- ------- ------- ------- --------
Net income (loss) applicable to
common shareholders . . . . . . $(1,135) $(3,973) $(1,094) $2,115 $5,841
======= ======= ======== ======= ========
Primary and fully diluted net
income (loss) per share of common
stock . . . . . . . . . . . . . . NA $(1.84) $(0.40) $0.36 $0.77
======= ======= ======= ======= ========
Other Data:
Capital expenditures . . . . . . . $969 $657 $1,429 $3,145 $4,086
Depreciation . . . . . . . . . . . 1,124 1,657 2,851 3,852 5,224
EBITDA (8) . . . . . . . . . . . . 163 5,575 9,271 15,994 27,044
Backlog (at end of years) . . . . . 53,577 41,903 89,871 97,218 85,654
<CAPTION>
As of October 31, As of October 31,
1993 1994 1995(2) 1996 1997(3)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets . . . . . . . . . . . $50,491 $53,381 $89,996 $90,789 $131,361
Total debt . . . . . . . . . . . . - 14,000 34,000 28,000 51,960
Minority interest (7) . . . . . . . - 10,600 - - -
Redeemable preferred stock . . . . - 10,800 15,828 16,948 18,068
Total shareholders' equity . . . . 18,987 (3,512) (4,434) (2,319) 3,522
_______________
(1) On October 29, 1993, the Company consummated the HEI Acquisition. All financial data as of and for the year prior to
acquisition are reflected exclusive of any purchase accounting adjustments.
(2) On February 13, 1995, the Company consummated the Eaton-Kenway Acquisition. Operating results of the acquired business
are included in the Company's consolidated operations from the date of acquisition.
(3) On November 15, 1996, the Company consummated the Western Atlas Acquisition. Operating results of the acquired
businesses are included in the Company's consolidated operations from the date of acquisition.
(4) Included in general & administrative expenses is a management fee charged by Harnischfeger Industries, Inc.
("Harnischfeger") for services performed by Harnischfeger on behalf of the Company. Such fees equaled two percent of
revenues.
(5) Included in amortization of goodwill is $4,186 of purchased in-process software and development costs which resulted in a
charge to income in the period of the HEI Acquisition. See Note 3 to the Company's Consolidated Financial Statements.
(6) Balance represents a charge by Harnischfeger on intercompany equity advances.
(7) During 1994, the Company recognized as a minority interest certain Class A preferred stock of Harnischfeger Engineers,
Inc. ("HEI") totaling $10,000 and Class C preferred stock of HEI totaling $600 held by Harnischfeger. During 1995, the
Class A preferred stock was converted into a subordinated promissory note, and the Class C preferred stock was redeemed.
(8) EBITDA is defined as income (loss) before taxes plus fixed charges. Fixed charges consist of interest, depreciation and
amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles and should
not be considered as an alternative to net income as a measure of performance nor as an alternative to cash flow as a
measure of liquidity. EBITDA is a performance measure in the Company's primary debt financing instrument.
</TABLE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Set forth below is certain unaudited summary pro forma consolidated
financial data for the year ended and as of the dates indicated. The
summary pro forma consolidated statement of income data for the year ended
October 31, 1997 reflects the effects on the historical results of
operations of the Company of the following transactions as if these
transactions had occurred on November 1, 1996: (i) the Recapitalization
and (ii) the Offering and the application of the proceeds to the Company
from the Offering to repay certain indebtedness and pay accrued dividends
on Class B Preferred Stock. The summary pro forma consolidated statement
of balance sheet data as of October 31, 1997 reflects the effects of the
Recapitalization and the Offering transactions as if they had occurred on
October 31, 1997. The summary pro forma consolidated financial data does
not purport to represent what the Company's results of operations would
actually have been if such transactions in fact occurred as of such dates
or results that may be attained in the future.
<TABLE>
<CAPTION>
Year ended October 31, 1997
Pro Forma Statement of Income Data: Historical Adjustments Pro Forma
<S> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . $ 246,150 $ - $ 246,150
Gross profit . . . . . . . . . . . . . . . . . . . . . 52,504 - 52,504
Selling, general & administrative expenses . . . . . . 34,019 - 34,019
Amortization of goodwill . . . . . . . . . . . . . . . 1,684 - 1,684
Income from operations . . . . . . . . . . . . . . . 16,801 - 16,801
Interest expense . . . . . . . . . . . . . . . . . . . 5,570 (3,556) (a) 3,266
1,252 (b)
Income before income taxes . . . . . . . . . . . . . . 11,311 2,304 13,615
Provision for income taxes . . . . . . . . . . . . . . 4,051 829 (c) 4,880
Net income before dividends on preferred stock . . . 7,260 1,475 8,735
Dividends on preferred stock . . . . . . . . . . . . . 1,419 (1,419) (d) -
Net income applicable to common shareholders . . . . 5,841 2,894 8,735
Primary and fully diluted net income per share of
common stock . . . . . . . . . . . . . . . . . . . . 0.77 [ ]
<CAPTION>
As of October 31, 1997
Pro Forma Balance Sheet Data: Historical Adjustments Pro Forma
<S> <C> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . $ 332 $45,750 (e) $ 332
(8,000) (a)
(37,750) (a)
Total current assets . . . . . . . . . . . . . . 66,496 - 66,496
Total assets . . . . . . . . . . . . . . . . . . 131,361 - 131,361
Accrued liabilities . . . . . . . . . . . . . . . 22,600 (589) (b) 22,011
Total current liabilities . . . . . . . . . . . . 54,312 (589) 53,723
Long-term debt . . . . . . . . . . . . . . . . . 51,960 (8,000) (a) 23,325
(37,750) (a)
4,657 (b)
6,458 (b)
6,000 (b)
Mandatory redeemable preferred stock . . . . . . 18,068 (14,000) (f) -
(4,068) (b)
Total liabilities . . . . . . . . . . . . . . . . 127,839 (47,292) 80,547
Common stock . . . . . . . . . . . . . . . . . . 30 56 (f) [86]
Additional paid-in capital . . . . . . . . . . . 603 45,750 (e) [60,297]
13,944 (f)
Treasury stock . . . . . . . . . . . . . . . . . - (6,458) (b) (6,458)
Unearned compensation . . . . . . . . . . . . . . - (6,000) (b) (6,000)
Retained earnings . . . . . . . . . . . . . . . . 2,889 - 2,889
Total shareholders' equity . . . . . . . . . . . 3,522 47,292 50,814
Total liabilities and shareholders' equity . . . 131,361 - 131,361
</TABLE>
(a) In connection with the Offering and repayment of certain
indebtedness, the Company would have incurred a reduction in interest
expense on the following:
(1) $8,000 subordinated promissory
note due to Western Atlas;
interest rate at 10 percent $ (800)
(2) $37,750 outstanding on revolving
credit facility; average interest
rate of 7.3 percent (2,756)
---------
$ (3,556)
=========
(b) In connection with the ESOP Transactions, the Company incurred
additional indebtedness under its revolving credit facility as
follows: (i) the Company borrowed $6,458 to repurchase 420,000
shares of common stock of the Company and (ii) the Company borrowed
$4,657 to pay accrued dividends of $589 and redeem shares of Class D
Redeemable Preferred Stock of $4,068. In addition, the Company
borrowed $6,000 from its bank lenders under a term loan and loaned
that amount to the ESOP. Additional interest expense related to the
above is as follows:
(1) $6,000 term note due in December
2002; average interest rate of
7.3 percent: $ 438
(2) $11,115 draw on revolving credit
facility; average interest rate
of 7.3 percent: 814
--------
$ 1,252
========
(c) Adjusts income taxes to reflect the above pro forma adjustments
utilizing a combined federal and state rate of 36 percent.
(d) Represents the reduction in dividends paid on the following:
(1) Class B Preferred Stock; dividends
accrue at a rate of 8.0 percent: $ (1,120)
(2) Class D Preferred Stock; dividends
accrue at a rate of 8.0 percent: (299)
---------
$ (1,419)
=========
(e) Represents amount of net proceeds associated with the sale of
__________ shares of Common Stock with a par value of $0.01 offered
by the Company.
(f) Represents the conversion of 5,600,000 shares of Class B Preferred
Stock with a stated amount of $14,000 to 5,600,000 shares of Common
Stock at a par value of $0.01 per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Overview
The Company operates through three business units: (i) Integrated
Systems designs, installs and integrates automated material handling
systems and manufactures related automated material handling equipment;
(ii) Customer Services provides aftermarket customer support, including
modernization, service and parts; and (iii) Logistics and Software Systems
develops and implements advanced software systems. Historically, the
Company has grown through a combination of acquisitions and internal
growth. The Company expects future internal growth to occur predominantly
in the higher margin customer service and logistics and software systems
businesses. Additionally, the Company will seek selective strategic
acquisitions to enable the Company's logistics and software systems
business to provide a broader range of SCM solutions.
Background. The Company originated as an engineering division of
Harnischfeger in 1969, and Management led the acquisition of the Company
in October 1993 for a total purchase price of $45.0 million. In February
1995, the Company completed the Eaton-Kenway Acquisition for a total
purchase price of $12.3 million. The acquired business contributed
revenues of approximately $40.7 million in fiscal 1995. In November 1996,
the Company consummated the Western Atlas Acquisition for a total purchase
price of $42.6 million. The Western Atlas Acquisition contributed
revenues of approximately $84.4 million in fiscal 1997. Each of these
acquisitions was partially financed by the seller.
Through the Eaton-Kenway and Western Atlas Acquisitions, the Company
obtained, among other things, captive automated material handling
equipment and replacement parts manufacturing capabilities, which ensure
adequate levels of supply and enhance quality assurance, and significantly
increased its installed base. While manufacturing is not the Company's
primary focus, the Company believes it is a critical factor to maintain
its systems integration leadership position and expand its customer
service business.
With each acquisition, the Company has incurred expenses to integrate
the acquired business and focus it on the Company's strategies. In each
case, the Company has downsized the acquired business, with a resulting
decline from its previous revenue levels, to focus on higher margin
business. During fiscal 1997, the Company discontinued unprofitable
product lines and rationalized manufacturing capacity by closing two
former Western Atlas plants and expanding one other plant. Currently, the
Company is in the process of expanding an additional plant to accommodate
increased workload. The Company continues to evaluate and remediate
issues related to various Eaton-Kenway and Western Atlas projects, but has
established reserves for potential losses that the Company believes are
adequate.
Revenue Recognition. Integrated Systems revenues are derived from the
sale of automated material handling systems integration services and
related equipment, software and controls. Customer Services revenues are
derived from customer support and services, including modernization,
service and replacement parts and maintenance outsourcing. Contracts for
both units are typically fixed price with a duration of three months to
two years. The Company recognizes revenues from these contracts on the
percentage of completion accounting method, with the exception of spare
parts, which are recognized upon shipment. Under this method, percentage
of completion is determined by reference to the extent of contract
performance, future performance risk and cost incurrence. Any revisions
in the estimated total costs of the contracts during the course of the
work are reflected when the facts that require the revisions become known.
Losses, if any, are recognized in full as soon as identified. Generally,
more than half of the revenues derived on a contract for an integration or
modernization project occur during the second half of the project, as many
of the outside equipment suppliers fabricate and deliver components to the
job site and integration commences.
Logistics and Software Systems revenues are derived from software
license fees, modification and implementation fees, and services and
maintenance fees; however, in many cases contracts also include cost for
related hardware (such as computers and radio frequency telecommunications
equipment) and implementation assistance. These contracts have a typical
duration of three months to one year. Software license fee revenue is
recorded, on a pro-rata basis, when the software has been delivered (which
is generally considered to be at the completion of the first
installation), the license agreement with the customer has been executed,
and collection of the resulting receivable is deemed probable. Revenues
for customization and modification of licensed software and for
implementation services are recorded using the percentage-of-completion
method of accounting. Logistics and Software Systems revenues tend to be
equally spread over the life of the contract because of their higher
service content.
Costs. Direct costs including material and other manufacturing-related
costs and outside vendor costs for subcontracted equipment comprise the
largest portion of the Company's cost of sales. Other direct costs
consist primarily of compensation, related fringe benefits, other overhead
costs and warranty support. Research and development and software
development costs are expensed as incurred.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain line items from the
Company's consolidated statements of income:
Year ended October 31,
1995 1996 1997
Net revenues:
Integrated systems . . . . . . 56% 58% 66%
Customer services . . . . . . . 32 33 26
Logistics and software systems 12 9 8
------ ------ ------
Total net revenues 100 100 100
Cost of sales . . . . . . . . . . 86 82 79
------ ------ ------
Gross profit . . . . . . . . . 14 18 21
Selling expenses . . . . . . . . 7 7 9
General & administrative expenses 3 4 4
Amortization of goodwill . . . . 1 1 1
------ ------ ------
Income from operations . . . . 3% 6% 7%
====== ====== ======
Fiscal 1997 Compared to Fiscal 1996
Revenues. Total revenues increased 64.0% to $246.2 million in fiscal
1997 from $150.1 million in fiscal 1996. Excluding the effect of the
Western Atlas Acquisition, total revenues increased 7.8% to $161.7 million
in fiscal 1997.
Integrated Systems revenues increased 87.6%, or $76.3 million, in
fiscal 1997 from fiscal 1996. Exclusive of the effects of the Western
Atlas Acquisition, total Integrated Systems revenues decreased 5.2% to
$82.6 million in fiscal 1997, from $87.2 million in fiscal 1996 due to
delays in the awarding of certain contracts.
Customer Services revenues increased 30.9%, or $15.4 million, to $65.2
million in fiscal 1997. Excluding the effects of the Western Atlas
Acquisition, total Customer Services revenues increased 27.9% to $63.7
million in fiscal 1997 from $49.8 million in fiscal 1996. This increase
was due to a 36.8% increase in new contract awards during fiscal 1997 as
compared to fiscal 1996. These new contract awards included a number of
large AGVS replacement projects with relatively short schedules.
Logistics and Software Systems revenues increased 33.0% to $17.5
million in fiscal 1997, compared to $13.1 million in fiscal 1996.
Excluding the effects of the Western Atlas Acquisition, Logistics and
Software Systems revenues increased 17.4% to $15.4 million in fiscal 1997
because, in early fiscal 1997, the Company introduced Stockmaster 2000,
its NT-based WMS software, as the successor product to the original
Stockmaster, a UNIX-based WMS software application originally introduced
in 1989. New bookings for Stockmaster 2000 were slow early in the year as
the Company refocused its marketing and engineering resources to the new
product.
The backlog of the Company at October 31, 1997 was $85.7 million
compared to $97.2 million at October 31, 1996. The backlog by business
unit was comprised of Integrated Systems - $46.1 million, Customer
Services - $24.8 million and Logistics and Software Systems - $14.8
million at October 31, 1997 compared to Integrated Systems - $59.5
million, Customer Services - $23.8 million and Logistics and Software
Systems - $13.9 million at October 31, 1996.
Gross Margin. Cost of sales increased to $193.6 million in fiscal
1997, from $123.4 million in fiscal 1996, but declined as a percentage of
revenues to 78.7% from 82.2%, respectively. Integrated Systems gross
margin improved due to higher margins on contracts in progress and
increased utilization of the Company's manufacturing facilities. Customer
Services gross margin improved primarily from increased outsourcing
contracts and greater parts revenues in the sales mix. Logistics and
Software Systems gross margin decreased primarily as a result of a
contract cancellation during the third quarter of fiscal 1997. Excluding
the effect of this contract cancellation, gross margin would have
improved.
Operating Income. Operating income increased $7.6 million, or 81.6%,
in fiscal 1997, from $9.3 million in fiscal 1996. Selling expenses
increased $12.0 million, or 120.2%, in fiscal 1997, and increased as a
percentage of revenues to 8.9% in fiscal 1997 from 6.7% in fiscal 1996.
This increase was due primarily to the inclusion of the operations
acquired in the Western Atlas Acquisition, which historically incurred
higher selling expenses as a percentage of revenues. Additionally, HK
Systems has implemented a company-wide marketing effort to further
establish the HK Systems name following the Western Atlas Acquisition.
General and administrative expenses increased $5.8 million, or 91.9%,
in fiscal 1997 from fiscal 1996, and from 4.2% to 4.9% as a percentage of
revenues. This increase was primarily due to increased costs related to
the Western Atlas Acquisition of $1.6 million including human resources,
contract and accounting personnel, and to increased research and
development expenditures. Research and development costs increased $3.0
million, or 149.9%, to $5.0 million, in fiscal 1997 over fiscal 1996, and
as a percentage of revenues to 2.0% from 1.3%, respectively. Currently,
the Company is engineering several new software development programs,
including the implementation of a multi-year plan for functionality
enhancements for the Stockmaster 2000 system. The Company decided to
accelerate these enhancements in early fiscal 1997 and released a new
version in October 1997. See "Business -- Services and Products --
Logistics and Software Systems." Additionally, the Company is developing
a standard baseline control system for automated material handling systems
applications, which the Company intends to introduce in January 1998. The
Company anticipates a continual increase in research and development
expenditures over the next 3 years.
Amortization of goodwill increased $0.5 million, or 37.5%, in fiscal
1997 from fiscal 1996. This increase was primarily due to increased
goodwill amortization related to the Western Atlas Acquisition.
Interest Expense. Interest expense increased $2.0 million, or 57.1%,
to $5.6 million, in fiscal 1997 from $3.6 million in fiscal 1996 due to
additional borrowings required to finance the Western Atlas Acquisition
and subsequent operations of the acquired business.
Income Taxes. The Company's effective income tax rate was 40.0% and
35.8% for fiscal 1996 and fiscal 1997, respectively. The difference was
due primarily to state taxes.
Net Income. As a result of the foregoing factors the Company had net
income before preferred dividends of $7.3 million in fiscal 1997 compared
to net income before preferred dividends of $3.4 million in fiscal 1996.
Fiscal 1996 Compared to Fiscal 1995
Revenues. Total revenues increased 18.5% to $150.1 million in fiscal
1996 from $126.6 million in fiscal 1995. The increase in revenues was
primarily attributable to a $22.6 million increase in revenue related to a
series of projects with an automotive customer. In addition, the fiscal
1996 revenues included a full year's effect of the Eaton-Kenway
Acquisition.
Integrated Systems revenues increased 23.3% to $87.2 million in fiscal
1996 compared to $70.7 million in fiscal 1995, primarily due to increased
contract volume with an automotive customer.
Customer Services revenues increased 22.9%, or $9.3 million, to $49.8
million in fiscal 1996 primarily due to a series of projects with a single
customer ($6.5 million) and a 61% increase in replacement parts sales as a
result of the Company's focus on the Eaton-Kenway installed base.
Logistics and Software Systems revenues declined 14.7% in fiscal 1996
to $13.1 million due to a reduced hardware content in the sales mix. The
Company deemphasized hardware content in its Logistics and Software
Systems contracts beginning in fiscal 1996. Hardware and other direct
costs as a percentage of revenues declined to 12.2% in fiscal 1996 from
40.9% in fiscal 1995.
Gross Margin. Cost of sales increased to $123.4 million in fiscal
1996, from $108.5 million in the previous year, but declined as a
percentage of revenues to 82.2% from 85.7%, respectively. Integrated
Systems gross margin improved due to the completion of more profitable
projects and increased utilization of the Company's manufacturing
facilities. Customer Services gross margin improved due to increased
parts sales, which carry higher margins, and the completion of less
profitable projects assumed in the Eaton-Kenway Acquisition in fiscal
1995. Logistics and Software Systems gross margin increased due to a
reduction in lower margin hardware sales and corresponding higher license
fee composition in the sales mix.
Operating Income. Operating income increased to $9.3 million in fiscal
1996 from $3.6 million in fiscal 1995. Selling expenses increased 12.1%
to $10.0 million in fiscal 1996 as additional sales representatives were
added in the Customer Services and Logistics and Software Systems
businesses. General and administrative expenses increased to $6.3
million, or 36.8%, in fiscal 1996 due to an increase in training costs
associated with an increased employee base. Research and development
expense increased $0.7 million, or 50.2%, in fiscal 1996 primarily due to
functionality enhancements to the Stockmaster 2000 system.
Interest Expense. Interest expense increased $0.4 million, or 14.1%,
to $3.6 million in fiscal 1996, due to a higher average outstanding debt
level in fiscal 1996 issued to support increased sales levels and finance
capital expenditures.
Income Taxes. The Company's effective income tax rate was 64.0% and
40.0%, in fiscal 1995 and fiscal 1996, respectively. The difference was
due primarily to state taxes.
Net Income. As a result of the foregoing factors, the Company's net
income before preferred dividends increased to $3.4 million in fiscal
1996, from $0.04 million in fiscal 1995.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly financial
information for the Company for each of the twelve most recent quarters in
the period ended October 31, 1997. In the opinion of the Company, this
information is prepared on the same basis as the financial statements
appearing elsewhere in this Prospectus and reflects all the adjustments
necessary for a fair presentation of results of operations for those
periods. This quarterly financial data should be read in conjunction with
the Company's Consolidated Financial Statements and related notes thereto
appearing elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of the results of any future
period.
<TABLE>
<CAPTION>
Fiscal 1995
Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C>
Net revenues:
Integrated systems $15,491 $17,126 $17,605 $20,467
Customer services 2,526 9,497 14,521 13,957
Logistics and software systems 3,299 3,902 4,440 3,772
-------- -------- -------- --------
Total net revenues 21,316 30,525 36,566 38,196
Cost of Sales 18,652 26,597 32,224 31,053
-------- -------- -------- --------
Gross Profit 2,664 3,928 4,342 7,143
Selling, general & administrative expenses 2,317 3,503 3,572 4,100
Amortization of goodwill 143 297 297 296
-------- -------- -------- ------
Income from operations $204 $128 $473 $2,747
======== ======== ======== ======
<CAPTION>
Fiscal 1996
Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C>
Net revenues:
Integrated systems $17,641 $21,743 $21,859 $25,907
Customer services 11,305 11,424 13,631 13,432
Logistics and software systems 4,266 2,321 4,194 2,362
-------- -------- ------- -------
Total net revenues 33,212 35,488 39,684 41,701
Cost of Sales 27,357 29,033 33,146 33,818
-------- -------- ------- -------
Gross Profit 5,855 6,455 6,538 7,883
Selling general & administrative expenses 4,138 3,768 3,859 4,490
Amortization of goodwill 306 306 307 306
-------- -------- ------- -------
Income from operations $1,411 $2,381 $2,372 $3,087
======== ======== ======= ========
<CAPTION>
Fiscal 1997
Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C>
Net revenues:
Integrated systems $47,003 $47,258 $40,373 $28,838
Customer services 15,626 14,417 15,092 20,065
Logistics and software systems 4,092 4,975 4,256 4,155
------- ------- ------- -------
Total net revenues 66,721 66,650 59,721 53,058
Cost of Sales 54,032 53,342 48,208 38,064
------- ------- ------- -------
Gross Profit 12,689 13,308 11,513 14,994
Selling general & administrative expenses 9,432 8,157 7,093 9,337
Amortization of goodwill 406 426 426 426
------- ------- ------- -------
Income from operations $2,851 $4,725 $3,994 $5,231
======= ======= ======= =======
</TABLE>
The Company's quarterly revenues and operating results have varied in
the past and are likely to vary from quarter to quarter in the future,
depending upon a number of factors, including but not limited to the
concentration of its customers in any given period; size and timing of
customer orders; commencement, completion, cancellation or delay of
contracts; progress of ongoing projects; cost overruns; competitive
industry conditions; the Company's ability to develop, introduce and
market new products and product enhancements; software life cycles;
changes in the level of operating expenses and the Company's ability to
control costs; and general economic conditions.
The Company's future operating results may fluctuate as a result of
these and other factors, which could have a material adverse effect on the
Company's business, result of operations and financial condition. See
"Risk Factors."
Liquidity and Capital Resources
The Company has historically funded its operations and capital
expenditures with cash flow from operations supplemented by its revolving
line of credit. The Company has funded acquisitions through a combination
of debt provided by the selling company and bank financing and, in the
Eaton-Kenway Acquisition, $4.2 million of additional equity capital
provided by the Company's original institutional investors and Management.
As of October 31, 1997, the Company had $0.3 million in cash and temporary
investments and working capital of $12.2 million.
Net cash provided by operating activities was $22.7 million and $9.3
million for fiscal 1997 and fiscal 1996, respectively. The primary
reasons for the increase in cash flow from operations for fiscal 1997 as
compared to fiscal 1996 were (i) increases in non-cash charges, from $7.4
million to $8.3 million and (ii) an $8.6 million increase in cash flow
from working capital items due to reductions in receivables and inventory,
and increased billings in excess of costs as a result of payment terms
contained within the contract mix. Net cash provided by operating
activities was $1.8 million in fiscal 1995. Both investing and financing
activities for fiscal 1997 relate primarily to the Western Atlas
Acquisition.
Given the Company's recent history of debt financed acquisitions, the
Company emphasizes the generation of cash flow, as measured by earnings
before interest, tax, depreciation and amortization ("EBITDA"). EBITDA
increased to $27.0 million from $16.0 million, or 69.1%, for fiscal 1997
compared to fiscal 1996 as a result of a $9.0 million increase in income
before taxes, depreciation and amortization and a $2.0 million increase in
interest charges, primarily due to the Western Atlas Acquisition.
Additionally, EBITDA increased 72.5% to $16.0 million in fiscal 1996, as
compared to $9.3 million in fiscal 1995.
The Company's revolving line of credit provides for borrowings of up to
$90 million, bearing interest at 7.06% to 8.50%. The agreement contains
various restrictive financial covenants. The line of credit is
collateralized by the assets of the Company and expires on November 1,
1999. Outstanding amounts under the line of credit aggregated $34.0
million and $18.0 million at October 31, 1997 and October 31, 1996,
respectively. At October 31, 1997, the Company had available an
additional $39.5 million under its line of credit. The Company utilized
approximately $17.1 million of this availability in December 1997 and
January 1998 through borrowings relating to the ESOP Transactions
consisting of $11.1 million under the revolving credit facility and $6.0
million pursuant to a term loan, the proceeds of which the Company loaned
to the ESOP on the same terms to enable the ESOP to purchase common stock
of the Company from Management. See "Certain Transactions; Relationships
with Selling Shareholders; Compensation Committee Interlocks and Insider
Participation." The Company intends to repay outstanding indebtedness to
Western Atlas and a portion of the line of credit with a portion of the
proceeds of this Offering. See "Use of Proceeds". Recently, the Company
amended its revolving line of credit by (i) reducing the line from
$90 million to $80 million; (ii) extending the termination date to
December, 2002; and (iii) amending certain of the financial covenants.
Capital expenditures of the Company for the fiscal year ended October
31, 1997 were $4.1 million. For the years ended October 31, 1996 and
1995, capital expenditures were $3.2 million and $1.4 million,
respectively. The Company anticipates capital expenditures to be $4
million to $6 million per year over the next two fiscal years, including
amounts for plant expansion, computer system upgrades and construction of
a new research and demonstration center that the Company currently
contemplates.
The Company believes (i) the net proceeds from the sale of Common Stock
by the Company in the Offering; (ii) cash flow from operations; and (iii)
amounts available under its line of credit will be sufficient to meet the
Company's currently anticipated working capital and software development
requirements through fiscal 1998. However, depending upon its rate of
growth and profitability, the Company may require additional equity or
debt financing to meet its working capital requirements or capital
expenditure needs or to fund future acquisitions. There can be no
assurance that additional financing, if needed, will be available when
required or, if available, on terms satisfactory to the Company.
BUSINESS
Background
HK Systems is a leading provider of supply chain solutions. The
Company develops, implements and supports integrated solutions to the
complex material handling and supply chain needs of a wide array of
industries. The Company's solutions enable its customers to implement
advanced supply chain strategies to improve product quality, reduce
inventory and delivery time and lower overall costs of manufacturing and
distribution.
The Company delivers its supply chain solutions through three
principal activities. First, the Company designs, installs and integrates
automated material handling systems that include customized software,
manufactured equipment, and purchased components such as microprocessor
and PLC controls and optical scanning and laser positioning devices. The
Company is a leading supplier of integration services for automated
material handling systems in North America. Second, the Company provides
aftermarket services for owners of systems and equipment the Company has
installed and for other customers. The Company's installed base of
equipment and software systems, which numbers over 3,000, presents
significant opportunities to expand its supply chain aftermarket business.
Third, the Company develops and implements advanced software systems,
including WMS for Windows/NT and UNIX operating environments and
customized logistics software for specific supply chain applications. The
Company believes it is one of the leading WMS software providers in North
America.
The Company's commitment to customer satisfaction, from the initial
design of a system through implementation to ongoing support and
maintenance, has enabled the Company to create strong customer
relationships with leading U.S. corporations. The Company's customers
include manufacturers, distributors, processors and retailers whose needs
are as diverse as the warehousing of semi-conductors and the temporary
storage and retrieval of automobile bodies for an assembly line. These
customers include a diverse base of Fortune 500 companies and industry
leaders, including American Airlines, Anheuser-Busch, Ball Foster Glass,
Boeing, Caterpillar, Chrysler, The Coca-Cola Company, Coca-Cola
Enterprises, Estee Lauder, Ford, Frito-Lay, Gillette, Hewlett-Packard,
IBM, Kimberly-Clark, Lucent Technologies, Motorola, The New York Times,
J.C. Penney, Philip Morris, Procter & Gamble, Sara Lee, Sony and United
Airlines.
The Company originated in 1969 as an engineering division of the
Overhead Crane Group of Harnischfeger to position Harnischfeger in the
automated systems business to facilitate the sale of storage and retrieval
equipment. In October 1993, Management led the acquisition of the
Company, then known as Harnischfeger Engineers, as the first step toward
the objective of developing the preeminent single-source provider of
automated material handling systems and WMS software. In February 1995,
the Company purchased the business of Eaton-Kenway, a wholly owned
subsidiary of Eaton. Through the Eaton-Kenway Acquisition, the Company
acquired advanced AGVS technology; experienced employees; and access to
Eaton-Kenway's significant customer base. In November 1996, the Company
acquired the Material Handling Systems division and VantageWare software
division of Western Atlas (formerly a part of the Litton Automation Group
of Litton Industries). In the Western Atlas Acquisition, the Company
acquired additional manufacturing capability; several recognized automated
material handling product lines (including conveyors, sortation equipment
and von Gal palletizers); an expanded customer base, especially within the
retail distribution industry; additional software engineering capability;
experienced employees; and access to the market for the sale of stand-
alone conveyors, palletizers and sortation equipment. Through these
acquisitions, the Company assembled an installed base of integrated
automated material handling systems that the Company believes is one of
the largest in North America, taking into account systems that include as
a component AS/RS, AGVS or AEMs and at least one other automated material
handling technology. In addition, the Company was able to achieve a
higher level of control over the marketing, design and implementation of
the critical supply chain solutions it was already providing to its
customers. The Company also acquired the ability to source system
components internally and to produce and inventory component parts, which
are important tools to enable the Company to compete in the replacement
parts market.
Recent Customer Case Studies
The following case studies illustrate the Company's ability to provide
automated material handling systems integration and SCM solutions that
address a wide range of customers' needs:
The New York Times
The Challenge: The New York Times ("The Times"), one of the world's
leading newspaper publishers with a total circulation of one million on
weekdays and two million each Sunday, wanted to expand capacity and add
significant flexibility to its production capability. As a result, the
Times needed to design and construct a new production facility,
including its material handling systems, that would enable it to extend
newsroom deadlines, add color printing, and offer more sectioning and
feature sections.
The HK Systems Solution: The Times chose the Company as a partner in
the design and implementation process of the new facility. The
Company's engineering and consulting team joined The Times' own project
team, worked on-site to develop plant-wide information systems and
electrical control strategies and used computer simulations to ensure
necessary capacities. HK Systems also designed and integrated the
major automated material handling systems in the plant, including
automated newsprint storage and delivery to press, and provided the
controls and integration software for the plant.
The Result: The Company integrated an automated material handling
system that represents a state-of-the-art solution for the newspaper
publishing industry. In addition to achieving significant reductions
in operating costs, the facility has helped The Times extend newsroom
deadlines by up to three hours allowing fresher copy for each daily
edition; use color in each daily edition; increase sectioning to
capture a broader advertising revenue base; and cut waste and lost
time.
Estee Lauder
The Challenge: Estee Lauder ("Lauder"), a premier, worldwide provider
of high quality perfumes and cosmetics for women, was experiencing high
distribution costs and generating unreliable inventory and shipping
records at its 13 distribution sites worldwide. Lauder wanted to
standardize and control all elements of finished goods inventory
management and develop automated material handling systems for its
finished goods.
The HK Systems Solution: Lauder chose the Company to be its partner in
this standardization initiative due to the Company's strong reputation
and the Company's complete solution capabilities demonstrated in part
through its providing Lauder with modernization services on AS/RS
equipment a competitor had installed. HK Systems customized and
implemented the Company's WMS software, modernized and augmented
automated material handling equipment and integrated the software and
equipment at an initial site.
The Result: The Company's solution enabled Lauder to achieve its goals
of accurately receiving, storing, picking, shipping and controlling the
movement of finished goods within its warehousing and production
facilities through an integrated system. Lauder increased security,
increased inventory accuracy to 99%, improved productivity and
increased lot control. As an additional benefit, the Company's system
is compatible with Lauder's other business systems and enables Lauder
to generate more reliable shipping records. Based upon these results
at the initial site, Lauder decided to implement the solution at 11
additional sites, of which the Company has completed seven to date.
American Airlines
The Challenge: In response to increased demand for air travel,
American Airlines ("AA") doubled the number of its gates at
Dallas/Fort Worth International Airport ("DFW"). As a result, AA
needed to significantly increase hangar space and expand its parts
service from two to four hangars and provide around-the-clock parts
service to the terminal stations. The project required a system
that would deliver parts quickly to the four hangars and facilitate
the prompt delivery of parts to aircraft waiting to depart with
passengers on board.
The HK Systems Solution: AA selected HK Systems to design and
implement a material handling system for the numerous maintenance parts
required on short notice. The Company used several integrated material
handling and control strategies to meet AA's stringent operational
requirements. The system receives and stores spare parts inventory
and, upon demand, locates, retrieves and delivers parts to any of four
repair hangars within 10 minutes.
The Result: This system achieved AA's goals of reduced delivery time,
increased inventory accuracy, decreased indirect labor costs and
reduced parts handling in the maintenance area. Recognizing the
Company's capabilities as well as the critical nature of that system,
AA subsequently outsourced to the Company the maintenance of this
system and similar systems at two other AA facilities. After five
years of operation, the system continues to achieve over 99% up time.
Industry Overview
The Company's services and products address the needs of large and
growing markets. The Company believes sales of automated material
handling systems, integration services and related aftermarket support in
North America should exceed $2.0 billion in 1998 and will grow by
7% to 10% annually through the year 2000. The Company also estimates that
the North American market for supply chain management software will be
approximately $1.9 billion in 1998 and is currently growing at
approximately 45% annually. This market is considerably more fragmented
than other segments of the industry, with numerous small, single product
companies competing to provide SCM software products and services.
Two principal trends require businesses to devote greater attention and
resources to more efficiently manage and control the flow of materials,
inventory and finished goods along their respective supply chains. First,
the changing global buying culture is increasing customer demands for
faster, more accurate and customized product delivery. In response, many
businesses are implementing practices that will increase the demand for
supply chain solutions. Such practices include demand-pull manufacturing
systems (which rely on real-time information to coordinate and control
manufacturing and distribution across the entire supply chain) as well as
third-party distribution, mixed-load shipments and more frequent, smaller
quantity deliveries. Precise inventory management results in greater
reliance on sortation equipment, palletizers and load planning software to
provide mixed-load shipments, mixed-pallet shipments, more packaging
options and greater accuracy in the delivery of supplies and inventories.
Additionally, these factors are forcing businesses to regionalize
warehouse facilities and implement cross-docking operations, creating even
further awareness of the need for real-time, accurate inventory control.
The second major trend elevating the importance of efficient material
handling and SCM is the need for companies to enhance profitability
through operating cost reductions. The intense competitive environment in
which most businesses operate often makes it difficult to generate revenue
growth, particularly through price increases. This environment has forced
companies to reduce costs in part by integrating material handling systems
and outsourcing certain non-core functions. Consequently, businesses are
increasingly turning to, and becoming dependent upon, automated material
handling systems integrators to design, build, install and service these
cost-saving systems. Furthermore, cost-related factors generally favor
the upgrading of existing facilities rather than the building of new
facilities, increasing the need for advanced systems integration.
The Company believes as more businesses respond to these trends, they
will become increasingly sensitive to the importance of efficiently
managing their entire supply chain. Complete SCM entails simultaneously
managing internal constraints (such as production capacity, human resource
availability and inventories) and external constraints (such as supplier
lead times and customer demand requirements) to reduce inventories and
improve order response times and accuracy. The Company believes the SCM
premise is built upon inventory management and control, since SCM involves
highly specialized demand planning, forecasting and deployment planning,
which all require accurate and manageable enterprise-wide inventory
control. Because of this, the Company believes businesses will
increasingly call upon providers of integrated SCM systems, who are
experienced in inventory management and capable of integrating systems
through all points in the supply chain, to provide and implement solutions
to their complex SCM needs.
Business Strengths
The Company intends to build upon its position as a market leader by
capitalizing on its competitive strengths, which include the following:
Extensive Internal Resources to Provide Automated Solutions for Complex
Material Handling Needs
Of the Company's 1,150 employees, approximately 500 have engineering
backgrounds, and approximately 220 are software engineers. Many HK
Systems engineers have performed a wide variety of engineering functions
within the Company and, as a result, have experience in a variety of
engineering areas crucial to the successful design and implementation of
automated material handling systems, including concept and planning,
manufacturing and research and development. The Company believes
employing experienced engineers encourages information flow across all of
the Company's business units and allows the Company to maximize the use of
its engineering resources.
In addition, as a result of strategic acquisitions and internal growth,
HK Systems offers a diverse product line that enables it to offer its
customers automated material handling equipment of known reliability. The
Company's manufacturing expertise also allows it to critically evaluate
the quality of other suppliers' products to determine which products best
meet its customers' needs. Additionally, to complement its broad product
offerings and to support installed automated material handling systems,
the Company has developed a proven aftermarket customer service
capability.
Proven Project Management and Implementation Skills
Through extensive industry experience and the resources of over 550
employees dedicated to project implementation, HK Systems has developed
project management and implementation skills that it believes allow it to
consistently deliver turnkey automated material handling systems solutions
on time, within specifications and budget. The Company believes this
strength is one of the reasons its margins have increased in recent years.
The Company focuses on providing superior customer solutions while
achieving targeted project profitability by utilizing multi-disciplinary
project teams. These teams encourage Company-wide cooperation, while
effectively leveraging the systems design and implementation capabilities,
skills and knowledge of all the Company's business units.
Large, Diverse Blue Chip Customer Base
HK Systems has provided solutions to the complex material handling and
SCM needs of a large number of Fortune 500 companies within a variety of
industries including aircraft, automotive, banking, distribution, food and
beverage, light and heavy manufacturing, newspapers and publishing, parcel
handling, textiles and transportation. Regardless of industry, these
customers typically engaged the Company to provide a material handling or
SCM solution to meet the increasingly challenging market demands of their
own customers. For fiscal 1997, approximately 88% of the Company's
revenues were derived from customers who previously retained the Company
to provide automated material handling or SCM solutions. The Company's
success in meeting the complex needs of these demanding customers serves
as a strong confirmation of the Company's abilities and critical marketing
advantage in generating new business.
Strong Position to Further Build its Higher Margin Aftermarket Business
The Company's large and growing installed base of systems and
equipment, which numbers over 3,000, has provided recurring revenue
opportunities as systems age and require modernization, replacement parts
and customer service support. To meet this ongoing demand, HK Systems has
established Customer Services to provide aftermarket service and support,
including equipment and software modernizations, for the Company's
installed base as well as the installed base of many of its competitors.
The Company has a customer service hotline staffed by Company employees 24
hours a day, 7 days a week and supported by a nationwide mobile service
technical staff. This commitment to customer service has resulted in a
reputation for providing high quality aftermarket service that positions
the Company to continue to meet the growing demands of its customers.
Revenues from aftermarket service and support have grown from $10.0
million in fiscal 1993 to $65.2 million in fiscal 1997, and the Company
believes the current trend toward outsourcing of the maintenance, repair
and upgrading of complex manufacturing and distribution systems will
accelerate in the near term.
Solid Foundation from which to Expand Supply Chain Management Software
Offerings
The Company's existing WMS software applications, significant customer
base, practical experience and skills in providing automated material
handling solutions, and extensive technical resources position the Company
to provide integrated SCM solutions. The Company believes it is one of
the leading WMS software providers in North America. HK Systems current
WMS software solutions, Stockmaster Open and Stockmaster 2000 WMS, have
been well accepted in various industries and are employed by a significant
base of customers.
Business Strategy
From its base of competitive strengths, HK Systems has developed a
business strategy that includes the following elements:
Leverage the Company's Large Installed Base and Extensive Customer
Relationships
Through historical operations and recent acquisitions, HK Systems has
greatly increased its installed base of equipment and software systems,
which numbers over 3,000. The Company intends to leverage this extensive
customer base by (i) promoting long-term "Strategic Customer
Partnerships"; (ii) cross-selling the Company's SCM products; (iii)
expanding customer service and maintenance outsourcing; (iv) designing
improvements to its existing technology to increase the inter-connectivity
of its core products and improve the delivery of aftermarket services; and
(v) following multinational customers into foreign markets.
Strategic Customer Partnerships are intended to be long-term
relationships with customers that include a "partnering" method of project
implementation. Strategic Customer Partnerships allow the Company to
compete more on value and less on price and enhance opportunities for
repeat business because the partnerships lead to greater customer
satisfaction. By offering the customer dedicated project management
resources, the Company believes a Strategic Customer Partnership gives a
customer a number of benefits, including (i) an optimal, customer-specific
system design; (ii) clear, precise project specifications; (iii) reduced
time from design to implementation; (iv) lower overall system costs than
comparable competitive bid projects; and (v) reduced risk to the customer
because of the Company's higher level of accountability. Currently,
Strategic Customer Partnerships comprise approximately 78% of the
Company's revenues from large integrated automated material handling
systems contracts.
Maintain Focus on Providing Fully Integrated, Turnkey, Supply Chain
Solutions for Material Handling Needs
The Company's extensive internal resources (including its large
engineering staff and diverse product line) and its highly regarded
project management and implementation skills position HK Systems to
maintain its leadership position as a provider of fully integrated,
turnkey, supply chain solutions for material handling needs. Companies in
nearly all industries are increasingly devoting greater attention and
resources to more efficiently controlling and managing the flow of their
materials, inventory and finished goods, driven by the desire to meet
market demands, lower operating costs and increase throughput. The
Company believes, given its leadership position and record of performance,
that it can continue to satisfy this desire to maximize cost savings and
efficiencies by providing its turnkey solutions to new and existing
customers.
Expand Supply Chain Management Software Offerings Through Selective
Acquisitions and Internal Development
The Company intends to expand its SCM logistics and software systems
offerings through selective acquisitions and internal software
development. In doing so, HK Systems will capitalize on the consolidation
trend in the SCM industry, which is expected to continue as customers seek
scale and reliability in their SCM vendors. New product offerings may
include demand planning and forecasting software, additional deployment
planning and transportation management software (complementing the
Company's LoadBuilder application), and additional inventory and warehouse
management programs. These offerings could be integrated into a
customers' current warehouse management, inventory control and automated
material handling systems, eliminating inefficiencies between independent
supply and demand points and allowing maintenance of supplies and
inventory at optimal levels.
Complete Integration and Continue to Improve Profitability of Acquired
Businesses
HK Systems will continue to integrate the businesses acquired in the
Eaton-Kenway Acquisition and the Western Atlas Acquisition by (i)
refocusing these businesses on profitable revenues; (ii) re-establishing
the von Gal palletizer product line as a leader in palletizer technology;
(iii) completing a standardization program for its conveyor and sortation
product lines; (iv) improving inventory management; and (v) continuing
profitability improvements. Recently, the Company completed a
restructuring program resulting in the closure of two manufacturing
plants, expansion of another manufacturing facility and consolidation of
several offices. Overall, these actions have lowered overhead costs and
improved operating efficiencies.
Services and Products
The Company is organized into three business units: Integrated
Systems, Customer Services and Logistics and Software Systems.
Integrated Systems
Automated material handling systems are comprised of automated material
handling equipment and related software and controls that allow
manufacturers, retailers, warehouses and distributors to quickly and
automatically store, sequence and retrieve raw material, work-in-process
and finished goods. The principal historical business of the Company, and
the current focus of Integrated Systems, is to provide both services and
products used in and related to automated material handling systems and
systems integration for a wide variety of industries including aircraft,
automotive, banking, distribution, food and beverage, light and heavy
manufacturing, newspapers and publishing, parcel handling, textiles and
transportation.
Integrated Systems contributed $163.5 million, $87.2 million and $70.7
million to the Company's total revenues in fiscal 1997, fiscal 1996, and
fiscal 1995, respectively.
Services
Integrated Systems performs integration services for customers
including the design, development, installation and integration of the
equipment, controls, software, information and processes that comprise new
automated material handling systems. These systems can include large or
complex software control systems, AS/RS, AGVS and/or AEMS, that typically
require extensive project management and quality control. Integrated
Systems also provides sortation equipment, conveyors and palletizer
integration services for projects requiring only sortation equipment,
conveyors and/or palletizers, usually involving complex sortation
requirements and high speed, precise product delivery. Integrated Systems
is often responsible for selecting and managing subcontractors that
provide general building construction and equipment installation services.
The Company's integration services contracts generally range from $1
million to $25 million in value, with an average value of approximately
$7 million. Approximately 30% of the total contract value is typically
paid to outside vendors in connection with the construction of
infrastructure and externally-sourced equipment, with internally-sourced
equipment accounting for approximately 20-25% and additional software,
controls and services accounting for the remaining 45-50%.
Services of Integrated Systems include providing customers with the
software, controls, optical scanning and laser positioning devices
necessary to start-up, operate, control, maintain, and perform diagnostic
functions related to the various components of automated material handling
systems. Integrated Systems offers support software products that monitor
and control automation equipment with programmable logic controllers
(PLCs) and provide mechanization control, load tracking, diagnostic
functions and communication interface with conveyor and AEMS. Integrated
Systems intends to introduce a new object-oriented equipment control
system in January 1998. This software system will provide a common
integration baseline for all of the Company's automated material handling
systems and product lines.
Integrated Systems provides integration services for customer projects
obtained either through Strategic Customer Partnerships or through
competitive bidding. With Strategic Customer Partnerships, the Company is
involved in every phase of system implementation from design to
installation. With competitively bid projects, the customer typically
presents the specifications for a system that an outside consultant has
prepared for which the Company may perform all or specific parts of the
system implementation.
Strategic Customer Partnerships
The Company pursues strong working, or "partnering," relationships with
select customers that the Company refers to as "Strategic Customer
Partnerships." In the context of an individual project involving a
Strategic Customer Partnership, the Company has a comprehensive role in
identifying and executing solutions, as discussed below. In the context
of a longer-term relationship that extends beyond an individual project, a
Strategic Customer Partnership generally involves an understanding between
the Company and its customer, which may be oral or written, that the
customer will look to the Company as its preferred or exclusive provider
of material handling or SCM solutions, in general or for a specific type
of need, on an ongoing basis. Typically, the Company pursues Strategic
Customer Partnerships with customers or potential customers who, because
of their size and business, are likely to have a recurring need for the
Company's services and products.
Integrated Systems' function is most comprehensive in projects for
which the Company has a Strategic Customer Partnership. Strategic
Customer Partnership projects generally begin with the Company consulting
with the customer regarding its unique automated material handling systems
needs and problem areas. Integrated Systems then designs detailed system
specifications responsive to the customer's particular needs, including
automated material handling equipment and associated software and
controls, as well as process software to manage inventory or supplies.
The Company simulates, tests and demonstrates the designed system and
alternatives through computer simulations prior to time consuming and
expensive field installation. Equipment and software is tested following
installation on the customer site. All subsystems are then integrated and
the system is commissioned. Integrated Systems uses an established
project management approach to Strategic Customer Partnerships, utilizing
project teams led by a project manager who has overall responsibility for
cost, scheduling, technical matters and customer satisfaction. In many
cases throughout the process, Integrated Systems acts as the catalyst for
interaction across all of the Company's business units, drawing on the
services and products of the Company as a whole to provide automated
solutions for the customer's material handling needs.
The Company believes a Strategic Customer Partnership project gives a
customer a number of benefits, including (i) an optimal, customer-specific
system design, because the Company uses its extensive integration
experience and industry knowledge and works in close partnership with the
customer from the outset to design, install, integrate and service an
automated system customized to address the customer's unique material
handling needs; (ii) clear, precise project specifications because the
Company both defines them and, together with subcontractors, is
responsible for meeting them; (iii) reduced time from design to
implementation because the Company's involvement in the design process
reduces the risk of delays in design and implementation and allows for
simultaneous performance of important process tasks; and (iv) lower
overall system costs than comparable competitive bid projects, since
Strategic Customer Partnerships allow faster implementation and precise
systems specifications while retaining the ability to use competitive
bidding for subsystem components.
Strategic Customer Partnership projects also afford the Company with
numerous advantages including the opportunity to establish "sole-source"
automated material handling systems relationships with customers that
involve the Company in every phase of systems development and service.
Additionally, Strategic Customer Partnerships provide the Company with
projects on acceptable terms and at lower risk, since the Company is
familiar at every stage with the design, function and service requirements
of components, controls and software.
Products
In addition to providing integration services, Integrated Systems
designs, manufactures, markets, installs and services many of the products
that automate the loading, unloading, sorting and transporting of
materials. Such products include (i) AS/RS, which are machines that store
and retrieve objects, using racks or similar structures, with weight
capacities from 50 pounds to 45 tons and that employ laser positioning,
servo drivetrains and Windows-based diagnostics technology; (ii) AGVS,
which are automated vehicle systems that transport objects within a
facility using wireless inertial guidance systems; (iii) AEMS, which are
monorails for horizontal (typically overhead) transportation, based on
technology licensed from Fredenhagen GmbH & Co. KG; (iv) sortation
equipment, which directs the flow of boxes, cases or other products from
single or multiple lines onto high speed sortation conveyors designed to
operate at various speeds and lengths; (v) von Gal palletizers, which
receive packaged products (including cases, cartons, crates and bundles)
from conveyors and arrange them into stable patterns that can be wrapped
and stacked onto a pallet for distribution or storage; and (vi) von Gal
de-palletizers, which unload palletized products for further handling and
distribution.
The Company generally sells AS/RS and AGVS only in connection with
automated material handling systems for which the Company also provides
integration services. It sells conveyors, palletizers and sortation
equipment in connection with systems for which the Company provides
integration services as well as on an independent basis, and generally
sells through distributors directly to end-users. Contracts for the sale
of conveyors, palletizers and sortation equipment on an independent basis
generally range in size from $25,000 to $10 million. Since the Western
Atlas Acquisition, approximately 20% of conveyors, palletizers and
sortation equipment have been sold in connection with systems for which
the Company also provided integration services.
Customer Services
Customer Services provides modernization services, control and software
systems upgrades, parts support, and maintenance outsourcing. The Company
has provided aftermarket support for most other brands of automated
material handling systems for over a decade. The Company believes it has
developed a reputation for quality and commitment to customer service that
assists in generating new business for all of the Company's business
units. The Company also provides maintenance and support to customers on
an outsourcing basis, and the Company has recently increased its focus on
expanding this business. The Company uses its broad in-house engineering
resources to perform customer upgrade projects or service customer systems
and uses new technologies that the Company's research and development team
has developed. Customer Services modernization projects and service
contracts typically range from $0.2 million to $5 million in revenue.
Customer Services contributed $65.2 million, $49.8 million and $40.5
million to the Company's total revenues in fiscal 1997, 1996 and 1995,
respectively. Customer Services provides services that can be classified
in five general areas: modernizations, maintenance outsourcing,
replacement parts, year 2000 software initiatives and customer emergency
service.
Modernization and retrofit of automated material handling systems
components, controls and software account for approximately 60-70% of
Customer Services' total revenues. Approximately 75% of the unit's
modernization projects involve upgrades of customers' computer and
software systems and electrical controls systems. Software systems are
typically upgraded either through replacement of existing software systems
with contemporary turnkey systems or by adopting and enhancing existing
systems to more modern and efficient standards. Customer Services
performs electrical controls modernization for AS/RS, conveyor, AEMS and
AGVS controllers. Other modernization services the unit performs include
subsystem replacement of AS/RS, AGVS or horizontal transportation
components, and mechanical and structural modernization, including
equipment overhaul and rebuild, and structural inspection and repair.
Systems outsourcing services typically involve providing full-time, on-
site preventative hardware maintenance of both Company and vendor
manufactured automated material handling systems components, as well as
replacement part management and software support services. Outsourcing
services are also provided to a lesser extent (i) on an "on-call" basis
through emergency standby engineering support, pager support, or remote
monitoring and diagnostics and (ii) on a planned basis through software
service contracts, periodic remedial and preventative maintenance.
Outsourcing services, particularly when conducted on-site, allow customers
to be more efficient as a result of fewer systems interruptions. From the
Company's perspective, the presence of Company personnel can generate
leads for new business.
Customer Services also sells and installs Company and outside vendor
manufactured replacement parts for automated material handling equipment.
Replacement part sales consist of both initial replacement parts ordered
at the time of system installation as well as system life-cycle parts.
Replacement parts sales accounted for approximately $11.4 million of total
revenue in fiscal 1997.
Many customers' automated material handling systems and warehouse and
inventory management software systems may experience malfunctions and
downtime associated with the arrival of the year 2000. Customer Services
provides software consulting services to identify upgrades and solutions
to allow automated material handling systems to operate beyond Year 2000
constraints. As of October 31, 1997, the Company generated 84 proposals
for customers regarding audits or retrofits of current software systems to
address Year 2000 concerns.
Customer Services is also responsible for the Company's warranty
support services. The Company maintains a service hotline specifically
for warranty and other issues that is staffed around-the-clock by Company
employees.
While the Company provides aftermarket services on products
manufactured by other vendors, its share of the market for those products
is relatively small. The Company estimates that it provides only a small
percentage of all aftermarket services related to products and systems of
outside vendors while providing a large percentage of aftermarket services
related to products and services of the Company.
Logistics and Software Systems
Through Logistics and Software Systems, the Company provides WMS
software products that allow customers to manage the planning, scheduling,
tracking and related logistics of the manufacturing and warehousing
process. Logistics and Software Systems has approximately 107 employees,
approximately 70 of whom are software engineers (as of October 31, 1997).
The Company's two main logistics software products are the Stockmaster
Warehouse Management System (which consists of two product offerings,
Stockmaster Open and Stockmaster 2000) and a pallet and shipment container
configuration software product known as LoadBuilder. The Company believes
it is one of the leading WMS software providers in North America. The
Company also customizes logistics software to provide specific software
applications for its customers.
Stockmaster 2000, introduced in early fiscal 1997, is a client/server
WMS application that provides full warehouse management functionality from
the moment a facility receives materials through the time the facility
ships the product, including receiving, putaway, quality control, lot
control, cycle counting, replenishment, picking, supervisory functions and
full radio frequency capability. Stockmaster 2000 is a Windows NT or NT/
UNIX application that utilizes a graphical user interface, providing a
recognizable user interface for those familiar with other Windows-based
software products. Stockmaster 2000 provides inventory control by
utilizing electronic data interchange through portable radio frequency
terminals and hand-held terminals mounted on conventional fork trucks or
order-picking vehicles to identify, track and verify material loads at
every stage of handling. Employees operating these terminals receive
instructions concerning location, destination, packaging and other
requirements for handling individual inventory units. Once an employee
carries out these instructions, the employee notifies the system of task
completion, and the system immediately relays new instructions to the
terminals to most efficiently execute the next task based on the relative
location of the employees and the particular products involved. Bar code
verification and real-time inventory tracking provide up-to-the-minute
pictures of available, committed, picked and shipped inventory.
Stockmaster 2000 is designed to operate under Oracle, with support for
Microsoft SQL Server and Sybase. The Company released version 4.0 of
Stockmaster 2000 in October 1997, which includes Task Management/TM/, Yard
and Dock Management/TM/, and application program interfaces to the Oracle
ERP/TM/ system. Stockmaster 2000 generally provides the Company with
between $1 million and $2 million in revenue per installed system.
Stockmaster Open, introduced in 1989, is a WMS software system
compatible with almost any relational database currently in use within the
industry. Like Stockmaster 2000, Stockmaster Open utilizes portable radio
frequency terminals and bar code technology to direct operators and
maintain transaction records. Stockmaster Open operates in a UNIX
environment, is easily customized, revised and upgraded, and provides
customers with the flexibility to address warehouse and distribution needs
with an affordable initial investment. Unlike Stockmaster 2000,
Stockmaster Open utilizes a character-based user interface. The Company
anticipates that Stockmaster 2000 will become the Company's primary WMS
software system product in the near future.
LoadBuilder, a product the Company acquired in the Western Atlas
Acquisition, is a stand-alone transportation management software system
that assists customers in deployment planning and transportation
management by determining efficient ways to palletize, stack and arrange
products to maximize available transportation space. LoadBuilder is a PC-
based Windows application that utilizes a graphical user interface. It
was introduced in 1994, and is installed at approximately 500 customer
sites.
Logistics and Software Systems contributed $17.5 million, $13.1 million
and $15.4 million to the Company's total revenues in fiscal 1997, 1996 and
1995, respectively. The unit generated software revenue through license
fees, installation, modification, maintenance and software support
agreements.
To leverage its software to address a wider spectrum of SCM functions,
the Company has begun forming alliances with other software vendors. In
1996, the Company became part of the Oracle Cooperative Applications
Initiative program that focuses on pre-integrating software with Oracle
applications. Additionally, in 1997 the Company entered into a letter of
intent with InterTrans Logistics Solutions to form a joint marketing
alliance. The Company intends to pursue additional alliances with
enterprise resource planning and transportation planning vendors to widen
the appeal of its SCM software products.
Customers
The Company's industry leadership has resulted in sales to a diverse
industry and customer base that includes many of the largest corporations
in the United States. To illustrate the variety of industries that the
Company serves, the following table sets forth a list of selected
customers of the Company by industry group that have done business with
two or more of the Company's business units over the last five years:
AEROSPACE FOOD/BEVERAGE/TOBACCO (continued)
Boeing Coca-Cola Enterprises
Northrup Grumman Dannon Yogurt
AUTOMOTIVE/CAPITAL GOODS Frito-Lay
Robert Bosch Mrs. Smith's Bakeries
Caterpillar Ocean Spray
Chrysler PepsiCo
Ford Philip Morris
General Electric Ralston Purina
General Motors RJR Nabisco
CHEMICAL/PETROLEUM Seagram Co.
Dow Chemical PAPER/PACKAGING
Mobil Chemical Appleton Papers
Mobil Oil Ball Foster Glass
Shell Oil Consolidated Papers
Texaco Kimberly-Clark
CONSUMER PRODUCTS Mead Paper
Eastman Kodak Western States Envelope
Estee Lauder PHARMACEUTICALS
Gillette Abbott Labs
Procter & Gamble Medco
Revlon Novartis
DISTRIBUTION/RETAIL PRIMARY METAL
Canadian Tire Alcoa
Dillards Department Stores Alumax
W.W. Grainger Kaiser Aluminum
The Limited O'Neal Steel
J.C. Penney PUBLISHING/PRINTING
ELECTRONICS/COMMUNICATIONS R.R. Donnelley
AT&T The New York Times
Hewlett-Packard The Washington Post
IBM TEXTILES
Lucent Technologies Collins & Aikman
Motorola Mt. Vernon Mills
Rockwell International Russell Corporation
Sony Sara Lee Knit Products
U.S. West TRANSPORTATION
FOOD/BEVERAGE/TOBACCO American Airlines
Anheuser-Busch Delta Airlines
Brown & Williamson GATX
The Coca-Cola Company United Airlines
For fiscal 1997 and fiscal 1996, two customers together accounted for
23% and 24% of the Company's total revenues, respectively, related to
seven contracts in fiscal 1997 and five contracts in fiscal 1996. One
customer accounted for approximately 13% and 15% of the Company's total
revenues in fiscal 1997 and fiscal 1996, respectively. For the same
periods, the Company's largest ten customers accounted for 42% and 53% of
the Company's total revenues, respectively.
Sales and Distribution
The Company sells automated material handling systems services and
products through separate sales forces in each of its three business
units.
The Integrated Systems sales force utilizes different sales channels
depending on the size of a particular project and the automated material
handling systems components required. The Company has implemented a
distributor program designed to partner the Company with skilled material
handling distributors throughout North America for the sale of smaller
automated material handling systems which consist of mainly conveyors and
sortation equipment (typically through non-exclusive arrangements with the
various participating distributors). Distributors provide the Company
with leads for additional sales opportunities, and also provide customers
with services including project concepting, layout and design,
installation, warranty and aftermarket services. Automated material
handling systems comprised of mainly conveyors and sortation equipment are
also sold directly by the Company through three regional field offices in
Bridgewater, New Jersey; Naperville, Illinois; and Atlanta, Georgia.
These sales offices are also responsible for the sale of
palletizer/depalletizer equipment on an independent basis. Larger, more
complex automated material handling systems and systems integration
solutions, typically over $3 million in value and consisting of more
sophisticated and complex integration requirements, are sold direct by the
Integrated Systems sales force located throughout North America.
The Company competes for systems integration solutions projects on
either a competitive bidding or a Strategic Customer Partnership basis.
Competitive bidding involves the Company bidding to manufacture and
install automated material handling systems designed by outside parties.
A substantial amount of the Company's projects with first-time customers
are awarded through the competitive bid process, with repeat customers'
projects often conducted on a Strategic Customer Partnership basis. In
fiscal 1997, competitive bid projects represented only approximately 22%
of the Company's automated material handling systems integration solutions
projects. Strategic Customer Partnerships account for the remaining 78%.
See "Business--Services and Products--Integrated Systems."
The Integrated Systems sales force generates over 60% of the Company's
automated material handling systems and systems integration solutions
business from repeat customers and referrals from current or past
customers, demonstrating a high level of customer satisfaction. The
Company obtains other business by virtue of its strong reputation in the
industry and through referrals from consultants retained by businesses to
design automated material handling systems solutions which then refer
those businesses to the Company for implementation of the designed
solutions. The Company also benefits from arrangements with a number of
outside vendors which are incentivized to provide the Company with sales
leads. The Integrated Systems sales force targets certain businesses and
industries through proactive selling efforts, including presentations and
consultations with those potential customers. The Company participates in
material handling trade shows, as well as trade shows and users'
conferences related to specific industries, for purposes of marketing and
business generation.
The Integrated Systems sales force evaluates potential projects using a
"proposal team" approach. Proposal teams are headed by Business
Development Managers ("BDMs") who are allocated customer projects based on
the particular customer's industry, the BDMs' past account experience and,
to a lesser extent, by geographical considerations. Proposal teams
generally include account managers and engineering support personnel with
expertise in the specific requirements of each potential project. The
members of the proposal teams work together to prepare cost estimates for
entering into the bidding process or competing for the design of potential
projects that the Company proposes to undertake. Integrated Systems
employs over 20 BDMs (as of October 31, 1997) throughout North America.
Customer Services employs eight regional BDMs (as of October 31, 1997)
with specific geographic and major account responsibility. They are
charged with maintaining consistent contact with Company customers to
assess their needs for aftermarket services and actively seeking business
from companies with automated material handling systems components not
designed or installed by the Company. These BDMs lead proposal teams
which include account managers and technical support personnel to evaluate
potential long-term customer support relationships. Customer Services
actively promotes the Company's aftermarket services at various trade
shows and user conferences across the country, including the customer user
conference the Company sponsors every September during which over 300
customers attend seminars and listen to industry experts address current
issues in the material handling and SCM industries. Customer Services
generates over 70% of its business from service and modernizations of
equipment installed by the Company, and also generates business leads
through industry contacts and competitive bidding. Additionally, Customer
Services is responsible for selling and implementing smaller (less than $3
million) material handling systems.
Logistics and Software Systems generates business from several major
sources including (i) referrals from outside consultants hired by
businesses to evaluate re-engineering issues; (ii) referrals from
automated material handling systems market analysts, which are often
consulted by businesses with material handling questions and needs; (iii)
referrals from radio frequency equipment vendors, enterprise resource
planning vendors and other supply chain management vendors, which employ
WMS software products in the systems they sell; (iv) the sales efforts of
various "Value Added Resellers" ("VARs") working jointly with the Company
to promote and sell the Company's WMS software offerings, including a
worldwide VAR relationship with Motorola (whereby Motorola promotes the
sale and use of Company WMS software products to its own locations
worldwide and to its over 800 suppliers worldwide) and ten VAR
relationships worldwide for the sale of the Company's Loadbuilder software
product; and (v) the Company's participation in strategic alliances with
other software vendors, including its participation in the Cooperative
Applications Initiative of Oracle, which focuses on pre-integrating
software with Oracle applications and utilizes the Oracle sales force to
generate new WMS software business for the Company. Additionally, the
Logistics and Software Systems sales force advertises in trade periodicals
and attends trade shows and user conferences in the software and supply
chain industries.
Logistics and Software Systems employees include five BDMs and various
account managers to coordinate sales of logistics and software systems (as
of October 31, 1997). The BDMs cover regional territories throughout the
United States and Canada. BDMs, account managers and support personnel
comprise the unit's proposal teams, which examine the needs of various
proposed projects and evaluate those potential opportunities.
An important component of the Company's future sales and marketing
efforts includes continued expansion into various international markets.
Currently, the Company's international sales efforts are concentrated in
the Pacific Rim, where it sells approximately 30-50 automated machines
annually. The Company believes European and South American automated
material handling systems markets will undergo expansion similar to that
seen in North America. The Company recently entered into a strategic
alliance with a Brazilian manufacturer and integrator of automated
material handling systems to undertake a joint sales effort in that
country. The Company has a right of first refusal to include its products
in any automated material handling system sale and/or integration project
undertaken by the alliance in Brazil. The Company has also entered into
non-exclusive sales representative and/or distributor agreements to cover
many countries in Central and South America.
Employees
As of October 31, 1997, the Company had approximately 1,150 employees,
consisting of approximately 144 employees in the areas of concept and
planning (including consulting and simulation engineers, account managers
and network development personnel); 534 employees in project
implementation (including control, software and systems engineers, project
managers and project analysts); 396 in manufacturing (including product
engineers and hourly plant employees); and 76 in administration and
marketing (including BDMs, management personnel and assistants). As of
October 31, 1997, the number of the Company's employees with engineering
backgrounds by specialty and business unit were as indicated in the
following table:
Logistics
Integrated Customer and Software
Engineer Categories Systems Services Systems
Software . . . . . . . . . 51 67 98
Electrical . . . . . . . . 92 56 4
Mechanical . . . . . . . . 84 15 0
Systems . . . . . . . . . . 24 1 7
------ ------- ------
Total 251 139 109
The Company is not subject to any collective bargaining agreements with
respect to any of its employees, has not experienced any work stoppages
related to labor matters and considers its employee relations to be
excellent.
The Company believes high levels of employee support, participation and
satisfaction significantly contribute to the Company's business success.
To further this belief, and to maintain a working environment that
encourages professional and technical development, advancement and equal
opportunity for all employees, the Company provides an employee benefits
package that includes, among other benefits, an incentive program to
encourage prompt recognition of superior customer service, exercise
facilities, a tuition reimbursement program and programs that encourage
community and charitable involvement. The Company believes its
organization-wide employee turnover rates are low by industry standards.
Additionally, Company employees have an average tenure of approximately 16
years of employment with the Company and its predecessors.
Research and Development
The Company has demonstrated a commitment to continuous research and
development and is dedicated to current and future research and
development projects relating to its automated material handling equipment
and software products. The Company maintains a research and demonstration
facility, that provides it with the ability to test, adjust and
demonstrate systems prior to sale and installation, affording it the
opportunity to ensure high quality products and seek innovative
technological advances at lower cost than those competitors without
similar resources, as well as helping customers avoid downtime that occurs
after installation. The Company also conducts research and development at
each of its engineering and manufacturing facilities.
In fiscal 1997, 1996 and 1995, the Company incurred research and
development expenses of $5.0 million, $2.0 million and $1.3 million,
respectively. Based on the Company's growth in the logistics and software
systems market and its current commitment to research and development, the
Company intends to spend $5 million on research and development in fiscal
1998.
Competition
The Company primarily competes in the North American markets for
automated material handling systems solutions, and the related customer
service and aftermarket, and SCM software. The Company believes the
automated material handling systems and SCM markets are currently
undergoing an industry-wide consolidation which the Company anticipates
will continue.
Although the Company believes it is one of the leading suppliers of
automated material handling systems integration solutions, this market is
competitive, and certain of Integrated Systems' competitors are large and
have significant financial, marketing and technical resources. The
Company believes its primary competitors in this market include
Daifuku/Eskay, Hytrol, Mannesmann Dematic Rapistan, Munck, Pinnacle
Automation, Jervis B. Webb and several consulting firms specializing in
automated material handling systems integration services. The Company
believes the primary competitive factors in this market are price,
performance, functionality, customer service and support, reputation and
financial strength. To some extent, the Company also competes in this
market with small- to medium-sized suppliers who do not offer systems or
integration solutions but instead focus on market niches or singular
applications.
The customer service market is highly fragmented and competitive with
regard to services of a low degree of sophistication but with fewer
competitors at higher levels of sophistication. In this market, Customer
Services competes principally with the original provider of a potential
customer's material handling equipment and with in-house maintenance
departments. Local control engineering houses and others have competed
against the Company for projects that do not require extensive prior
experience and accomplishments as a prerequisite for bidding. Although
these firms may have certain advantages due to their relationship with the
customer and familiarity with its facility, they are less likely to have
the know-how or the resources to present a more competitive bid than the
Company. The Company believes the primary competitive factors in this
market are reputation and, to a lesser extent, price.
Logistics and Software Systems usually competes for WMS projects with
contract values greater than $400,000, with approximately 20 other
companies that compete for similar WMS projects. The Company believes
approximately two-thirds of the WMS market involves projects in excess of
$400,000. Although there are over 100 companies that claim to have WMS
capabilities in the United States, the Company's primary competitors in
the logistics and software systems market are BDM International, Catalyst,
EXE Technologies, McHugh Software and in-house MIS departments. The
Company believes the primary competitive factors in this market are
performance and functionality; price; a vendor's ability to implement
software promptly and effectively; reputation; and a provider's alliances
with major accounting firms and other consultants.
Intellectual Property and Other Proprietary Rights
The Company currently maintains both United States and foreign patents
and pending patent applications for technology utilized in its business.
Except for patents and patent applications relating to AGVS wireless
control technology, the Company does not believe any one of its patent
rights is material to the Company's business. The Company also relies on
a combination of trade secret, copyright and trademark laws, nondisclosure
agreements and other contractual provisions and technical measures to
protect its proprietary rights. There can be no assurance that these
patent rights and other protections will be adequate or that the Company's
competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.
Existing trade secret and copyright laws afford only limited protection.
The Company is not aware that any of its material intellectual property
infringes the proprietary rights of third parties, but has not performed
any independent investigations to determine whether any such infringement
exists. There can be no assurance, therefore, that third parties will not
claim infringement by the Company with respect to current or future
products. Any intellectual property infringement claims, with or without
merit, could be time-consuming, result in costly litigation, divert
management resources, cause product shipment delays, require the Company
to enter into royalty or licensing agreements or may require the Company
to withdraw products from the market. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, which could have a material adverse effect on the Company's
business, operating results or financial condition.
The Company currently utilizes trademarks to identify its products and
services and maintains federal trademark registration and pending
trademark applications in the United States and certain foreign countries,
including United States federal registrations for its marks HK SYSTEMS,
STOCKMASTER and VON GAL. The Company generally attempts to federally
register a trademark relating to a product's or a technology's name only
when the Company intends to actively promote the product or technology.
Other than the marks HK SYSTEMS, STOCKMASTER and VON GAL, the Company does
not believe any trademark is material to its business.
Facilities
The Company operates its primary office in Milwaukee, Wisconsin and
conducts its principal manufacturing, engineering and distribution
operations at the following facilities:
<TABLE>
<CAPTION>
Square Owned/ Term
Location Utilization Footage Leased Expires
<S> <C> <C> <C> <C>
Milwaukee, WI Headquarters (Integrated Systems, 85,000 Leased 10-31-11
Customer Services and Logistics and
Software Systems)
Salt Lake City, UT Principal office (Integrated 61,829 Leased 02-28-05
Systems and Customer Services)
Hebron, KY Principal office (Integrated 19,773 Leased 04-30-98
Systems)
Hebron, KY Manufacturing-sortation and 157,144 Leased 10-31-16
conveyors
Montgomery, AL Manufacturing-palletizer systems 113,753 Owned
Bountiful, UT Manufacturing-AS/RS and AGVS 76,061 Owned
Glendale, WI Research and demonstration center 25,600 Leased 12-31-98
San Diego, CA Principal office (Logistics and 13,865 Leased 03-31-98
Software Systems)
</TABLE>
The research and demonstration center houses a complete integrated
system including a Unitload AS/RS, Miniload AS/RS, Microload AS/RS, AGVS
and AEMS, all under computer control. The center provides an environment
for experimentation, customer demonstration and prototyping client
configurations.
Integrated Systems maintains sales offices in Naperville, Illinois;
Atlanta, Georgia; and Livermore, California to coordinate sales and
marketing of unit services and products.
Customer Services staffs offices in cities nationwide to provide on-
call as well as full-time manpower to support mission critical systems.
Full-time field service and factory technician teams provide fast and
professional service nationwide.
To best serve its markets, the Company leases a number of sales and
engineering offices nationwide, strategic to the industries and locales
that they service.
Environmental and Other Governmental Regulations
The Company's operations are subject to a variety of federal, state and
local environmental laws and regulations that have become increasingly
stringent. The Company believes its current operations are in material
compliance with current environmental laws and regulations. However, the
scope of environmental laws is very broad and is subject to change.
Legal Proceedings
On July 1, 1992, Eaton-Kenway entered into the Fed Contract with the
Federal Reserve Bank of San Francisco relating to the installation of a
material handling system. On February 13, 1995, the Company assumed the
Fed Contract in the Eaton-Kenway Acquisition. On April 7, 1995, the SF
Fed filed the Fed Suit in the United States District Court for the
Northern District of California against the Company, Eaton-Kenway and
Eaton alleging, among other things, a failure to install a properly
operating material handling system for two existing SF Fed bank vaults in
breach of the Fed Contract. The SF Fed purports to seek not less than
$3.55 million as restitution for the consideration it paid under the Fed
Contract, not less than $6.4 million for incidental and consequential
damages and not less than $46.7 million to cover the costs of constructing
two new bank vaults. In 1995, the court granted partial summary judgment
on the issue of liability in favor of the SF Fed and against the Company
and the other defendants on two counts of the SF Fed's complaint for
breach of contract and rescission and restitution. Although this order is
subject to appeal after the entry of final judgment in the action, there
can be no assurance that any such appeal would be successful. It is
anticipated that a jury trial on the damage issues on the contract claim
against the Company and Eaton-Kenway, if not all the remaining claims
against all the parties, will be scheduled in 1998. The Company believes
it has meritorious defenses and rights in connection with the Fed Suit.
Nonetheless, due to the uncertainties inherent in litigation, particularly
where the verdict results from jury deliberations, the Fed Suit could have
a material adverse effect on the Company's business, results of operations
and financial condition.
On April 3, 1996, the Company filed a lawsuit in the United States
District Court for the Eastern District of Wisconsin against Mannesmann
Dematic Rapistan Corp. ("Rapistan") alleging infringement by Rapistan of
two patents held by the Company for certain of its AGVS technology. The
Company seeks to enjoin Rapistan's activity and is seeking unspecified
damages. Rapistan filed an answer to the charge of infringement alleging
the general defenses of invalidity of the patents, as well as non-
infringement. Rapistan also filed counterclaims asserting that the
Company wrongfully characterized Rapistan's products as infringing the
Company's patents and alleging breach of a confidentiality agreement in
place between the parties.
MANAGEMENT
Executive Officers and Directors
The following table contains the name, age and position with the
Company of each executive officer and director as of October 31, 1997.
Each person's respective background is described following the table.
NAME AGE POSITION
John W. Splude . . . . 52 Chairman, President
and Chief Executive Officer
and Director (1)
Glen P. Davis . . . . . 52 Executive Vice President-
Integration Services and
Director (2)
David W. Bartley . . . 39 Senior Vice President-
Integrated Systems
Larry S. Cinpinski . . 40 Senior Vice President-Logistics
and Software Systems
John C. Hines . . . . . 39 Senior Vice President-
Administration and Chief
Financial Officer
Woody M. McGee . . . . 46 Senior Vice President-Unit
Handling Systems
Stephen S. Sadowski . . 52 Senior Vice President-Customer
Services
John R. Kuhnmuench, Jr. 52 Vice President, Secretary and
General Counsel
John T. Byrnes . . . . 51 Director (2)
David M. Upton. . . . . 37 Director (3)
Jose J. Yglesias . . . 68 Director (1)
______________________
(1) Term expires in 1998.
(2) Term expires in 2000.
(3) Term expires in 1999.
Mr. Splude has served as President and Chief Executive Officer of the
Company since November 1993 and was elected Chairman of the Board of
Directors in September 1997. Prior thereto, he served as President of HEI
from November 1987 to November 1993. Mr. Splude has also served as Vice
President of Harnischfeger's Industrial Technology Group, Vice President
and Treasurer of Harnischfeger, and President of Harnischfeger Credit
Corporation. Mr. Splude has been a director of the Company since 1993.
Mr. Splude is also a director of Gehl Company.
Mr. Davis has served as Executive Vice President-Integration Services
of the Company since November 1996. Prior thereto, he served as Senior
Vice President of the Company from November 1993 to November 1996, and as
Vice President of Sales and Marketing of HEI from 1987 to November 1993.
Mr. Davis has been a director of the Company since 1993.
Mr. Bartley has served as Senior Vice President-Integrated Systems of
the Company since November 1996. Prior thereto, Mr. Bartley served as the
Company's Vice President-Operations, Vice President-Stockmaster, and
Director-Commercial Systems, from September 1994 to November 1996, August
1993 to April 1995, and October 1991 to August 1993, respectively. In
addition, Mr. Bartley held various other management positions with HEI
since 1980.
Mr. Cinpinski has served as Senior Vice President-Logistics and
Software Systems since November 1996 and Vice President of Operations-
Logistics and Software Systems from August 1996 to November 1996. Prior
thereto, he served in various information systems and information
technology management positions with Miller Brewing Company from August
1991 to August 1996.
Mr. Hines has served as Senior Vice President-Administration, Chief
Financial Officer and Treasurer of the Company since October 1993. Prior
thereto, he served as Vice President and Controller of the Company from
May 1992 to October 1993, and as Vice President and Controller of HEI from
1987 to May 1992. Mr. Hines has also held accounting positions for
Rexnord Corporation and the Square D Company.
Mr. McGee has served as Senior Vice President-Unit Handling Systems of
the Company since March 1997. Prior thereto, he served as Vice President,
Chief Financial Officer and Treasurer of Mosler Safe, an electronic
security company, from October 1996 to March 1997. Mr. McGee also served
in various executive positions with Western Atlas and its predecessor
Litton Industries from 1969 to September 1996.
Mr. Sadowski has served as Senior Vice President-Customer Services
since February 1995. Prior thereto, he served as the Company's Vice
President-Aftermarket System Services from August 1993 to February 1995
and as Director and General Manager of the Modernizations Department of
the Company from May 1992 to August 1993.
Mr. Kuhnmuench has served as Vice President, Secretary and General
Counsel of the Company since May 1994. Prior thereto, he served as Deputy
General Counsel and Assistant Secretary for A.O. Smith Corporation from
May 1985 to May 1994.
Mr. Byrnes has served as a Director of the Company since November 1993.
He has served as Senior Vice President of Marshall & Ilsley Corporation, a
bank holding company ("M&I Corporation"), since 1994; President of M&I
Capital Markets Group ("M&I Capital"), the merchant banking arm of the M&I
Corporation, since 1992; and President of M&I Ventures Corporation, a
subsidiary of M&I Capital ("MIVC"), since 1992. M&I Capital is an
affiliate of the Company by virtue of MIVC's ownership of Class B
Preferred Stock and common stock of the Company.
Mr. Upton has served as a director of the Company since September 1996.
Mr. Upton has been a Professor of Information Technologies at Harvard
University since June 1997. He served as an Associate Professor at
Harvard University from August 1994 to June 1997. Prior thereto, he
served as Assistant Professor at Harvard University from August 1989 to
August 1994.
Mr. Yglesias has served as a director of the Company since 1993. Mr.
Yglesias was a founder of Syscon Corporation, a software systems
integrator ("Syscon"), which Harnischfeger acquired in 1987. He retired
as Chairman of Syscon and Senior Vice President of the Systems Group of
Harnischfeger, which included Syscon and HEI, in 1992.
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide for three classes of directors, with staggered terms expiring at
each successive annual meeting of the shareholders. Pursuant to the
Amended and Restated Articles of Incorporation, the Board of Directors has
determined that the Company will have five directors, two in the class
whose term will expire in 1998, one in the class whose term will expire in
1999 and two in the class whose term will expire in 2000.
Director Compensation
Prior to the Offering, the directors who were not employees (other than
Mr. Byrnes) of the Company were paid an annual retainer fee of $4,000 per
year and a fee of $1,000 for attending each regular meeting of the Board
of Directors and reimbursement for out-of-pocket expenses. Messrs. Upton
and Yglesias have also each received grants of options under the 1993 Plan
to purchase an aggregate of 10,000 shares of Common Stock. In addition,
MIVC received an annual director fee of $50,000 per year, which it will
not receive after the Offering. Effective upon the consummation of the
Offering and pursuant to the Directors Plan, directors who are not
employees of the Company, a 5% or greater shareholder of the Company or
either of the Company's original investors will be paid an annual retainer
fee of $10,000, which will be payable in Common Stock commencing at the
1998 annual meeting of the Company's shareholders; a fee of $1,000 for
attending each meeting of the Board of Directors; and a fee of $500 for
attending each committee meeting, in addition to reimbursement of out-of-
pocket expenses. Pursuant to the Directors Plan, a director may elect to
have his fees paid in Common Stock. Other directors will not be
compensated for service as members of either the Board of Directors or
committees thereof after the Offering, but will be reimbursed for out-of-
pocket expenses.
Board Committees
The Board of Directors has established an Audit Committee and a
Compensation Committee, each consisting of two or more directors, the
majority of whom will be outside directors.
The duties of the Audit Committee will be to select and engage
independent public accountants to audit annually the books and records of
the Company, to review the activities and the reports of the independent
public accountants and authorize appropriate action. The Audit Committee
will also approve any other services to be performed by and approve the
audit fee and other fees payable to the independent public accountants and
monitor the internal accounting controls of the Company.
The duties of the Compensation Committee will be to provide a general
review of the Company's compensation and benefit plans to ensure that they
meet the Company's objectives. The Compensation Committee will have the
sole authority to administer the 1997 Option Plan and the Directors Plan
described below and to grant awards thereunder. In addition, the
Compensation Committee will consider and establish the compensation of all
officers of the Company and adopt major Company compensation policies and
practices. In addition, the Compensation Committee will consider and make
recommendations to the Board of Directors regarding the selection and
retention of all elected officers of the Company and its subsidiaries.
Executive Compensation
The following table sets forth information concerning the compensation
paid by the Company to the Company's Chief Executive Officer and each of
the Company's five other most highly compensated executive officers
(collectively, the "Named Executive Officers") for the fiscal year ended
October 31, 1997.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation
All Other
Name and Principal Position Salary Bonus Compensation(1)
<S> <C> <C> <C>
John W. Splude
Chairman, President and Chief
Executive Officer $350,000 $191,800 3,750
Glen P. Davis
Executive Vice President - Integration
Services 250,000 137,000 3,750
John C. Hines
Senior Vice President - Administration
and Chief Financial Officer 175,000 95,900 3,750
David W. Bartley
Senior Vice President -
Integrated Systems 140,000 74,310 3,750
Stephen S. Sadowski
Senior Vice President -
Customer Services 150,000 57,300 3,750
Larry S. Cinpinski
Senior Vice President -
Logistics and Software Systems 150,000 57,300 3,750
(1) Amounts set forth represent the Company's matching contributions under its 401(k) plan.
</TABLE>
<TABLE>
The following table sets forth the aggregate value of unexercised
options at October 31, 1997 held by each of the Named Executive Officers.
No such options were exercisable at October 31, 1997. No Named Executive
Officer exercised any options during fiscal 1997.
<CAPTION>
1997 Fiscal Year-End Option Values
Dollar value of
unexercised
in-the-money
Number of shares options at
underlying unexercised October 31, 1997
Name options at October 31, 1997 (1)
<S> <C> <C>
John W. Splude 0 --
Glen P. Davis 0 --
John C. Hines 0 --
David W. Bartley 72,000 $[ ]
Stephen S. Sadowski 72,000 $[ ]
Larry S. Cinpinski 28,000 $[ ]
________________
(1) Determined by subtracting the option exercise price per share of
Common Stock from an assumed initial public offering price per share
of $_________ and multiplying by the number of shares subject to
purchase upon option exercise.
</TABLE>
Stock Option Plan
The 1993 Plan has been administered by the Board of Directors in the
past, but upon the consummation of the Offering, the 1993 Plan will be
administered by the Compensation Committee. Employees and non-employee
members of the Board of Directors are eligible to receive options under
the 1993 Plan.
The 1993 Plan authorizes the granting of (i) incentive stock options
and (ii) nonstatutory stock options. Up to a maximum of 1,148,733 shares
of Common Stock (subject to adjustment as provided in the 1993 Plan) may
be issued under the 1993 Plan. Such shares may consist of treasury shares
or authorized but unissued shares. Shares subject to an option that
expires or terminates may again be the subject of an option under the 1993
Plan.
The Compensation Committee shall have the sole authority (subject to
the provisions of the 1993 Plan) to determine (i) the purchase price of
shares of Common Stock covered by each option; (ii) the number of shares
of Common Stock to be subject to each option; (iii) the employees and
other persons to whom and the time or times at which options shall be
granted; (iv) the limitations and conditions to be imposed on any option
granted under the 1993 Plan; (v) the rules and procedures pertaining to
the 1993 Plan; (vi) the terms and provisions of option agreements under
the 1993 Plan; (vii) any modifications, extensions or renewals of option
agreements under the 1993 Plan; and (viii) all other matters necessary for
administration of the 1993 Plan.
Options granted under the 1993 Plan may not be exercised earlier than
six months following the date of grant. The Board of Directors may
require that a holder be employed by the Company for a designated period
of time prior to exercise of any option granted under the 1993 Plan and
may otherwise determine the periods during which options may be exercised,
subject to the terms of the 1993 Plan. In general, an option that has
vested terminates three months after termination of employment. Options
granted under the 1993 Plan are not transferable (except upon death) and
are exercisable only by the holder or by the holder's guardian or legal
representative during the lifetime of the holder.
The exercise price for options granted under the 1993 Plan is payable
in cash or shares of Common Stock as determined by the Compensation
Committee. Such price must be paid in full at the time of exercise. As
of October 31, 1997, there were options to purchase 1,063,800 shares of
Common Stock outstanding under the 1993 Plan at a weighted average
exercise price of approximately $2.23 per share all of which become
exercisable upon the consummation of the Offering.
The aggregate fair market value of shares of Common Stock with respect
to which incentive stock options are exercisable for the first time during
any calendar year under the 1993 Plan shall not exceed $100,000 per
employee. The per share purchase price shall be determined by the Board
of Directors but shall not be less than 100% of the fair market value of
Common Stock on the date of grant, as determined by the Board of Directors
pursuant to the terms of the 1993 Plan. No incentive stock option may be
granted after 10 years from the effective date of the 1993 Plan or be
exercisable after the expiration of 10 years from the date of grant. Any
incentive stock option that has not been exercised within 10 years of the
date of its grant shall expire at the expiration of such 10 year period.
The per share exercise price of nonstatutory stock options granted
under the 1993 Plan shall not be less than 85% of the fair market value of
Common Stock on the date of grant, as determined by the Board of Directors
pursuant to the terms of the 1993 Plan.
Employment Agreements
John W. Splude, Glen P. Davis and John C. Hines each entered into an
Employment and Noncompetition Agreement (collectively, the "Employment
Agreements") with the Company dated as of October 28, 1993 and amended as
of October 31, 1996. Under the terms of their respective agreements,
Messrs. Splude, Davis and Hines are entitled to a minimum annual base
salary below their current salary levels plus other bonuses, the amounts
and payment of which are within the discretion of the Compensation
Committee. The Employment Agreements may be terminated by the Company or
by the executive officer's resignation at anytime and for any reason. The
Employment Agreements also provide that if any one of Messrs. Splude,
Davis or Hines is terminated by the Company without cause or if any of
them terminates their respective Employment Agreement for good reason or
as a result of his disability, he will receive his average compensation
for a period of two years, in the case of Mr. Splude, or for a period of
one year, in the case of Messrs. Davis or Hines. The Employment
Agreements generally provide that Mr. Splude and Messrs. Davis and Hines
will not, for the term of their employment and for a period of two and one
year, respectively, following the end of their employment with the
Company, compete with the Company or disclose any confidential information
of the Company. Messrs. Splude and Hines' Employment Agreements provide
that they will not solicit any of the Company's employees or customers or
otherwise interfere with the relations of the Company for a period of one
year (five years if terminated for cause) after their termination. Mr.
Davis' Employment Agreement provides that he will not solicit any of the
Company's employees or customers or otherwise interfere with the relations
of the Company for a period of one year (three years if terminated for
cause) after termination. The Employment Agreements give Messrs. Splude,
Davis and Hines and the Company certain put and call rights that are
exercisable when they are no longer employed by the Company, which rights
will terminate upon the consummation of the Offering.
David W. Bartley, Stephen S. Sadowski and Larry S. Cinpinski each
entered into an Employment and Noncompetition Agreement (collectively, the
"Employment and Noncompetition Agreements") with the Company dated as of
July 1, 1997. Under the terms of their respective agreements, Messrs.
Bartley, Sadowski and Cinpinski are entitled to annual base salaries of
$140,000, $150,000 and $150,000 respectively, plus other bonuses, the
amounts and payment of which are within the discretion of the Compensation
Committee, and may be adjusted annually. The Employment and
Noncompetition Agreements may be terminated by the Company or by the
executive officer's resignation upon effective notice of termination at
anytime and for any reason. The Employment and Noncompetition Agreements
generally provide that Messrs. Bartley and Sadowski will not, for the term
of their employment and for a period of one year following the end of such
executive officer's employment with the Company, compete with the Company,
disclose any confidential information of the Company, solicit any of the
Company's employees or customers or otherwise interfere with the relations
of the Company.
CERTAIN TRANSACTIONS; RELATIONSHIPS WITH SELLING SHAREHOLDERS;
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation Committee
The Company's Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for key executives of
the Company. The Compensation Committee currently consists of Messrs.
Splude, Yglesias and Byrnes. Effective upon the consummation of the
Offering, the Compensation Committee will consist of Messrs. Yglesias and
Byrnes. Mr. Byrnes is the President of MIVC which beneficially owns
1,895,360 shares of Common Stock after giving effect to the
Recapitalization (but not to MIVC's sale of Common Stock in the Offering).
Shareholders Agreement
The Company entered into a Shareholders Agreement by and among the
Company, MIVC, State of Wisconsin Investment Board ("SWIB") and John W.
Splude, Glen P. Davis, Gordon W. Jones, and John C. Hines dated as of
October 28, 1993, as amended and restated on February 13, 1995 and as
amended October 31, 1996 and on January __, 1998 (the "Shareholders
Agreement"). The Shareholders Agreement provides for restrictions on the
transfer of Common Stock by the shareholders who are a party thereto and
it grants Management certain preemptive rights. The Shareholders
Agreements contains certain buy-sell provisions and other shareholder
matters. In addition, the Shareholders Agreement grants various board of
director composition entitlements to Management, MIVC and SWIB. This
Shareholders Agreement will be terminated upon the consummation of the
Offering.
Registration Rights Agreement
The Corporation entered into an Investment Agreement by and among the
Company, MIVC and SWIB dated as of October 28, 1993, as amended and
restated on February 13, 1995 and January __, 1998 (the "Investment
Agreement"). The Investment Agreement granted registration rights to
Management, MIVC and SWIB subject to certain restrictions. This
Investment Agreement will be terminated upon the consummation of the
Offering. The registration rights contained in the Investment Agreement
were amended and restated pursuant to a Registration Rights Agreement,
dated as of January __, 1998 by and among the Company, Management, MIVC
and SWIB, which will become effective upon the consummation of the
Offering. Subject to certain restrictions, MIVC and SWIB will have the
right to two demand registrations exercisable any time after the Offering
as long as their individual ownership of Common Stock exceeds 5% and the
right to limit the rights of other shareholders to participate in their
demand registrations and piggyback registration rights. The Company will
pay the expenses of MIVC and SWIB in connection with the Offering.
Certain Affiliate Transactions
Since the HEI Acquisition, the Company has paid MIVC, a holder of
Class B Preferred Stock, Class D Preferred Stock and Class C common stock
of the Company, for certain services. The Company paid MIVC $50,000 in
each of the 1994-97 fiscal years as an annual director fee. In connection
with the HEI Acquisition, the Company paid MIVC $550,000 for its
assistance in consummating the acquisition and securing related outside
debt commitments. In connection with the Eaton-Kenway Acquisition, the
Company paid SWIB, a holder of Class B Preferred Stock and Class D
Preferred Stock, $30,000 and paid MIVC $270,000 for financial advisory
services. In November 1996, the Company paid MIVC $225,000 for financial
advisory services in connection with the Western Atlas Acquisition.
ESOP Transactions
The ESOP Transactions consisted of the following: (i) effective
November 1, 1997, the Company adopted the ESOP, in which substantially all
employees of the Company participate; (ii) on December 15, 1997, the
Company repurchased 420,000 shares of common stock of the Company (the
"Treasury Stock") from a former employee to liquidate his interest after
the employee exercised contractual "put" rights; (iii) the Company
contributed 42,000 shares of Treasury Stock to the ESOP; (iv) the Company
borrowed $6.0 million from its bank lenders and loaned that amount to the
ESOP to enable the ESOP to purchase 236,707, 64,390 and 64,390 shares of
common stock of the Company, on January __, 1998, from Messrs. Splude,
Davis and Hines, respectively; and (v) on January __, 1998, the Company
borrowed from its bank lenders to pay accrued dividends on and redeem
shares of Class D Preferred Stock outstanding as of October 31, 1997 held
by SWIB and MIVC; SWIB received $3.3 million and MIVC received
$1.4 million.
Voting rights of the Common Stock acquired by the ESOP are exercised
by Marshall & Ilsley Trust Company ("M&I Trust") with respect to all
matters submitted to a vote of shareholders except for significant
transactions such as approvals of a merger, recapitalization, liquidation,
dissolution or sale of the Company's business. Voting on significant
transactions is passed through to and may be exercised by participants or
beneficiaries of the ESOP by direction to M&I Trust. If there is no
direction, the shares are voted by M&I Trust.
The Conversion; Dividends and Redemption
In connection with and immediately prior to the consummation of the
Offering, the Company will effect the Conversion. As a result of the
Conversion and the payment of accrued dividends on the Class B Preferred
Stock upon the consummation of the Offering, Common Stock will be the only
outstanding capital stock of the Company upon the consummation of the
Offering. Prior to the Conversion, the Company's outstanding capital
stock consists of (i) 5,600,000 shares of Class B Preferred Stock held by
SWIB and MIVC, which is convertible into Class B common stock of the
Company ("Class B Common") on a share for share basis; (ii) 2,422,000
shares of Class A common stock of the Company ("Class A Common") held by
the ESOP and Messrs. Splude, Davis and Hines; (iii) 215,360 shares of
Class C common stock of the Company ("Class C Common") held by MIVC; and
(iv) shares of Class D Preferred Stock held by SWIB and MIVC to the extent
of any dividends paid on Class B Preferred Stock relating to the period
after October 31, 1997. Directors, officers and employees of the Company
also have the right to acquire Class A Common shares pursuant to options
granted under the 1993 Plan. In connection with and immediately prior to
the consummation of the Offering, SWIB and MIVC will convert all of the
Company's Class B Preferred Stock into Class B Common. In addition, each
share of Class A Common, Class B Common and Class C Common will be
reclassified into one share of Common Stock, and options to acquire Class
A Common shares will become options to acquire an equal number of shares
of Common Stock. Following the ESOP Transactions, dividends will continue
to accrue on the Class B Preferred Stock for the period following October
31, 1997 at a rate of approximately $94,000 per month. Upon the
consummation of the Offering, the Company will use a portion of the
proceeds of the Offering to pay such dividends (through the payment of
cash dividends and/or by redeeming shares of Class D Preferred Stock
issued in lieu of paying cash dividends).
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock (a) as of January __, 1998, after
giving effect to the Conversion and (b) as adjusted to reflect the sale of
Common Stock offered hereby for (i) each of the Company's directors; (ii)
each of the Named Executive Officers; (iii) each person who is known by
the Company to own beneficially more than 5% of the Common Stock; (iv) all
directors and officers as a group; (v) all holders of options granted
under the 1993 Plan ("Optionholders") as a group; and (vi) all directors,
officers and Optionholders as a group. The calculation of percentage of
beneficial ownership for each individual party or group of parties assumes
the exercise of any options held by that party or group. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
Number of Shares Beneficially Shares Beneficially Owned
Owned Prior to Offering After Offering(1)
Shares
Being
Name Number Percent Offered(1) Number Percent
<S> <C> <C> <C> <C> <C>
John W. Splude 1,303,293 (2) 15.8% 0 1,303,293(2)
Glen P. Davis 355,610 (3) 4.3% 0 355,610(3)
John C. Hines 355,610 (4) 4.3% 0 355,610(4)
David W. Bartley 72,000 (5) * 0 72,000(5)
Stephen S. Sadowski 72,000 (5) * 0 72,000(5)
Larry S. Cinpinski 28,000 (5) * 0 28,000(5)
John T. Byrnes 1,895,360 (6) 23.0%
David M. Upton 10,000 (5) * 0 10,000(5)
Jose J. Yglesias 10,000 (5) * 0 10,000(5)
M&I Ventures Corporation
777 North Water Street
Milwaukee, WI 53202 1,895,360 (7) 23.0%(8)
State of Wisconsin
Investment Board
121 East Wilson St.
P.O. Box 7842
Madison, WI 53707-7842 3,920,000 47.6%(8)
HK Systems, Inc. Employee
Stock Ownership Plan(9) 407,487 5.0% 0 407,487
All Directors and Executive
Officers as a group (11
persons): 4,145,873 49.0% 0
All Optionholders as a
group 1,063,800 11.4% 1,063,800
All Directors, Executive
Officers and Optionholders
as a group 3,078,813(10) 33.1% 0(10) 3,078,813(10)
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment options to
purchase Common Stock from the Company and certain of the Selling
Shareholders. If the Underwriters' over-allotment options are
exercised in full, then upon completion of the Offering Mr. Splude,
Mr. Davis, Mr. Hines and SWIB would beneficially own _____ shares (or
_____%), ______ shares (or _____%), _____ shares (or ____%) and _____
shares (or ____%), respectively.
(2) Includes 640,000 shares held by the Splude Family Limited
Partnership. Mr. Splude is a general partner of the Splude Family
Limited Partnership and has shared voting and investment power over
such shares. The address for Mr. Splude is c/o HK Systems, Inc.,
2855 South James Drive, New Berlin, Wisconsin, 53005.
(3) Held by the Glen and Leslie Davis Family Limited Partnership. Mr.
Davis is a general partner of the Davis Family Limited Partnership
and has shared voting and investment power over such shares.
(4) Held by the Pamela and John C. Hines Family Limited Partnership. Mr.
Hines is a general partner of the Hines Family Limited Partnership
and has shared voting and investment power over such shares.
(5) Represents the right to acquire these shares upon the exercise of
stock options under the 1993 Plan that vest upon consummation of the
Offering.
(6) Mr. Byrnes is the President of MIVC, which holds 1,895,360 shares of
Common Stock. Mr. Byrnes disclaims beneficial ownership of such
shares. The address for Mr. Byrnes is c/o M&I Ventures Corporation,
777 North Water Street, Milwaukee, Wisconsin, 53202.
(7) MIVC is a wholly-owned subsidiary of M&I Capital which is the
merchant banking arm of M&I Corporation.
(8) If percentage of beneficial ownership was calculated as if all
outstanding options exercisable upon consummation of the Offering
were exercised prior to the Offering, then MIVC would beneficially
own 20.5% of shares and SWIB would own 42.3% of shares.
(9) The address of HK Systems, Inc. Employee Stock Ownership Trust is c/o
Marshall & Ilsley Trust Company, 777 North Water Street, Milwaukee,
Wisconsin, 53202. M&I Trust acts as trustee for the ESOP and has
sole voting power with respect to the ESOP shares except that
participants have the right to vote the shares that have been
allocated to them in a vote regarding a significant transaction.
(10) Excludes for purposes of this disclosure the Common Stock of MIVC
attributed to Mr. Byrnes as discussed above.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.01 par value
per share, and 10,000,000 shares of preferred stock, $.01 par value per
share. Upon consummation of the Offering, ___________ shares of Common
Stock and no shares of preferred stock will be issued and outstanding.
The following summary description of the Common Stock and preferred
stock is subject to, and qualified in its entirety by, the provisions of
the Amended and Restated Articles of Incorporation and By-laws which are
included as exhibits to the Registration Statement of which this
Prospectus is a part and by the provisions of applicable law. The Amended
and Restated Articles of Incorporation and By-laws will be effective upon
the consummation of the Offering.
Common Stock
After all cumulative dividends have been paid or declared and set apart
for payment on any shares of preferred stock that are outstanding, the
Common Stock is entitled to such dividends as may be declared from time to
time by the Board of Directors in accordance with applicable law. For
certain restrictions on the ability of the Company to declare dividends,
see "Dividend Policy."
Except as may be determined by the Board of Directors of the Company
with respect to any series of preferred stock, only the holders of Common
Stock shall be entitled to vote for the election of directors of the
Company and on all other matters. Upon any such vote the holders of
Common Stock will be entitled to one vote for each share of Common Stock
held by them subject to any applicable law. Cumulative voting is not
permitted.
All shares of Common Stock are entitled to participate equally in
distributions in liquidation, subject to the prior rights of any preferred
stock that may be outstanding. Except as the Board of Directors may in
its discretion otherwise determine, holders of Common Stock have no
preemptive rights to subscribe for or purchase shares of the Company.
There are no conversion rights or sinking fund or redemption provisions
applicable to the Common Stock. The Common Stock to be outstanding upon
completion of the Offering will be fully paid and nonassessable (subject
to Section 180.0622(2)(b) of the Wisconsin Business Corporation Law
("WBCL")).
The transfer agent for the Common Stock is ___________________________.
Preferred Stock
The Company's Amended and Restated Articles of Incorporation will
provide that the Board of Directors has the authority, without further
action by the shareholders, to issue up to 10,000,000 shares of preferred
stock in one or more series and to fix the designations, powers,
preferences, privileges, and relative participating, optional or special
rights and the qualifications, limitations or restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater
than the rights of the Common Stock. The Board of Directors, without
shareholder approval, can issue preferred stock with voting, conversion or
other rights that could adversely affect the voting power and other rights
of the holders of Common Stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally,
the issuance of preferred stock may have the effect of decreasing the
market price of the Common Stock, and may adversely affect the voting and
other rights of the holders of Common Stock. The Company has no present
plans to issue any shares of preferred stock.
Warrant
In connection with the Western Atlas Acquisition, the Company issued to
Western Atlas a warrant for the purchase of shares of Common Stock (the
"Warrant"). The Warrant may be exercised in whole or in part at any time
following the consummation of the Offering (the "Effective Date"). The
Warrant expires on the earlier to occur of (i) the exercise of all the
rights represented by the Warrant; (ii) the repurchase of the Warrant by
the Company; or (iii) November 15, 2003. The Warrant is exercisable to
acquire a number of shares of Common Stock (the "Warrant Shares Number")
to be determined by reference to the offering price per share of such
stock in the Offering. The Warrant Shares Number and the price per share
to be paid by the holder are subject to standard anti-dilution
adjustments. Assuming an initial public offering price of $______ per
share, the Warrant may be exercised by the holder following the Effective
Date for a total of approximately ______ shares of Common Stock at 115% of
the initial public offering price.
The Warrant also gives the holder certain rights (i) to participate in
a registration of Common Stock by the Company following the Effective Date
and (ii) until the earlier of November 15, 2000 or the third anniversary
of the Effective Date, to demand that all or a portion of the shares
covered by the Warrant be registered by the Company on a Form S-3
Registration Statement. The Company will pay the expenses of Western
Atlas in connection with the registration of the shares covered by the
Warrant. The Company may postpone the obligation to register such shares
for up to 120 days if it determines that such registration and/or sale
would interfere with any financing, acquisition, corporate reorganization
or other material transaction involving the Company.
Certain Anti-Takeover and Indemnification Provisions
Certain Charter and By-law Provisions
The Amended and Restated Articles of Incorporation of the Company
provide that the number of directors of the Company will be not less than
five and not more than fifteen and that the terms of directors will be
staggered. The Board of Directors shall determine the exact number of
directors pursuant to a majority vote. Pursuant to the Amended and
Restated Articles of Incorporation, the Board of Directors has determined
that the Company will have five directors, two in the class whose term
will expire in 1998, one in the class whose term will expire in 1999 and
two in the class whose term will expire in 2000. Any vacancies on the
Board may be filled for the unexpired portion of the term only by a
majority vote of the remaining directors. Any director may be removed
from office, but only for cause and only by the affirmative vote of the
holders of outstanding shares representing at least 80% of the voting
power of all shares of capital stock of the Company then entitled to vote
generally in the election of directors; provided, however, that if the
Board of Directors by resolution adopted by at least 75% of the directors
then in office recommend removal of a director, then the shareholders may
remove such director from office without cause by a majority vote of such
outstanding shares. The Company's By-laws provide that a Special Meeting
may be called only by (i) the Chairman of the Board, (ii) the President,
or (iii) the Board of Directors and shall be called by the Chairman of the
Board or the President upon the demand of the holders of record of shares
representing at least 10% of all the votes entitled to be cast on any
issue proposed to be considered at the Special Meeting. The Amended and
Restated Articles of Incorporation further provide that nominations for
the election of directors and advance notice of other action to be taken
at meetings of shareholders of the Company must be given in the manner
provided in the Company's By-laws, and the By-laws contain detailed notice
requirements relating to nominations and other action.
The Amended and Restated Articles of Incorporation prohibit the Company
from entering into certain "business combinations" (which term is defined
generally, for purposes of the Amended and Restated Articles of
Incorporation, to include a merger or consolidation of the Company, or the
sale or disposition of any assets of the Company or any subsidiary having
an aggregate fair market value of not less than one percent of the total
assets of the Company) with a shareholder owning 5% or more of the voting
power of the Company unless such transaction (i) is approved by at least
80% of the voting power of all shares of capital stock of the Company;
(ii) is approved by a majority of "Continuing Directors" (as defined in
the Amended and Restated Articles of Incorporation); or (iii) meets
certain "fair price" requirements set forth in the Amended and Restated
Articles of Incorporation. The Amended and Restated Articles of
Incorporation further require approval of amendments to the By-laws (i) by
the affirmative vote of at least 75% of the directors then in office; (ii)
by at least 80% of the voting power of all shares of capital stock of the
Company; or (iii) if at least 75% of the directors then in office have
proposed the amendment by the adoption of a resolution, by the affirmative
vote of the holders of outstanding shares representing a majority of the
voting power of all shares of capital stock of the Company then entitled
to vote generally in the election of directors.
The By-laws provide that the directors and executive officers of the
Company shall be indemnified to the fullest extent permitted by the WBCL
against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred by them in
connection with any proceeding arising out of their status as directors
and executive officers.
The foregoing provisions and the prohibitions set forth in the WBCL
could have the effect of delaying, deferring or preventing a change in
control or the removal of existing management of the Company.
Statutory Provisions
Section 180.1150 of the WBCL provides that the voting power of shares
of public Wisconsin corporations, such as the Company, held by any person
or persons acting as a group that hold in excess of 20% of the voting
power for the election of directors is limited to 10% of the full voting
power of those shares. This restriction does not apply to shares acquired
directly from the Company or shares for which full voting power has been
restored pursuant to a vote of shareholders. The Board of Directors of
the Company cannot elect to render this provision inapplicable to the
Company.
Sections 180.1140 to 180.1144 of the WBCL (the "Wisconsin Business
Combination Statute") contain certain limitations and special voting
provisions applicable to "business combinations" between a Wisconsin
corporation and an "interested shareholder." The term "business
combination" is defined for purposes of the Wisconsin Business Combination
Statute to include a merger or share exchange, sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets equal to at
least 5% of the market value of the stock or assets of a corporation or
10% of its earning power, issuance of stock or rights to purchase stock
with a market value equal to at least 5% of the outstanding stock,
adoption of a plan of liquidation and certain other transactions involving
an "interested shareholder." An "interested shareholder" is defined as a
person who beneficially owns, directly or indirectly, 10% of the voting
power of the outstanding voting stock of a corporation or who is an
affiliate or associate of the corporation and beneficially owned 10% of
the voting power of the then outstanding voting stock within the last
three years. The Wisconsin Business Combination Statute prohibits a
corporation from engaging in a business combination (other than a business
combination of a type specifically excluded from the coverage of the
statute) with an interested shareholder for a period of three years
following the date such person becomes an interested shareholder, unless
the Board of Directors approved the business combination or the
acquisition of the stock that resulted in a person becoming an interested
shareholder before such acquisition. Business combinations after the
three-year period following the stock acquisition date are permitted only
if (i) the Board of Directors approved the acquisition of the stock prior
to the acquisition date; (ii) the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested shareholder; or (iii) the consideration to be received by
shareholders meets certain requirements of the Wisconsin Business
Combination Statute with respect to form and amount.
Sections 180.1130 to 180.1133 of the WBCL provide that certain
"business combinations" not meeting certain fair price standards must be
approved by a vote of at least 80% of the votes entitled to be cast by all
shareholders and by two-thirds of the votes entitled to be cast by
shareholders other than a "significant shareholder" who is a party to the
transaction. The term "business combination" is defined, for purposes of
Sections 180.1130 to 180.1133 of the WBCL, to include, subject to certain
exceptions, a merger or consolidation of the corporation (or any
subsidiary thereof) with, or the sale or other disposition of
substantially all of the assets of the corporation to, any significant
shareholder or affiliate thereof. "Significant shareholder" is defined
generally to include a person that is the beneficial owner of 10% or more
of the voting power of the corporation. The Board of Directors of the
Company cannot elect to render this provision inapplicable to the Company.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required
by law or the articles of incorporation of an issuing public corporation,
the approval of the holders of a majority of the shares entitled to vote
is required before such corporation can take certain action while a
takeover offer is being made or after a takeover offer has been publicly
announced and before it is concluded. Under the Wisconsin Defensive
Action Restrictions, shareholder approval is required for the corporation
to (i) acquire more than 5% of its outstanding voting shares at a price
above the market price from any individual or organization that owns more
than 3% of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting
shares; or (ii) sell or option assets of the corporation that amount to at
least 10% of the market value of the corporation, unless the corporation
has at least three independent directors and a majority of the independent
directors vote not to have the restrictions described in clause (ii) apply
to the corporation. The restrictions described in clause (i) above may
have the effect of deterring a shareholder from acquiring shares of the
Company with the goal of seeking to have the Company repurchase such
shares at a premium over the market price.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have an aggregate of
__________ shares of Common Stock issued and outstanding. Of these
outstanding shares of Common Stock, the _________ shares sold in this
Offering will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act.
The remaining _________ shares of Common Stock held by existing
shareholders are "restricted securities" as that term is defined in Rule
144 under the Securities Act ("Restricted Shares") and will be subject to
the lock-up arrangements described below. Restricted Shares may be sold
in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 144(k) promulgated under
the Securities Act, which are summarized below. Sales of the Restricted
Shares in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock.
The Company, its directors, executive officers and the Selling
Shareholders have entered into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of Common Stock owned by them or that could
be purchased by them through the exercise of options to purchase Common
Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Lehman Brothers, except in the case of the
Company for shares deliverable under the 1993 Plan and the Directors Plan.
As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 144(k),
the shares subject to lock-up agreements will not be saleable until 180
days after the date of this Prospectus (or earlier with the consent of
Lehman Brothers). In addition, the ESOP holds 407,487 shares of Common
Stock, approximately 78,548 of which have been allocated to employee
accounts and the remainder of which are held for future allocation to
employee accounts. The ESOP will distribute shares from time to time to
ESOP participants, but currently only following their retirement or other
termination of employment. Shares that the ESOP distributes can be either
freely traded without restriction under the Securities Act or sold in
accordance with Rule 144 thereunder depending on the amount of securities
distributed to all participants in any one year and whether or not the
participant is an affiliate of the Company. The Company is unable to
provide a reliable estimate as to the amount of Common Stock that may be
distributed by the ESOP over any specified period. Shares held by the
ESOP will be allocated to participant accounts no more slowly than on a
pro rata basis over the period ending October 31, 2006.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares
for at least one year (measured with respect to ESOP participants from the
date shares were allocated to their account) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately __________ shares immediately
after the Offering) or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate of
the Company), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions
of Rule 144; therefore, unless otherwise subject to holdback, "144(k)
shares" may be sold immediately upon the completion of the Offering.
The preceding description does not give effect to the Common Stock that
may be offered and sold pursuant to the 1993 Plan or the Directors Plan.
See "Management--Stock Option Plans." Holders of options under the 1993
Plan to purchase 1,063,800 shares of Common Stock (as of October 31, 1997)
that will become exercisable upon consummation of the Offering generally
will not execute lock-up agreements. It is the Company's current intent
not to file a registration statement under the Securities Act with respect
to such shares until the expiration of 180 days after the date of this
Prospectus. Assuming the Company files such a registration statement,
such shares will be eligible for sale commencing immediately after an
option is exercised. Shares awarded under the Directors Plan would be
available for immediate resale following the Offering to the extent that
the Company registered such shares and subject to the volume and other
limitations of Rule 144 for shares held by directors and officers. The
Company intends to file a registration statement under the Securities Act
to register the Common Stock issuable under the Directors Plan. As of the
date of this Prospectus, no awards have been made under the Directors
Plan.
Since there has been no public market for the Common Stock prior to
this Offering, no predictions can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock, or the perception that such sales
could occur, could adversely affect the prevailing market price of the
Common Stock.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of a share of Common Stock
by a beneficial owner of such shares that is not a U.S. person (a "non-
U.S. holder"). For purposes of this discussion, a "U.S. person" means a
citizen or resident of the United States, a corporation or partnership
created or organized in the United States or under the law of the United
States or of any State or political subdivision of the foregoing, any
estate whose income is includible in gross income for U.S. federal income
tax purposes regardless of its source, or a "United States Trust". A
United States Trust is (a) for taxable years beginning after December 31,
1996, or if the trustee of a trust elects to apply the following
definition to an earlier taxable year, any trust if, and only if, (i) a
court within the United States is able to exercise primary supervision
over the administration of the trust and (ii) one or more U.S. persons
have the authority to control all substantial decisions of the trust, and
(b) for all other taxable years, any trust whose income is includible in
gross income for United States Federal income tax purposes regardless of
its source. This discussion does not deal with all aspects of U.S.
federal income and estate taxation that may be relevant to non-U.S.
holders in light of their particular circumstances, and does not address
state, local or non-U.S. tax considerations. Furthermore, the following
discussion is based on provisions of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations promulgated thereunder
and administrative and judicial interpretations as of the date hereof, all
of which are subject to change, possibly with retroactive effect.
Treasury Regulations have been proposed that would, if adopted in their
present form, revise in certain respects the rules applicable to non-U.S.
holders of Common Stock (the "Proposed Regulations"). The Proposed
Regulations are generally proposed to be effective with respect to
payments made after December 31, 1997. It is not certain whether, or in
what form, the Proposed Regulations will be adopted as final regulations.
Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. federal, state and local consequences of owning and
disposing of a share of Common Stock, as well as any tax consequences
arising under the laws of any other taxing jurisdiction.
U.S. Income and Estate Tax Consequences
Dividends paid to a non-U.S. holder are subject to U.S. withholding
tax at a 30% rate, or if applicable, a lower treaty rate, unless the
dividend is effectively connected with the conduct of a trade or business
in the United States by a non-U.S. holder (and, if certain tax treaties
apply, is attributable to a United States permanent establishment
maintained by such non-U.S. holder). A dividend that is effectively
connected with the conduct of a trade or business in the United States by
a non-U.S. holder (and, if certain tax treaties apply, is attributable to
a United States permanent establishment maintained by such non-U.S.
holder) will be exempt from the withholding tax described above and
subject instead (i) to the U.S. federal income tax on net income that
applies to U.S. persons and (ii) with respect to corporate holders under
certain circumstances, a 30% (or, if applicable, lower treaty rate) branch
profits tax that in general is imposed on its "effectively connected
earnings and profits" (within the meaning of the Code) for the taxable
year, as adjusted for certain items.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country
(unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of the
Treasury Regulations, for purposes of determining the applicability of a
tax treaty rate. Under the Proposed Regulations, however, a non-U.S.
holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification and
other requirements. In the case of a foreign partnership, the
certification requirement would generally be applied to the partners of
the partnership. In addition, the Proposed Regulations would also require
the partnership to provide certain information, including a United States
taxpayer identification number, and would provide look-through rules for
tiered partnerships. A non-U.S. holder that is eligible for a reduced rate
of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amount withheld by filing an appropriate claim for
refund with the U.S. Internal Revenue Service (the "IRS").
Under current law, a non-U.S. holder generally will not be subject to
U.S. federal income tax on any gain recognized on a sale or other
disposition of a share of Common Stock unless (i) the Company is or has
been during the five-year period ending on the date of disposition a
"United States real property holding corporation" for U.S. federal income
tax purposes (which the Company does not believe that it has been or is
currently and does not anticipate becoming), (ii) the gain is effectively
connected with the conduct of a trade or business within the United States
of the non-U.S. holder (and, if certain tax treaties apply, is
attributable to a United States permanent establishment maintained by the
non-U.S. holder), (iii) the gain is not described in clause (ii) above,
the non-U.S. holder is an individual who holds the share as a capital
asset, is present in the United States for 183 days or more in the taxable
year of the disposition and either (a) such individual has a "tax home"
(as defined for U.S. federal income tax purposes) in the United States or
(b) the gain is attributable to an office or other fixed place of business
maintained in the United States by such individual, or (iv) the non-U.S.
holder is subject to tax pursuant to the Code provisions applicable to
certain U.S. expatriates. In the case of a non-U.S. holder that is
described under clause (ii) above, its gain will be subject to the U.S.
federal income tax on net income that applies to U.S. persons and, in
addition, if such non-U.S. holder is a foreign corporation, it may be
subject to the branch profits tax as described in the second preceding
paragraph. An individual non-U.S. holder that is described under clause
(iii) above will be subject to a flat 30% tax gain on the derived from the
sale, which may be offset by U.S. capital losses (notwithstanding the fact
that he or she is not considered a resident of the United States). Thus,
individual non-U.S. holders who have spent 183 days or more in the United
States in the taxable year in which they contemplate a sale of the Common
Stock are urged to consult their tax advisers as to the tax consequences
of such sale.
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States federal estate
tax purposes) of the United States at the date of death, or Common Stock
subject to certain lifetime transfers made by such an individual, will be
included in such individual's estate for United States federal estate tax,
unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
Dividends
Except as provided below, the Company must report annually to the IRS
and to each non-U.S. holder the amount of dividends paid to and the tax
withheld with respect to such holder. These information reporting
requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Copies of these information
returns may also be available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which the non-U.S.
holder resides. In general, backup withholding at a rate of 31% and
additional information reporting will apply to dividends paid on shares of
Common Stock to holders that are not "exempt recipients" and that fail to
provide in the manner required certain identifying information (such as
the holder's name, address and taxpayer identification number).
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. However,
dividends that are subject to U.S. withholding tax at the 30% statutory
rate or at a reduced tax treaty rate are exempt from backup withholding of
U.S. federal income tax and such additional information reporting.
Broker Sales
If a non-U.S. holder sells shares of Common Stock through a U.S.
office of a U.S. or foreign broker, the broker is required to file an
information return and is required to withhold 31% of the sale proceeds
unless the non-U.S. holder is an exempt recipient or has provided the
broker with the information and statements, under penalties of perjury,
necessary to establish an exemption from backup withholding. If payment
of the proceeds of the sale of a share by a non-U.S. holder is made to or
through the foreign office of a broker, that broker will not be required
to backup withhold or, except as provided in the next sentence, to file
information returns. In the case of proceeds from a sale of a share by a
non-U.S. holder paid to or through the foreign office of a U.S. broker or
a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of whose
gross income for the three-year period ending with the close of the
taxable year preceding the year of payment (or for the part of that period
that the broker has been in existence) is effectively connected with the
conduct of a trade or business within the United States (a "Foreign U.S.
Connected Broker"), information reporting is required unless the broker
has documentary evidence in its files that the payee is not a U.S. person
and certain other conditions are met, or the payee otherwise establishes
an exemption. In addition, the Treasury Department has indicated that it
is studying the possible application of backup withholding in the case of
such foreign offices of U.S. and Foreign U.S. Connected Brokers.
Refunds
Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. holder may be refunded or credited against the non-
U.S. holder's U.S. federal income tax liability, provided that the
required information is furnished to the IRS.
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
underwriting agreement relating to the offering of shares of Common Stock
in the United States and Canada (the "U.S. Underwriting Agreement"), the
form of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, by and among the Company, the Selling
Shareholders and each of the underwriters named below (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Robert W. Baird & Co.
Incorporated and Furman Selz LLC are acting as representatives (the
"Representatives"), the U.S. Underwriters have severally agreed to
purchase from the Company and the Selling Shareholders, and the Company
and the Selling Shareholders have agreed to sell to each U.S. Underwriter,
the aggregate number of shares of Common Stock set forth opposite the name
of each such U.S. Underwriter below.
Number of
U.S. Underwriters Shares
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . ________
Robert W. Baird & Co. Incorporated . . . . . . . . . . . . . . . ________
Furman Selz LLC . . . . . . . . . . . . . . . . . . . . . . . . . ________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________
Under the terms of, and subject to the conditions contained in, the
underwriting agreement relating to the offering of shares of Common Stock
outside of the United States and Canada (the "International Underwriting
Agreement" and together with the U.S. Underwriting Agreement, the
"Underwriting Agreements"), the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part, by and
among the Company, the Selling Shareholders and each of the international
managers named below (the "International Managers," and together with the
U.S. Underwriters, the "Underwriters"), for whom Lehman Brothers
International (Europe), Robert W. Baird & Co. Incorporated and Furman Selz
LLC are acting as the lead managers (the "Lead Managers"), the
International Managers have severally agreed to purchase from the Company
and the Selling Shareholders, and the Company and Selling Shareholders
have agreed to sell to each International Manager, the aggregate number of
shares of Common Stock set forth opposite the name of each such
International Manager below.
Number of
International Managers Shares
Lehman Brothers International (Europe). . . . . . . . . . . . . . ________
Robert W. Baird & Co. Incorporated . . . . . . . . . . . . . . . ________
Furman Selz LLC . . . . . . . . . . . . . . . . . . . . . . . . . ________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________
The Company has been advised by the Representatives and the Lead
Managers that the U.S. Underwriters and the International Managers propose
to offer the shares to the public at the initial public offering price on
the cover page of this Prospectus, and to certain dealers at such price
less a selling concession not in excess of $____ per share. The U.S.
Underwriters and the International Managers may allow, and such dealers
may re-allow, a concession not in excess of $____ per share to certain
other Underwriters or to certain other brokers or dealers. After the
initial offering to the public, the offering price and the concession to
selected dealers and the reallowance may be changed by the Representatives
and the Lead Managers.
The Underwriting Agreements provide that the obligations of the several
U.S. Underwriters and the International Managers, respectively, to pay for
and accept delivery of the shares of Common Stock offered hereby are
subject to approval of certain legal matters by counsel and to certain
other conditions and that if any of the above shares of Common Stock are
purchased by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement or by the International Managers pursuant to the International
Underwriting Agreement, all the shares of Common Stock agreed to be
purchased by either the U.S. Underwriters or the International Managers,
as the case may be, pursuant to their respective Underwriting Agreements
(other than those covered by the over-allotment options described below),
must be so purchased. The initial public offering price and underwriting
discounts and commissions for the U.S. Offering and the International
Offering are identical. The closing of the U.S. Offering is a condition
to the closing of the International Offering. The closing of the
International Offering is a condition to the closing of the U.S. Offering.
The Company and the Selling Shareholders have agreed in the
Underwriting Agreements to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act, and to contribute in certain circumstances to
payments that the U.S. Underwriters and the International Managers may be
required to make in respect thereof.
Certain of the Selling Shareholders have granted to the U.S.
Underwriters a 30-day option to purchase up to an additional ____ shares
of Common Stock, and the Company has granted to the U.S. Underwriters a
30-day option to purchase up to an additional ____ shares of Common Stock,
on the same terms and conditions as set forth above to cover over-
allotments, if any, and certain of the Selling Shareholders and the
Company have granted the International Managers a similar option to
purchase up to an additional _____ and _____ shares of Common Stock,
respectively, to cover over-allotments, if any. To the extent that either
such option is exercised, each U.S. Underwriter or International Manager,
as the case may be, will be committed, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate
to such Underwriter's initial commitment as indicated in the preceding
tables.
The U.S. Underwriters and the International Managers have entered into
an Agreement between U.S. Underwriters and International Managers pursuant
to which each U.S. Underwriter has agreed that, as part of the
distribution of the shares of Common Stock (plus any of the shares of
Common stock to cover over-allotments) offered in the U.S. Offering, (i)
it is not purchasing any of such shares of Common Stock for the account of
anyone other than a U.S. or Canadian Person (as defined below) and (ii) it
has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares of Common Stock outside the
United States or Canada or to anyone other than a U.S. or Canadian Person.
In addition, pursuant to the same agreement, each International Manager
has agreed that, as part of the distribution of the shares of Common Stock
(plus any of the shares of Common Stock to cover over-allotments) offered
in the International Offering, (a) it is not purchasing any of such shares
of Common Stock for the account of any U.S. or Canadian Person and (b) it
has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares of Common Stock in the United
States or Canada or to any U.S. or Canadian Person. Each International
Manager also has agreed that it will offer to sell shares of Common Stock
only in compliance with all relevant requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Underwriting Agreements and
the Agreement Between U.S. Underwriters and International Managers,
including (i) certain purchases and sales between the U.S. Underwriters
and the International Managers; (ii) certain offers, sales, resales,
deliveries or distributions in or through investment advisors or other
persons exercising investment direction; (iii) purchases, offers or sales
by a U.S. Underwriter who is also acting as an International Manager or by
an International Manager who is also acting as a U.S. Underwriter; and
(iv) other transactions specifically approved by the Representatives and
the Lead Managers. As used herein, (a) the term "United States" means the
United States of America (including the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction,
(b) the term "Canada" means Canada, its provinces, territories and
possessions and other areas subject to its jurisdiction, and (c) the term
"U.S. or Canadian Person" means any resident or citizen of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada or any
political subdivision thereof or any estate or trust, the income of which
is subject to United States federal income taxation or Canadian income
taxation regardless of its source (other than a foreign branch of any U.S.
or Canadian Person), and includes any United States or Canadian branch of
a person who is not otherwise a U.S. or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares of Common Stock as may be
mutually agreed upon. Unless otherwise agreed, the price of any shares of
Common Stock so sold shall be the public offering price as then in effect
for the shares of Common Stock being sold by the U.S. Underwriters and the
International Managers, less the selling concession allocable to such
shares of Common Stock. To the extent that there are sales between the
U.S. Underwriters and the International Managers pursuant to the Agreement
Between U.S. Underwriters and International Managers, the number of shares
of Common Stock initially available for sale by the U.S. Underwriters or
by the International Managers may be more or less than the amount
appearing on the cover page of this Prospectus.
This Prospectus is not, and under no circumstances is to be construed
as, an advertisement or a public offering of shares of Common Stock in
Canada or any province or territory thereof. Any offer or sale of shares
of Common Stock in Canada may only be made pursuant to an exemption from
the prospectus and registration requirements in the province or territory
of Canada in which such offer or sale is made.
Each International Manager has represented and agreed that (i) it has
not offered or sold and, prior to the date six months after the latest
closing date, will not offer or sell any shares of Common Stock to persons
in the United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers
of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 ("1986 Act")
with respect to anything done by it in relation to the shares of Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on, and will only issue and pass on to any person in
the United Kingdom, any investment advertisement (within the meaning of
the 1986 Act) relating to the shares of Common Stock if that person falls
within Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on, and that it will
procure that any purchaser from it of any of the shares of Common Stock
undertakes to comply with the foregoing provisions of this paragraph.
No action has been taken or will be taken in any jurisdiction by the
Company or the Underwriters that would permit a public offering of shares
of Common Stock in any jurisdiction where action for that purpose is
required, other than the United States. Persons into whose possession
this Prospectus comes are required by the Company and the Underwriters to
inform themselves about, and to observe any restrictions as to, the
offering of shares of Common Stock offered pursuant to the Offering and
the distribution of this Prospectus.
Purchasers of shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set
forth on the cover page hereof.
The Representatives and the Lead Managers have informed the Company
that the U.S. Underwriters and the International Managers do not intend to
confirm sales to any accounts over which they exercise discretionary
authority.
The Company has agreed that it will not, subject to certain limited
exceptions, directly or indirectly, offer, sell, contract to sell or
otherwise issue or dispose of any Common Stock or other capital stock of
the Company prior to the expiration of 180 days from the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. The
directors and officers of the Company and the Selling Shareholders have
agreed that they will not, subject to certain limited exceptions, directly
or indirectly, offer, sell or otherwise dispose of any Common Stock or any
other capital stock of the Company prior to expiration of 180 days from
the date of this Prospectus without the prior written consent of Lehman
Brothers Inc.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the
ability of the Underwriters and certain selling group members to bid for
and purchase shares of Common Stock. As an exception to these rules, the
Representatives and the Lead Managers are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common
Stock than are set forth in the cover page of this Prospectus), the
Representatives and the Lead Managers may reduce that short position by
purchasing Common Stock in the open market. The Representatives and the
Lead Managers also may elect to reduce any short position by exercising
all or part of the over-allotment options described herein.
In general, purchases of a security for the purpose of stabilization or
to reduce a syndicate short position could cause the price of the security
to be higher than it might otherwise be in the absence of such purchases.
The imposition of a penalty bid might have an effect on the price of a
security to the extent that it were to discourage resales of the security
by purchasers in this Offering.
The Underwriters anticipate effecting a distribution of the shares of
Common Stock offered hereby such that, if the Offering is consummated,
there will be no fewer than 2,000 holders (including beneficial holders of
shares held in the name of New York Stock Exchange members) holding round
lots of 100 shares or more in order to fulfill a requirement for listing
of the Common Stock on the New York Stock Exchange.
Neither the Company, the Selling Shareholders nor any of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on
the price of the Common Stock. In addition, neither the Company, the
Selling Shareholders nor any of the Underwriters makes any representation
that the Representatives or Lead Managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued
without notice.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be
determined by negotiations among the Company, the Selling Shareholders,
the Representatives and the Lead Managers. In determining such price,
consideration will be given to various factors, including prevailing
market conditions for initial public offerings, the history of and
prospects for the Company's business, the Company's past and present
operations, its past and present earnings and current financial position,
an assessment of the Company's management, the market of securities of
companies in businesses similar to those of the Company, the general
condition of the securities markets and other relevant factors. There can
be no assurance that the initial public offering price will correspond to
the price at which the Common Stock will trade in the public market
subsequent to the Offering or that an active trading market for the Common
Stock will develop and continue after the Offering.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Foley & Lardner, Milwaukee, Wisconsin, and
for the Underwriters by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of October 31,
1996 and 1997 and for each of the three years in the period ended October
31, 1997, appearing in this Prospectus have been audited by Arthur
Andersen LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are
included herein in reliance upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved.
After the consummation of the Offering, the Company will be subject to
the informational requirements of the Securities and Exchange Act of 1934,
as amended, and, in accordance therewith, will file reports, proxy and
information statements and other information with the Commission. The
Registration Statement, as well as any such reports, proxy and information
statements and other information filed by the Company with the Commission,
may be inspected and copies at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York, 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission (http://www.sec.gov). Upon listing of the Common Stock on the
New York Stock Exchange (the "NYSE"), reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York, 10005.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by its independent
auditors.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HK SYSTEMS, INC.
Report of Independent Public Accountants . . . . . . . F-2
Consolidated Balance Sheets as of October 31, 1996 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for each of the three
years ended October 31, 1997 . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity for
each of the three years ended October 31, 1997 . . . F-5
Consolidated Statements of Cash Flows for each of the
three years ended October 31, 1997 . . . . . . . . . F-6
Notes to Consolidated Financial Statements for each of
the three years ended October 31, 1997 . . . . . . . F-8
MATERIAL HANDLING SYSTEMS DIVISION AND
VANTAGEWARE DIVISION OF WESTERN ATLAS INC.
Report of Independent Public Accountants . . . . . . . F-22
Combined Statements of Income for the year ended
December 31, 1995 and the period January 1, 1996 to
November 15, 1996 . . . . . . . . . . . . . . . . . . F-23
Combined Statements of Changes in Division Equity for
the year ended December 31, 1995 and the period
January 1, 1996 to November 15, 1996 . . . . . . . . F-24
Combined Statements of Cash Flows for the year ended
December 31, 1995 and the period January 1, 1996 to
November 15, 1996 . . . . . . . . . . . . . . . . . . F-25
Notes to Combined Financial Statements for the year
ended December 31, 1995 and the period January 1, 1996
to November 15, 1996 . . . . . . . . . . . . . . . . F-26
<PAGE>
After the subsequent events immediately prior to the initial public
offering are effected, as discussed in Note 16 to the Consolidated
Financial Statements, we expect to be in a position to render the
following report of independent public accountants.
ARTHUR ANDERSEN LLP
December 22, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors
of HK Systems, Inc.:
We have audited the accompanying consolidated balance sheets of HK
Systems, Inc. (a Wisconsin corporation) and subsidiaries as of October 31,
1996 and 1997 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the
period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of HK Systems, Inc. and subsidiaries as of October 31, 1996 and
1997 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended October 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND 1997
(In thousands, except share and per share data)
1996 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $152 $332
Accounts receivable, less allowance
of $155 and $552 respectively 23,223 27,057
Unbilled revenue 20,273 25,539
Inventory 3,484 8,845
Deferred income taxes 1,325 3,900
Prepaid expenses and other current
assets 830 823
Total current assets 49,287 66,496
PROPERTY, PLANT AND EQUIPMENT:
Land 840 1,060
Building and building improvements 1,980 3,986
Leasehold improvements 2,599 2,321
Computer equipment 8,874 12,372
Machinery and equipment 4,314 7,398
Office furniture and other 1,358 3,605
------- -------
19,965 30,742
Less-Accumulated depreciation (8,123) (11,148)
------- -------
11,842 19,594
GOODWILL 21,666 39,121
DEFERRED INCOME TAXES 2,622 2,527
OTHER ASSETS 5,372 3,623
------- -------
Total $90,789 $131,361
------- -------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $30,341 $24,225
Accrued liabilities 10,311 22,600
Billings in excess of costs 5,493 7,487
------- -------
Total current liabilities 46,145 54,312
LONG-TERM DEBT 28,000 51,960
OTHER LONG-TERM LIABILITIES 2,015 3,499
REDEEMABLE PREFERRED STOCK 16,948 18,068
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
authorized 9,764,093 at 1996 and
1997; issued 3,015,360 at 1996 and
1997 30 30
Additional paid-in capital 603 603
Retained (deficit) earnings (2,952) 2,889
------- -------
Total shareholders' (deficit)
equity (2,319) 3,522
------- -------
Total $90,789 $131,361
======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS ENDED OCTOBER 31, 1997
(In thousands, except per share data)
Year Ended October 31,
1995 1996 1997
NET REVENUES:
Integrated systems $70,689 $87,150 $163,472
Customer services 40,501 49,792 65,200
Logistics and
software systems 15,413 13,143 17,478
------- ------- -------
Total net revenues 126,603 150,085 246,150
COST OF SALES 108,526 123,354 193,646
------- ------- -------
Gross profit 18,077 26,731 52,504
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 13,492 16,255 34,019
AMORTIZATION OF
GOODWILL 1,033 1,225 1,684
------- ------- -------
Income from
operations 3,552 9,251 16,801
OTHER INCOME (EXPENSE):
Interest expense (3,108) (3,545) (5,570)
Other, net 178 9 80
------- ------- -------
Income before income
taxes 622 5,715 11,311
PROVISION FOR INCOME
TAXES 398 2,288 4,051
Net income before
minority interest
and dividends on
preferred stock 224 3,427 7,260
MINORITY INTEREST
EXPENSE (187) - -
------- ------- -------
Net income before
dividends on
preferred stock 37 3,427 7,260
DIVIDENDS ON PREFERRED
STOCK (1,131) (1,312) (1,419)
------- ------- -------
Net income (loss)
applicable to
common shareholders $(1,094) $2,115 $5,841
======== ======= =======
PER SHARE DATA:
Primary and fully
diluted net income
(loss) per share of
common stock $(0.40) $0.36 $0.77
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED OCTOBER 31, 1997
(In thousands)
Additional Retained
Common Paid-In (Deficit)
Stock Capital Earnings Total
BALANCE, October 31,
1994 $21 $440 $(3,973) $(3,512)
Shares issued 9 163 - 172
Stock dividends on
Class B Preferred
Stock - - (1,028) (1,028)
Accrued dividends on
Class D Preferred
Stock - - (103) (103)
Net income - - 37 37
BALANCE, October 31,
1995 30 603 (5,067) (4,434)
Stock dividends on
Class B Preferred
Stock - - (1,120) (1,120)
Accrued dividends on
Class D Preferred
Stock - - (192) (192)
Net income - - 3,427 3,427
BALANCE, October 31,
1996 30 603 (2,952) (2,319)
Stock dividends on
Class B Preferred
Stock - - (1,120) (1,120)
Accrued dividends on
Class D Preferred
Stock - - (299) (299)
Net income - - 7,260 7,260
BALANCE, October 31,
1997 $30 $603 $2,889 $3,522
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED OCTOBER 31, 1997
(In thousands)
Year Ended October 31,
1995 1996 1997
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net income $37 $3,427 $7,260
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Depreciation 2,851 3,852 5,224
Amortization 2,690 2,882 4,939
Minority interest expense 187 - -
Deferred income taxes (106) 265 (996)
Other 210 369 (827)
Changes in assets and
liabilities-
Accounts receivable (5,628) (220) 20,474
Unbilled revenue (1,084) (4,434) 667
Inventory 344 (555) 2,959
Prepaid expenses and other
current assets (62) 471 147
Accounts payable 3,082 9,476 (12,674)
Accrued liabilities (3,561) 1,492 3,729
Billings in excess of costs 2,850 (7,761) (8,243)
-------- ------- --------
Net cash provided by
operating activities 1,810 9,264 22,659
-------- ------- --------
CASH FLOWS USED FOR INVESTING
ACTIVITIES:
Purchase of fixed assets (1,429) (3,145) (4,086)
Payment of financing fees (169) (26) (290)
Acquisition of Eaton
Kenway, Inc. (2,273) - -
Investment in joint venture - (2,600) 2,600
Acquisition of the Material
Handling Systems division
and VantageWare division - - (34,600)
Purchase of license rights - - (2,063)
------- -------- --------
Net cash used for investing
activities (3,871) (5,771) (38,439)
------- -------- --------
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED OCTOBER 31, 1997
(In thousands)
(Continued)
Year Ended October 31,
1995 1996 1997
CASH FLOWS (USED FOR) PROVIDED
BY FINANCING ACTIVITIES:
Payment of Harnischfeger
Industries, Inc. debt $(4,000) $(18,000) $ -
Proceeds from borrowings on
revolving line of credit,
net 2,000 12,000 15,960
Sale of preferred stock 4,000 - -
Redemption of subsidiary
preferred stock (771) - -
Sale of common stock 172 - -
------- ------- -------
Net cash (used for) provided
by financing activities 1,401 (6,000) 15,960
------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (660) (2,507) 180
CASH AND CASH EQUIVALENTS,
beginning of year 3,319 2,659 152
------- ------- -------
CASH AND CASH EQUIVALENTS, end
of year $2,659 $152 $332
======= ======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $2,215 $3,664 $5,053
Income taxes paid $722 $1,035 $5,285
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS ENDED OCTOBER 31, 1997
(In thousands, except share and per share data)
(1) Organization-
On October 29, 1993, HK Systems, Inc., formerly known as HEI Systems,
Inc. (the "Company"), purchased all of the outstanding shares of
common stock of Harnischfeger Engineers, Inc. ("HEI") from
Harnischfeger Industries, Inc. ("Harnischfeger"). On February 13,
1995, the Company acquired substantially all of the net assets of
Eaton-Kenway, Inc., a wholly-owned subsidiary of Eaton Corporation
(the "Eaton-Kenway Acquisition"). On November 15, 1996, the Company
acquired substantially all of the net assets of the Material Handling
Systems division ("MHS") and VantageWare division ("VW") of Western
Atlas Inc. (the "Western Atlas Acquisition").
(2) Nature of Operations-
The Company develops, implements and supports integrated solutions to
complex material handling and supply chain needs of a wide array of
businesses and industries. The Company designs, installs and
integrates automated material handling systems that include
customized software, manufactured equipment, and purchased components
such as microprocessor and PLC controls and optical scanning and
laser positioning devices ("Integrated Systems"); provides
aftermarket services for owners of systems and equipment the Company
has installed and for other customers ("Customer Services"); and
develops and implements advanced software systems, including
warehouse management systems and customized logistics software for
specific supply chain applications. ("Logistics and Software
Systems"). Sales are primarily in the United States of America.
(3) Acquisitions-
HEI Acquisition-
Effective October 29, 1993, the Company purchased all of the
outstanding shares of common stock of HEI. The acquisition was
accounted for under the purchase method of accounting. The purchase
price ($22,982 in cash, $10,000 of preferred stock of HEI and a
$12,000 promissory note to Harnischfeger) was allocated based on fair
values as follows:
Current assets $43,768
Property, plant and equipment 6,998
Goodwill and capitalized software costs 23,024
Current liabilities (28,808)
-------
Purchase price $44,982
=======
Harnischfeger retained its holding of the Class A Preferred Stock of
HEI, totalling $10,000. The Company recognized Harnischfeger's
interest in HEI Class A Preferred Stock as a minority interest.
Consistent with the Company's accounting policies, the purchase
included the acquisition of certain in-process software and
development costs included in goodwill and capitalized software costs
above, which resulted in a charge to income of $4,186 for the year
ended October 31, 1994. The amount allocated to the in-process
software and development costs was determined by appraisal. The
projects in-process required resolution of high-risk development and
testing issues in order to reach technological feasibility. At the
date of acquisition, the purchased in-process software and
development costs had no alternative uses.
Eaton-Kenway Acquisition-
The February 13, 1995 Eaton-Kenway Acquisition was accounted for
under the purchase method of accounting. The purchase price ($2,273
in cash and a $10,000 promissory note to Eaton Corporation) was
allocated based on fair value as follows:
Current assets $13,800
Property, plant and equipment 8,200
Goodwill 13,156
Current liabilities (22,883)
-------
Purchase price $12,273
=======
Western Atlas Acquisition-
The November 15, 1996 Western Atlas Acquisition was accounted for
under the purchase method of accounting. The purchase price ($34,600
in cash and an $8,000 promissory note to Western Atlas) was allocated
based on fair values as follows:
Current assets $38,700
Property, plant and equipment 11,196
Goodwill 19,168
Current liabilities (26,464)
-------
Purchase price $42,600
=======
Unaudited pro forma operating results of the Company, assuming the
Western Atlas Acquisition had been made as of November 1, 1996, were
not included as such results were not significantly different than
historical results.
(4) Summary of Significant Accounting Policies-
Principles of consolidation-
The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
Concentration of credit risk-
The Company sells its products to a wide range of companies in
diverse industries that include automotive, banking, beverage
production, food processing and heavy manufacturing. Ongoing credit
evaluations of its customers' financial condition are made and
generally no collateral is required. For the years ended October 31,
1995 and 1996 the Company had a different customer each year that
accounted for 14% and 15% of net revenues, respectively. For the
year ended October 31, 1997, the Company had two customers that
accounted for 13% and 10% of net revenues, respectively. Management
does not believe that significant credit risk exists at October 31,
1997.
Fair value of financial instruments-
For purposes of financial reporting, the Company has determined that
the fair value of financial instruments approximates book value at
October 31, 1996 and 1997 based on terms available to the Company in
financial markets.
Revenue recognition-
Revenue and gross profits on virtually all long-term systems
integration and aftermarket customer service contracts is recorded
using the percentage-of-completion method of accounting. Under this
method, percentage of completion is determined by reference to the
extent of contract performance, future performance risk and cost
incurrence. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts
that require the revisions become known. Losses, if any, are
recognized in full as soon as identified.
Software license fee revenue is recorded when the software has been
delivered (which is generally considered to be at the completion of
the first installation), the license agreement with the customer has
been executed, and collection of the resulting receivable is deemed
probable. Revenues for customization and modification of licensed
software and for implementation services are recorded using the
percentage-of-completion method of accounting.
Progress billings-
The Company bills its customers based on the terms set forth in a
sales contract. The billing schedule does not necessarily match the
stage of completion of a customer's order for installation. As such,
costs, earnings and billings are accumulated for jobs in progress at
period end and to the extent costs and earnings exceed billings or
billings exceed costs and earnings, an asset (unbilled revenue) or
liability (billings in excess of costs) is recorded.
Cash and cash equivalents-
The Company considers all highly liquid investments with maturities
of three months or less at the date of acquisition to be cash
equivalents.
Checks not presented for payment-
As of October 31, 1996 and 1997, $2,349 and $4,280 of checks not
presented for payment are included in accounts payable in the
consolidated balance sheets, respectively.
Inventories-
Inventories are stated at the lower of cost or market, using the
first-in, first-out (FIFO) method. Inventory cost includes material,
labor and overhead.
Inventories at October 31, 1996 and 1997, consisted of the following:
1996 1997
Raw materials $3,213 $4,875
Work in process 257 2,551
Finished goods 14 1,419
------ ------
$3,484 $8,845
====== ======
Property, plant and equipment and depreciation-
Property, plant and equipment purchased in acquisitions is stated at
fair value at the date of acquisition. Subsequent additions are
stated at cost. Expenditures for major renewals and improvements are
capitalized, while maintenance and repairs that do not significantly
improve the related asset or extend its useful life are charged to
expense as incurred. For financial reporting purposes, depreciation
is computed using the straight-line method based upon estimated
useful lives.
The estimated useful lives generally used for calculating
depreciation expense are as follows:
Building 25 years
Leasehold improvements 15 years
Computer equipment 3 to 7 years
Machinery and equipment 5 to 7 years
Office furniture 3 to 7 years
Depreciation expense for each of the three years ended October 31,
1997, was $2,851, $3,852, and $5,224, respectively. Accelerated
depreciation methods are used for tax purposes.
Long-lived assets-
Effective November 1, 1996, the Company adopted 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." Adoption of this standard did not have a material
impact on the Company's financial position or results of operations.
Property held for sale-
In connection with the Western Atlas Acquisition, the Company
acquired certain land and buildings which the Company did not
consolidate into its operations. The Company is currently holding
this property for sale. At October 31, 1997, the property was
recorded at its estimated realizable value of $1,800 and is included
in other assets in the consolidated balance sheets.
Investment in joint venture-
Investment in joint venture, as included in other assets in the
consolidated balance sheets, consists of a non-controlling interest
in a limited liability company acquired on March 6, 1996. The
Company sold its investment on October 31, 1997 for $2,600,000, and
recorded a gain on sale of $343,000.
Income taxes-
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse.
Deferred financing fees-
Financing fees, as included in other assets in the consolidated
balance sheets, are deferred and charged to interest expense over the
term of the related debt agreement. Amortization of these fees for
each of the three years ended October 31, 1997, was $226, $248, and
$170, respectively. Accumulated amortization at October 31, 1996 and
1997 is $642 and $812, respectively.
Goodwill-
Goodwill represents the excess of the purchase price over the fair
value of identifiable net assets acquired. Goodwill is being
amortized on a straight-line basis over 20 years for acquisitions of
entities with primarily technological or software related activities.
Goodwill is being amortized on a straight-line basis over 40 years
for acquisitions of entities with primarily manufacturing activities.
Amortization expense for each of the three years ended October 31,
1997, was $1,033, $1,225, and $1,684, respectively. Accumulated
amortization at October 31, 1996 and 1997 was $2,825 and $4,509,
respectively.
Management will periodically review the carrying value of its
goodwill for potential impairment. Any goodwill asset for which
management believes there is no future economic life is reflected
when the facts that require the write-off become known.
Capitalized software costs-
Capitalized software costs, as included in other assets in the
consolidated balance sheets, are being amortized on a straight-line
basis over four to five years. Amortization expense for each of the
three years ended October 31, 1997, was $1,657, $1,657, and $3,255,
respectively. Accumulated amortization at October 31, 1996 and 1997
was $4,971 and $8,226, respectively.
Management will periodically review the carrying value of its
capitalized software costs for potential impairment. Any capitalized
software cost for which management believes there is no future
economic life is reflected when the facts that require the write-off
become known.
Minority interest-
During 1994, the Company recognized as minority interest the HEI
Class A Preferred Stock totaling $10,000 and Class C Preferred Stock
totaling $600 held by Harnischfeger in HEI. During 1995, the Class A
Preferred Stock was converted into a subordinated promissory note and
the Class C Preferred Stock was redeemed.
Research and development costs-
Research and development costs are expensed as incurred. Such costs
incurred in the development of new products or significant
improvements to existing products that were not charged directly to
contracts amounted to $1,319, $1,981, and $4,951 for each of the
three years ended October 31, 1997, respectively.
Advertising costs-
Advertising costs are expensed as incurred. Such costs amounted to
$685, $975, and $1,839 for each of the three years ended October 31,
1997, respectively.
Derivatives-
Derivative financial instruments are used by the Company to manage
its foreign currency and interest rate exposures. Gains and losses
on foreign currency instruments are deferred until the hedged
transaction occurs. Amounts to be received or paid under interest
rate swaps and caps are recognized as interest income or expense in
the periods in which they accrue. If interest rate swap or cap
agreements are terminated due to the underlying debt being
extinguished, any resulting gain or loss is recognized as interest
income or expense at the time of termination.
(5) Related Party Transactions-
During 1995, the Company leased its main facility and headquarters
from Harnischfeger, its former parent. The Company paid
Harnischfeger $780 in accordance with this lease for the year ending
October 31, 1995.
The Company pays M&I Ventures Corporation ("MIVC"), a holder of Class
B Preferred Stock and Class C Common Stock of the Company, for
certain services. For each of the three years ended October 31, 1997
the Company paid MIVC $50 for these services, respectively. Upon the
acquisition of HEI, the Company paid to MIVC $550 in connection with
their efforts to consummate the acquisition and secure related
outside debt commitments. In connection with the Eaton-Kenway
Acquisition, the Company paid the State of Wisconsin Investment
Board, a holder of Class B Preferred Stock of the Company, $30 and
MIVC $270. In connection with the Western Atlas Acquisition, the
Company paid MIVC $225.
(6) Operating Leases-
The Company leases certain facilities and equipment from unrelated
parties, which are classified as operating leases. Future minimum
rentals under all operating leases over their remaining terms are
approximately as follows:
Fiscal Year Amount
1998 $ 2,697
1999 2,403
2000 2,406
2001 2,141
2002 2,134
2003 and thereafter 19,626
-------
$31,407
=======
Total rental expense was $1,680, $2,239, and $3,295 for each of the
three years ended October 31, 1997, respectively.
(7) Long-Term Debt-
Long-term debt at October 31, 1996 and 1997 consisted of the
following:
1996 1997
Revolving line of credit agreement $18,000 $33,960
Junior subordinated debt: 12% 10,000 10,000
Junior subordinated debt: 10% - 8,000
------- -------
Total $28,000 $51,960
======= =======
At October 31, 1997, the revolving line of credit totaled $90,000.
Availability under the revolving line of credit is limited by certain
financial covenants and at October 31, 1997, the Company had $39,500
available. The revolving line of credit terminates on November 1,
1999. The revolving line of credit bears interest at floating rates
expressed in relation to either LIBOR or the bank's prime rate. The
revolving line of credit is collateralized by substantially all the
assets of the Company and subsidiaries. Borrowings outstanding at
October 31, 1997, bear interest ranging from 7.06% to 8.50%. The
Company is required to pay a commitment fee of 0.25% on the unused
portion of the revolving line of credit. The Company considers the
October 31, 1997, outstanding revolving line of credit borrowings as
long-term debt.
The Company has a $10,000 junior subordinated note due to Eaton
Corporation with interest at 12% in 1997 increasing to 20% after
2000. Principal is due in annual installments of $1,667 commencing
February 13, 2000, with final payment due February 12, 2005 or upon
demand in the event of an initial public offering by the Company.
The Company has an $8,000 junior subordinated note due to Western
Atlas Inc. with interest at 10%, increasing to 15% after November 15,
1998. Principal is due in full on November 30, 2003 or upon demand
in the event of an initial public offering by the Company.
As the Company has the ability, under its revolving line of credit,
to pay off its junior subordinated notes prior to interest rates
increasing to 20% and 15%, respectively, no incremental interest
expense has been recorded.
Maturities of long-term debt, including borrowings under the
revolving line of credit, are as follows:
Fiscal Year Amount
1998 $ -
1999 33,960
2000 1,667
2001 1,667
2002 1,666
2003 and Thereafter 13,000
The terms of the revolving line of credit agreement place limits on
the amount of additional long-term debt the Company may issue, limits
on the amount of capital expenditures in any year, restrictions on
the payment of dividends, requires maintenance of minimum current,
leverage and interest coverage ratios, and requires minimum total
capitalization and billed receivable balances, as defined.
(8) Shareholders' Equity-
The Company had authorized 9,572,640 (1995) and 9,764,093 (1996 and
1997) shares of Common Stock, $0.01 par value divided into the
following series:
(a) 3,757,280 (1995) and 3,948,733 (1996 and 1997) shares of Class A
Common Stock, of which 2,800,000 shares are issued and
outstanding at October 31, 1995, 1996 and 1997, respectively.
(b) 5,600,000 shares of Class B Common Stock, none of which is
issued or outstanding at October 31, 1995, 1996 and 1997,
respectively; and
(c) 215,360 shares of Class C Common Stock, all of which are issued
and outstanding at October 31, 1995, 1996 and 1997,
respectively.
There are no differences between the classes of Common Stock.
(9) Redeemable Preferred Stock-
The Company had authorized 7,600,000 shares of Preferred Stock, $0.01
par value, subject to a mandatory redemption on the earlier of
November 1, 2003, or a liquidation of the Company, designated into the
following series:
(a) 5,600,000 shares of Class B Cumulative Convertible Preferred
Stock, face value of $2.50 per share, convertible on a 1 to 1
basis into Class B common shares. At October 31, 1996 and 1997,
5,600,000 shares, respectively, are issued and outstanding; and
(b) 2,000,000 shares of Class D Cumulative Preferred Stock, face
value of $2.50 per share, 731,000 (1995), 1,179,000 (1996) and
1,627,000 (1997) shares of which are issued and outstanding.
Class B Preferred Stock bears a cumulative annual dividend yield of
8%, payable quarterly in Class D Preferred shares until October 31,
1996. The Company may pay any and all quarterly dividends on the
Class B Preferred Stock which accrue after October 31, 1996, in the
form of cash or Class D Preferred shares. Class D Preferred shares
bear a cumulative annual dividend yield of 8%, payable quarterly. The
holders of Class B Preferred Stock are entitled to one vote for each
share owned. Class D Cumulative Preferred shares are not entitled to
any voting rights except as may be required by law.
(10) Stock Options-
The Company's 1993 Executive Stock Option Plan ("the Plan"), as
amended, provides for the grant of nonqualified incentive stock
options to key employees and directors. The Plan provides for the
granting of options for a total of 683,760 (1994), 957,280 (1995) and
1,148,733 (1996 and 1997) shares of Class A Common Stock,
respectively. The purchase price of shares subject to each option
granted will not be less than the fair market value at the date of
grant. Generally, the options become exercisable in whole five years
after the grant, or upon a registered public offering of the Company
or sale of the Company if earlier. The option term expires ten years
subsequent to the grant date. Certain information regarding the stock
option plan follows:
Weighted
Average
Number Option Price Exercise
of Shares Per Share Price
Outstanding at October 31, 1994 618,000 $1.00 $1.00
Granted 358,000 1.00 1.00
Canceled (32,000) 1.00 1.00
------- ----- -----
Outstanding at October 31, 1995 944,000 $1.00 $1.00
Granted 30,000 1.00 1.00
Canceled (48,000) 1.00 1.00
------- ----- -----
Outstanding at October 31, 1996 926,000 $1.00 $1.00
Granted 271,800 6.43 - 8.75 6.50
Canceled (134,000) 1.00 - 6.43 2.38
--------- ------------ -----
Outstanding at October 31, 1997 1,063,800 $1.00 - 8.75 $2.23
Exercisable at October 31, 1997 - $ - $ -
========= ======== =========
Effective November 1, 1996, the Company adopted SFAS No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation." This standard
establishes financial accounting and reporting standards for stock-
based employee compensation plans.
SFAS 123 defines a fair value based method of accounting for employee
stock option or similar equity instruments. Under the fair value
based method, compensation cost is measured at the grant date based on
the fair value of the award using an option-pricing model that takes
into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying
stock, expected dividends and the risk-free interest rate over the
expected life of the option. The resulting compensation cost is
recognized over the service period, which is usually the vesting
period.
Compensation cost can also be measured and accounted for using the
intrinsic value based method of accounting prescribed in Accounting
Principles Board Opinion No. 25 ("APBO 25"), "Accounting for Stock
Issued to Employees." Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount paid
to acquire the stock.
The largest difference between SFAS 123 and APBO 25 as it relates to
the Company is the amount of compensation cost attributable to the
Company. Under APBO 25 no compensation cost is recognized for fixed
stock option plans because the exercise price is equal to the
estimated market price at the date of grant and therefore there is no
intrinsic value. SFAS 123 compensation cost would equal the
calculated fair value of the options granted.
As permitted by SFAS 123, the Company continues to measure
compensation cost for such plans using the accounting method
prescribed by APBO 25.
Had compensation cost for the Company's options granted after November
1, 1995, been determined consistent with SFAS 123, the Company's
earnings per share for the years ended October 31, 1996 and 1997 would
have been reduced by less than $0.01 and $0.02 per share in 1996 and
1997, respectively.
The fair value of each option grant was estimated as of the date of
grant using the Minimum Value pricing model. The resulting
compensation cost was amortized over the vesting period.
The grant date fair values and assumptions used to determine such
value are as follows:
Options Granted During 1996 1997
Weighted-average grant date fair value $0.47 $2.98
Weighted-average risk-free interest rate 6.3% 6.2%
Weighted-average expected life of option 10 years 10 years
(11) Stock Purchase Warrants-
In connection with the Western Atlas Acquisition, the Company issued
warrants to purchase common stock to Western Atlas. All of the
warrants issued were outstanding at October 31, 1997. The warrants
allow Western Atlas to purchase $2,000 of common stock at a price equal
to 115% of the price to the public per share of Common Stock in an
initial public offering. The earliest exercise date on the warrants
would be following the Initial Public Offering date. The warrants are
not transferable at any time without the written consent of the
Company. These warrants expire on November 15, 2003. No value was
assigned to the warrants as the amount was deemed immaterial.
(12) Earnings Per Share of Common Stock-
Primary earnings per share of Common Stock is based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents consist of
stock options and the convertible Class B Preferred Stock and are
included in the weighted average number of common shares outstanding
when the impact is dilutive. Fully diluted earnings per share equals
primary earnings per share. Outstanding warrants have no impact on
earnings per share as the exercise price is in excess of the market
price of the common stock as of October 31, 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" ("SFAS 128"). The Company will adopt
SFAS 128 effective November 1, 1997. On a pro forma basis, if the
Company had adopted SFAS 128 for each of the three years ended
October 31, 1997, the effect of this accounting change on reported
earnings per share would be:
Years Ended October 31,
1995 1996 1997
Basic-
Primary net income (loss) as
reported $(0.40) $0.36 $0.77
Effect of SFAS 128 - .34 1.17
------ ----- -----
Basic income (loss) as restated $(0.40) $0.70 $1.94
====== ===== =====
Diluted-
Fully diluted net income (loss)
as reported $(0.40) $0.36 $0.77
Effect of SFAS 128 - - -
------ ----- -----
Diluted income (loss) as
restated $(0.40) $0.36 $0.77
====== ===== =====
(13) Commitments, Contingencies and Off Balance Sheet Risks-
Surety bonds-
The Company was contingently liable to Harnischfeger in the amount of
$49,000 and $34,000 as of October 31, 1995 and 1996, respectively, for
outstanding surety bonds issued on behalf of the Company in which
Harnischfeger had agreed to indemnify third party sureties for certain
contractual obligations of the Company.
General litigation-
The Company is a party to litigation matters, claims and performance
guarantees, which are normal in the course of its operations, and
while the results of litigation, claims and performance guarantees
cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on the
Company's consolidated results of operations or financial position.
Federal Reserve Bank of San Francisco-
On July 1, 1992, Eaton-Kenway entered into a contract ("Fed Contract")
with the Federal Reserve Bank of San Francisco ("SF Fed") relating to
the installation of a material handling system. On February 13, 1995,
the Company assumed the Fed Contract in the Eaton-Kenway Acquisition.
On April 7, 1995, the SF Fed filed the Fed Suit in the United States
District Court for the Northern District of California against the
Company, Eaton-Kenway and Eaton alleging, among other things, a
failure to install a properly operating material handling system for
two existing SF Fed bank vaults in breach of the Fed Contract. The SF
Fed purports to seek not less than $3.55 million as restitution for
the consideration it paid under the Fed Contract, not less than $6.4
million for incidental and consequential damages and not less than
$46.7 million to cover the costs of constructing two new bank vaults.
In 1995, the court granted partial summary judgment on the issue of
liability in favor of the SF Fed and against the Company and the other
defendants on two counts of the SF Fed's complaint for breach of
contract and rescission and restitution. Although this order is
subject to appeal after the entry of final judgment in the action,
there can be no assurance that any such appeal would be successful.
It is anticipated that a jury trial on the damage issues on the
contract claim against the Company and Eaton-Kenway, if not all the
remaining claims against all the parties, will be scheduled in 1998.
The Company believes it has meritorious defenses and rights in
connection with the Fed Suit. Nonetheless, due to the uncertainties
inherent in litigation, particularly where the verdict results from
jury deliberations, the Fed Suit could have a material adverse effect
on the Company's business, results of operations and financial
condition.
Off-balance sheet risks-
The Company entered into a three year interest rate cap with a
commercial bank agreement on March 9, 1995. The contract amount of
the cap agreement is $10,000 through March 9, 1997 and $5,000
thereafter. This agreement requires quarterly payments to the Company
when the LIBOR rate exceeds the cap rate of 8%. The Company paid a
fee of $106 related to the cap agreement and is amortizing the fee
over the life of the agreement. The LIBOR rate during 1995, 1996 and
1997 did not exceed 8%, as such the Company did not receive any
payments.
On June 3, 1996, the Company entered into two interest rate swap
agreements with a commercial bank, each with a notional amount of
$4,000. These agreements expire on June 3, 1998. The first agreement
effectively changes the rate on $4,000 of revolver borrowings to 7.7%.
The second agreement effectively changes the rate on $4,000 of
revolver borrowings to 7.9%. At October 31, 1996 and 1997, $12 and $9
was payable by the Company under these agreements, respectively.
Under the cap and swap agreements, the Company is exposed to credit
risk only in the event of nonperformance by the commercial banks,
which is not anticipated.
The Company occasionally enters into foreign currency future contracts
to hedge specific contract related receivables and payables
denominated in foreign currencies. There were no contracts
outstanding at October 31, 1996 and 1997.
(14) Federal and State Income Taxes-
The provision for income taxes for each of the three years ended
October 31, 1997, consisted of the following:
Years Ended October 31,
1995 1996 1997
Current-
Federal $444 $1,458 $3,965
State 60 565 1,082
Deferred (106) 265 (996)
----- ------ ------
$398 $2,288 $4,051
===== ====== ======
A reconciliation of the Federal statutory tax rate to the consolidated
effective tax rate is as follows:
Years Ended October 31,
1995 1996 1997
Federal statutory rate $218 $2,000 $3,959
State income taxes, net of
Federal taxes 33 271 450
Nondeductible expenses 153 125 86
Research and development credit 23 (19) (415)
Other (29) (89) (29)
----- ------ ------
Effective tax rate $398 $2,288 $4,051
===== ====== ======
Deferred taxes result from temporary differences between the book and
tax basis of the Company's assets and liabilities. The components of
the net deferred tax asset (liability) as of October 31, 1996 and 1997
are as follows:
1996 1997
Current deferred tax assets:
Accruals, not currently deductible $ 765 $2,732
Book versus tax contract accounting 560 1,168
------ -----
Total current net deferred tax
assets 1,325 3,900
Long-term deferred tax assets
(liabilities):
Accelerated amortization 1,895 2,391
Research and development credit
carryforward 916 246
Accelerated depreciation (189) (110)
------ ------
Total long-term net deferred tax
assets $2,622 $2,527
====== ======
No valuation allowance has been recorded as it is more likely than not
that the net deferred income tax assets will be realizable through
future profitable operations of the Company.
(15) Retirement Plans-
The Company maintains a defined contribution 401(k) plan for the
Company employees with employer match provisions up to certain levels
subject to the discretion of the Board of Directors on an annual
basis. The Company's matching expense for each of the three years
ended October 31, 1997, totaled $536, $685, and $1,137, respectively.
The Company also has a profit sharing program whereby funds are
contributed to the 401(k) plan. These contributions are subject to
the discretion of the Board of Directors on an annual basis. The
Company's profit sharing expense totaled $500, $750, and $1,400,
respectively.
(16) Subsequent Events-
Subsequent to year-end, the Company executed the following:
(a) The Company adopted an employee stock ownership plan (the
"ESOP") in which substantially all employees of the Company
participate. As of December 22, 1997, the ESOP had no activity.
(b) The Company incurred additional indebtedness on its revolving
line of credit of $6,500 to purchase 420,000 shares of Class A
Common Stock at $15.38 per share from a former employee to
liquidate the employee's interest after the employee exercised
contractual put rights.
(c) The Company amended its revolving credit agreement by (i)
reducing the line from $90,000 to $80,000; (ii) extending the
termination date to December, 2002; (iii) amending certain of
the financial covenants and (iv) borrowing $6,000 under a term
loan. The term loan shall be used by the Company to fund its
substantially concurrent loan of like amount to the ESOP.
Immediately prior to the initial public offering, the Company plans to
execute the following:
(d) Declare a 0.40 to 1 stock split on preferred and common stock.
All share and per share information has been retroactively
adjusted.
(e) Increase authorized capital stock to 40,000,000 shares of common
stock and 10,000,000 shares of preferred stock.
(f) Cancel all put rights that management has to require a sale of
all of the common stock and preferred stock.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Equityholders of the Material Handling
Systems Division and VantageWare Division
of Western Atlas Inc.:
We have audited the accompanying combined statements of income, changes in
division equity and cash flows of the Material Handling Systems Division
and VantageWare Division of Western Atlas Inc. (a Delaware corporation)
for the year ended December 31, 1995 and the period January 1, 1996 to
November 15, 1996. 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 combined results of operations and cash
flows of the Material Handling Systems Division and VantageWare Division
of Western Atlas Inc. for the year ended December 31, 1995 and the period
January 1, 1996 to November 15, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
December 12, 1997.
<PAGE>
MATERIAL HANDLING SYSTEMS DIVISION AND
VANTAGEWARE DIVISION OF WESTERN ATLAS INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD JANUARY 1, 1996 TO NOVEMBER 15, 1996
(In thousands)
1995 1996
NET REVENUES $79,277 $89,333
COST OF SALES 63,001 68,782
------- -------
Gross profit 16,276 20,551
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 19,828 20,281
------- -------
Income (loss) from operations (3,552) 270
OTHER INCOME, NET 50 201
------- -------
Income (loss) before income taxes (3,502) 471
PROVISION (CREDIT) FOR INCOME TAXES (1,369) 182
------- --------
NET INCOME (LOSS) $(2,133) $289
======= ========
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE>
MATERIAL HANDLING SYSTEMS DIVISION AND
VANTAGEWARE DIVISION OF WESTERN ATLAS INC.
COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD JANUARY 1, 1996 TO NOVEMBER 15, 1996
(In thousands)
Combined
Division Retained
Equity Deficit Total
BALANCE, at December 31, 1994 $40,512 $(12,538) $27,974
Net loss - (2,133) (2,133)
Contributions to parent, net (5,764) - (5,764)
------- ------- -------
BALANCE, at December 31, 1995 34,748 (14,671) 20,077
Net income - 289 289
Contributions to parent, net (23) - (23)
------- -------- -------
BALANCE, at November 15, 1996 $34,725 $(14,382) $20,343
======= ======== =======
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE>
MATERIAL HANDLING SYSTEMS DIVISION AND
VANTAGEWARE DIVISION OF WESTERN ATLAS INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD JANUARY 1, 1996 TO NOVEMBER 15, 1996
(In thousands)
1995 1996
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $(2,133) $289
Adjustments to reconcile net income
(loss)to net cash provided by operating
activities-
Depreciation 2,536 2,138
Deferred income taxes (1,369) -
Changes in assets and liabilities-
Accounts receivable (504) (5,630)
Unbilled revenue 4,953 564
Inventory 1,736 (2,157)
Other assets 641 (117)
Accounts payable (1,725) 2,354
Accrued liabilities 303 1,402
Billings in excess of cost 2.734 2,745
Other liabilities 394 (404)
------- -------
Net cash provided by operating activities 7,566 1,184
------- -------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of fixed assets (1,260) (1,688)
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net contributions to parent (5,764) (23)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 542 (527)
CASH AND CASH EQUIVALENTS, beginning of
period 177 719
------- -------
CASH AND CASH EQUIVALENTS, end of period $719 $192
======= =======
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE>
MATERIAL HANDLING SYSTEMS DIVISION AND
VANTAGEWARE DIVISION OF WESTERN ATLAS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD JANUARY 1, 1996 TO NOVEMBER 15, 1996
(In thousands)
(1) Business Description-
The Material Handling Systems division ("MHS") of Western Atlas Inc.
("Western Atlas") is engaged in the design, manufacture and sale of
automated storage/retrieval systems, conveyors and sortation equipment
and palletizers. The VantageWare division ("VW") of Western Atlas is
engaged in designing and selling software products for the material
handling industry. Sales for both divisions are primarily in the
United States of America.
(2) Summary of Significant Accounting Policies-
Principles of combination-
The combined financial statements include the accounts of MHS and VW.
All significant interdivisional balances and transactions have been
eliminated.
Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
Revenue recognition-
Revenue and gross profits on virtually all long-term customer
contracts is recorded using the percentage-of-completion method of
accounting. Under this method, percentage of completion is determined
by reference to the extent of contract performance, future performance
risk and cost incurrence. Any revisions in the estimated total costs
of the contracts during the course of the work are reflected when the
facts that require the revisions become known. Losses, if any, are
recognized in full as soon as identified.
Software license fee revenue is recorded when the software has been
delivered, the license agreement with the customer has been executed
and collection of the resulting receivable is deemed probable.
Revenues for customization and modification of licensed software and
for implementation services are recorded using the percentage-of-
completion method of accounting.
Inventories-
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property, plant and equipment and depreciation-
Property, plant and equipment additions are stated at cost.
Expenditures for major renewals and improvements are capitalized,
while maintenance and repairs which do not significantly improve the
related asset or extend its useful life are charged to expense as
incurred. For financial reporting purposes, depreciation is computed
using the straight-line method over three to twenty eight years based
on asset type. Accelerated depreciation methods are used for tax
purposes.
Research and development expenses-
Research and development costs are expensed as incurred. Such costs
incurred in the development of new products or significant
improvements to existing products that were not charged directly to
contracts amounted to $927 and $1,769 for the year ended December 31,
1995 and the period January 1, 1996 to November 15, 1996,
respectively.
Capitalized software costs-
MHS and VW capitalize all costs associated with the purchase of
software or licenses that are to be sold. These costs are amortized
on a straight-line basis over the remaining estimated economic life of
the product, which is generally five years. During the year ended
December 31, 1995, VW wrote off approximately $1,165 of capitalized
software costs for two products that management believed had no future
economic life. The write off is included in cost of sales in the
combined statements of income. As of November 15, 1996, all
unamortized capitalized software costs have been written off.
Intercompany charges-
MHS and VW have historically depended upon Western Atlas for support
for various services such as legal, financial, human resources,
insurance, risk management and communications. Western Atlas
allocated the cost for these services among its businesses based on
sales, head count and net working assets. The allocated costs for
these services are included in selling, general and administrative
expenses in the combined statements of income and totaled $1,060 and
$943 for the year ended December 31, 1995 and the period January 1,
1996 to November 15, 1996, respectively. Management believes that the
method used to allocate these expenses reasonably reflects the costs
of actual services provided.
(3) Operating Leases-
MHS and VW are party to various operating leases for facilities and
equipment. Total rental expense was $462 and $406 for the year ended
December 31, 1995 and the period January 1, 1996 to November 15, 1996,
respectively.
(4) Combined Division Equity-
Combined division equity includes retained deficit and all
distributions between Western Atlas and MHS and VW.
(5) Retirement Plan-
MHS and VW have a defined contributory plan for their employees under
the Western Atlas Financial Security and Savings Program. The plan
provides for employer match provisions up to certain levels. MHS and
VW's matching expense related to the plan totaled $244 and $235 for
the year ended December 31, 1995 and the period January 1, 1996 to
November 15, 1996, respectively.
(6) Post Retirement Benefit Plan Other Than Pensions-
MHS and VW provide certain post retirement health care coverages for
their employees. The net postretirement cost for the year ended
December 31, 1995 and the period January 1, 1996 to November 15, 1996,
was approximately $196 and $145, respectively.
(7) Federal and State Income Taxes-
MHS and VW are included in Western Atlas' consolidated federal income
tax return. The provision (credit) for income taxes as shown on the
combined statements of income was calculated on a standalone basis.
The provision (credit) for income taxes for the year ended December
31, 1995 and the period January 1, 1996 to November 15, 1996,
consisted of the following:
1995 1996
Current-
Federal $ - $153
State - 29
Deferred (1,369) -
------- -----
$(1,369) $182
======= =====
A reconciliation of the Federal statutory tax rate to the consolidated
effective tax rate is as follows:
1995 1996
Federal statutory rate (34)% 34%
State income taxes, net of Federal tax
liability (4) 4
Other (1) 1
---- -----
Effective tax rate (39)% 39%
==== =====
(8) Commitments and Contingencies-
MHS and VW are party to litigation matters, claims and performance
guarantees, which are normal in the course of its operations, and
while the results of litigation, claims and performance guarantees
cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on MHS
and VW's operations.
(9) Acquisition-
On November 15, 1996, HK Systems, Inc. acquired substantially all of
the net assets of MHS and VW from Western Atlas for a purchase price
of $42,600. The purchase price consisted of $34,600 in cash and an
$8,000 promissory note to Western Atlas. HK Systems, Inc. also
assumed $26,464 of liabilities of MHS and VW in connection with the
acquisition.
<PAGE>
(BACK COVER)
SUPPLY CHAIN MANAGEMENT
IN TODAY'S BUSINESS WORLD, COMPANIES CAN RESPOND TO INCREASING CUSTOMER
DEMANDS FOR FASTER, MORE EFFICIENT AND CUSTOMIZED PRODUCT DELIVERY THROUGH
SUPPLY CHAIN PRACTICES THAT INCLUDE DEMAND-PULL MANUFACTURING SYSTEMS AS
WELL AS THIRD-PARTY DISTRIBUTION, MIXED-LOAD SHIPMENTS AND MORE FREQUENT,
SMALLER QUANTITY DELIVERIES.
AS COMPETITION IN MANY INDUSTRIES MAKES IT INCREASINGLY DIFFICULT TO
ACHIEVE REVENUE GROWTH, BUSINESSES ARE FOCUSING MORE ON REDUCING SUPPLY
CHAIN COSTS AS A MEANS OF INCREASING PROFITS. COMPANIES ARE INCREASINGLY
FINDING THAT, THROUGH THE IMPLEMENTATION OF AUTOMATED MATERIAL HANDLING
AND SUPPLY CHAIN SOFTWARE SYSTEMS AND OUTSOURCING OF SYSTEM MAINTENANCE,
THEY CAN ACHIEVE IMPROVEMENTS IN THROUGH-PUT, REDUCE INVENTORY AND
MANPOWER LEVELS, AND RATIONALIZE SUPPLIER RELATIONSHIPS.
OUR EXPERIENCE SERVING DIVERSIFIED INDUSTRIES POSITIONS HK SYSTEMS TO
DESIGN AND IMPLEMENT SUPPLY CHAIN SOLUTIONS THAT INCLUDE EQUIPMENT
INTEGRATION, OUTSOURCING AND SOFTWARE FOR COMPLEX SUPPLY CHAIN MANAGEMENT
NEEDS.
[text accompanies a graphic illustration of a cube with five "layers" that
reflect the following: (1) a layer that identifies various industries,
including consumer products, electronics, distribution and retail,
petrochemical, publishing, automotive, manufacturing and food and
beverage, with the Company's logo at the center; (2) three layers
identifying each of the Company's three business units: Integrated
Systems; Customer Services; and Logistics and Software Systems; and (3) a
final layer identifying the five principal equipment products of the
Integration Services unit.]
<PAGE>
No person is authorized in connection with any offering made
hereby to give any information or to make any representation other
than as contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having
been authorized by the Company or by any U.S. Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any security other than shares of Common Stock
offered hereby, nor does it constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered
hereby to any persons in any jurisdiction in which it is unlawful
to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall
under any circumstance create any implication that the information
herein is correct as of any date subsequent to the date hereof.
_________________________________
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Historical Consolidated Financial Data . . . . . . .
Summary Pro Forma Consolidated Financial Data . . . . . . . .
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions; Relationships with
Selling Shareholders; Compensation Committee
Interlocks and Insider Participation . . . . . . . . . . .
Principal and Selling Shareholders . . . . . . . . . . . . .
Description of Capital Stock . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . . .
Certain United States Federal Tax Considerations for
Non-U.S. Holders of Common Stock . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information
Index to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
______________________________
Until , 1998 (25 days after the date of this
Prospectus), all dealers effecting transactions in the Common
Stock, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in
addition to the obligation of dealers to deliver a Prospectus when
acting as U.S. Underwriters and with respect to their unsold
allotments or subscriptions.
_________ Shares
[Logo]
HK SYSTEMS, INC.
Common Stock
_________________________
PROSPECTUS
, 1998
_________________________
Lehman Brothers
Robert W. Baird & Co.
Incorporated
Furman Selz
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Alternate Page for Subject to Completion, dated December 23, 1997
International Prospectus
__________ Shares
[HK Systems, Inc. Logo]
Common Stock
__________________________
Of the ________ shares of Common Stock offered hereby, ________ are
being sold by the Company and __________ are being sold by the Selling
Shareholders. See "Principal and Selling Shareholders." The Company will
not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. Of the shares of Common Stock offered, _________
shares are being offered initially outside the United States and Canada by
the International Managers (the "International Offering"), and __________
shares are being offered initially in the United States and Canada by the
U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offering"). The initial public offering
price and underwriting discounts and commissions will be identical for
both offerings. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
list of the factors to be considered in determining the initial public
offering price. Application will be made to list the Common Stock on the
New York Stock Exchange under the symbol "HKS."
__________________________
See "Risk Factors" beginning on page _____ for a discussion of certain
factors that should be considered by prospective purchasers of the Common
Stock offered hereby.
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Discounts Proceeds to
and Proceeds to Selling
Price to Commissions Company(2) Shareholders
Public (1)
Per Share $00.00 $0.00 $00.00 $00.00
Total(3) $00,000,000 $0,000,000 $00,000,000 $00,000,000
(1) The Company and the Selling Shareholders have agreed to indemnify the
U.S. Underwriters and International Managers (together, the
"Underwriters") against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $ .
(3) Certain of the Selling Shareholders and the Company have granted the
International Managers a 30-day option to purchase up to
additional shares of Common Stock on the same terms and conditions as
set forth above, solely to cover over-allotments, if any. Such
Selling Shareholders and the Company have granted the U.S.
Underwriters a similar option to purchase up to
additional shares of Common Stock to cover over-allotments, if any.
If such options are exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $
, $ and $ , respectively. The Company will
not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. See "Underwriting" and "Principal and Selling
Shareholders."
__________________________
The Common Stock offered by this Prospectus is offered by the
International Managers, subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery and acceptance by
the International Managers and to certain further conditions. It is
expected that delivery of certificates representing the shares of Common
Stock will be made at the offices of Lehman Brothers Inc., New York, New
York, on or about , 1998.
____________________________
Lehman Brothers
Robert W. Baird & Co.
incorporated Furman Selz
, 1998
<PAGE>
Alternate Page for International Prospectus
No person is authorized in connection with any offering made
hereby to give any information or to make any representation other
than as contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having
been authorized by the Company or by any International Manager.
This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than shares of
Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities
offered hereby to any persons in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstance create any implication that
the information herein is correct as of any date subsequent to the
date hereof.
_________________________________
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Historical Consolidated Financial Data . . . . . . .
Summary Pro Forma Consolidated Financial Data . . . . . . . .
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions; Relationships with
Selling Shareholders; Compensation Committee
Interlocks and Insider Participation . . . . . . . . . . .
Principal and Selling Shareholders . . . . . . . . . . . . .
Description of Capital Stock . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . . .
Certain United States Federal Tax Considerations for
Non-U.S. Holders of Common Stock . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
______________________________
Until , 1998 (25 days after the date of this
Prospectus), all dealers effecting transactions in the Common
Stock, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in
addition to the obligation of dealers to deliver a Prospectus when
acting as International Managers and with respect to their unsold
allotments or subscriptions.
_________ Shares
[Logo]
HK SYSTEMS, INC.
Common Stock
_________________________
PROSPECTUS
, 1998
_________________________
Lehman Brothers
Robert W. Baird & Co.
Incorporated
Furman Selz
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission
filing fee . . . . . . . . . . . . . $ 33,925
NASD fee . . . . . . . . . . . . . . . 12,000
NYSE listing fee . . . . . . . . . . . 91,000
Blue sky fees and expenses . . . . . . 4,000
Transfer agent expenses and fees . . . 6,000
Printing and engraving . . . . . . . . 150,000
Accountants' fees and expenses . . . . 150,000
Legal fees and expenses . . . . . . . . 275,000
Miscellaneous . . . . . . . . . . . . . 28,075
--------
Total . . . . . . . . . . . . $ 750,000
========
__________________________
All of the above fees, costs and expenses above will be paid by the
Company. Other than the SEC filing fee, all fees and expenses are
estimated.
Item 14. Indemnification of Directors and Officers.
Pursuant to the WBCL and the Company's By-Laws, directors and
officers of the Company are entitled to mandatory indemnification from the
Company against certain liabilities and expenses (i) to the extent such
officers or directors are successful in the defense of a proceeding and
(ii) in proceedings in which the director or officer is not successful in
defense thereof, unless (in the latter case only) it is determined that
the director or officer breached or failed to perform his duties to the
Company and such breach or failure constituted: (a) a willful failure to
deal fairly with the Company or its Shareholders in connection with a
matter in which the director or officer had a material conflict of
interest; (b) a violation of criminal law unless the director or officer
had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful; (c) a
transaction from which the director or officer derived an improper
personal profit; or (d) willful misconduct. The WBCL specifically states
that it is public policy of Wisconsin to require or permit
indemnification, allowance of expenses and insurance in connection with a
proceeding involving securities regulation, as described therein, to the
extent required or permitted as described above. Additionally, under the
WBCL, directors of the Company are not subject to personal liability to
the Company, its Shareholders or any person asserting rights on behalf
thereof for certain breaches or failures to perform any duty resulting
solely from their status as directors, except in circumstances paralleling
those in subparagraphs (a) through (d) outlined above.
The Company also maintains director and officer liability insurance
against certain claims and liabilities that may be made against the
Company's former, current or future directors or officers.
The indemnification provided by the WBCL and the Company's Amended
and Restated By-Laws is not exclusive of any other rights to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the circumstances under which an officer or
director may be required to beach the economic burden of the foregoing
liabilities and expense.
Item 15. Recent Sales of Unregistered Securities.
On February 13, 1995 and in connection with the Eaton-Kenway
Acquisition, the Company issued and sold (a) 11,000 Class A Common shares
to John W. Splude and 3,000 Class A Common shares each to Glen P. Davis,
John C. Hines and Gordon W. Jones for an aggregate of $160,000; (b) 1,538
Class C Common shares to MIVC for $12,304; and (c) 12,000 shares of Class
B Preferred Stock to MIVC and 28,000 shares of Class B Preferred Stock to
SWIB for an aggregate of $4,000,000. No underwriters were engaged in
connection with the foregoing sales. The issuance of such securities was
exempt from registration under the Securities Act pursuant to Section 4(2)
as a transaction not involving any public offering.
Other than as set forth in the preceding paragraphs, the Company has
not sold any securities within the past three years.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits. The exhibits filed herewith are as specified on the
Exhibit Index included herein.
(b) Financial Statement Schedules. All schedules are omitted
because the required information is not present or is not
present in amounts sufficient to require submission of a
schedule or because the information required is included in the
consolidated financial statements of the Registrant or notes
thereto or the schedule is not required or inapplicable under
the related instructions.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, and State of Wisconsin, on this 23rd day of December, 1997.
HK SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature
appears below constitutes and appoints John W. Splude, John C. Hines and
John R. Kuhnmuench, Jr., and each of them individually, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ John W. Splude Chairman, President, Chief December 23, 1997
John W. Splude Executive Officer and
Director (Principal
Executive Officer)
/s/ Glen P. Davis Executive Vice President- December 23, 1997
Glen P. Davis Integration Services and
Director
/s/ John C. Hines Senior Vice President and December 23, 1997
John C. Hines Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ John Byrnes Director December 23, 1997
John Byrnes
/s/ David Upton Director December 23, 1997
David Upton
/s/ Jose Yglesias Director December 23, 1997
Jose Yglesias
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Exhibit Description Number
1.1 Form of U. S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Company.*
3.2 Amended and Restated Bylaws of the Company.*
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Bylaws of the
Company defining the rights of the holders of Common
Stock.
4.3 Third Amended and Restated Credit Agreement dated as of
November 15, 1996 by and among the Company, Harris Trust
and Savings Bank, individually and as agent, and the
lenders that are a party thereto.
4.4 Warrant, dated as of November 15, 1996, issued to Western
Atlas by the Company.
5.1 Draft form of Opinion of Foley & Lardner regarding the
legality of securities being offered.
10.1 Employment and Noncompetition Agreement, dated as of
October 28, 1993 and as amended October 31, 1996, by and
between the Company and John W. Splude.
10.2 Form of Employment and Noncompetition Agreement, dated as
of October 28, 1993 and as amended October 31, 1996, by
and between the Company and each of Glen P. Davis and John
C. Hines.
10.3 Form of Employment and Noncompetition Agreement, dated as
of July 1, 1997, by and between the Company and David W.
Bartley, Stephen S. Sadowski and Larry S. Cinpinski,
individually.
10.4 HK Systems, Inc. 1997 Stock Plan for Outside Directors.*
10.5 HK Systems, Inc. 1993 Executive Stock Option Plan.
10.6 Registration Rights Agreement, dated as of January ___,
1998, by and between the Company, MIVC and SWIB.*
10.7 Lease Agreement, dated as of January 16, 1995 and as
amended April 17, 1996, by and between James Luterbach, as
lessor, and the Company, as lessee.
10.8 Lease Agreement, dated as of February 13, 1995 and as
amended January 5, 1996, by and between Eaton Properties
Corporation and Eaton Utah Corporation (collectively, the
lessor), and the Company, as lessee.
10.9 Lease Agreement, dated as of November 15, 1996, by and
between Western Atlas, Inc., as lessor, and the Company,
as lessee.
11.1 Computation of Earnings per share of Common Stock.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Foley & Lardner (included in Exhibit 5.1).
24.1 Power of Attorney (included on the signature page to the
Registration Statement).
27.1 Financial Data Schedule.
__________________
* To be filed by Amendment.
DRAFT
______________________________
HK SYSTEMS, INC.
COMMON STOCK
U.S. UNDERWRITING AGREEMENT
_____ __, 1997
LEHMAN BROTHERS INC.
Robert W. Baird & Co. Incorporated
Furman Selz LLC,
As Representatives of the several
U.S. Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
HK Systems, Inc., a Wisconsin Corporation (the "Company"), and
certain stockholders of the Company named in Schedule 2 hereto (the
"Selling Stockholders"), propose to sell an aggregate of _________ shares
(the "Firm Stock") of the Company's Common Stock, par value $___ per share
(the "Common Stock"). Of the __________ shares of the Firm Stock,
________ are being sold by the Company and _________ by the Selling
Stockholders. In addition, the Selling Stockholders propose to grant to
the U.S. Underwriters named in Schedule 1 hereto (the "U.S. Underwriters")
an option to purchase up to an additional _______ shares of the Common
Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the
agreement concerning the purchase of the Stock from the Company and the
Selling Stockholders by the U.S. Underwriters named in Schedule 1 hereto
(the "U.S. Underwriters").
It is understood by all parties that the Company and the Selling
Stockholders are concurrently entering into an agreement dated the date
hereof (the "International Underwriting Agreement") providing for the sale
by the Company and the Selling Stockholders of an aggregate of
____________ shares of Common Stock (including the over-allotment option
thereunder) (the "International Stock") through arrangements with certain
underwriters outside the United States and Canada (the "International
Managers"), for whom Lehman Brothers International (Europe) and Robert W.
Baird & Co. Incorporated and Furman Selz LLC are acting as lead managers.
The U.S. Underwriters and the International Managers simultaneously are
entering into an agreement between the U.S. and international underwriting
syndicates (the "Agreement Between U.S. Underwriters and International
Managers") which provides for, among other things, the transfer of shares
of Common Stock between the two syndicates. Two forms of prospectus are
to be used in connection with the offering and sales of shares of Common
Stock contemplated by the foregoing, one relating to the Stock and the
other relating to the International Stock. The latter form of prospectus
will be identical to the former except for certain substitute pages as
included in the registration statement and amendments thereto referred to
below. Except as used in Sections 3, 4, 5, 11, and 12 herein, and except
as the context may otherwise require, references herein to the Stock shall
include all the shares which may be sold pursuant to either this Agreement
or the International Underwriting Agreement, and references herein to any
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and the international versions
thereof.
1. Representations, Warranties and Agreements of the Company and the
Selling Stockholders. The Company and the Selling Stockholders represent,
warrant and agree that:
(a) A registration statement on Form S-1, and any amendment
thereto, with respect to the Stock has (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rule and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder,
(ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such
registration statement and any amendment thereto have been delivered
by the Company to you as the representatives (the "Representatives")
of the U. S. Underwriters. As used in this Agreement, "Effective
Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission; "Effective Date" means
the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments
thereof, before it became effective under the Securities Act and any
prospectus filed with the Commission by the Company with the consent
of the Representatives pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus;
b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable Effective Date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that no representation or warranty is made as to information
contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by
or on behalf of any U.S. Underwriter specifically for inclusion
therein;
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the conduct
of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged;
and none of the subsidiaries of the Company is a "significant
subsidiary", as such term is defined in Rule 405 of the Rules and
Regulations;
(d) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares and except as set forth in
the Prospectus, are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(e) The unissued shares of the Stock to be issued and sold by
the Company to the U.S. Underwriters hereunder and under the
International Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein and in the International Underwriting Agreement, will
be duly and validly issued, fully paid and non-assessable, and the
Stock will conform to the description thereof contained in the
Prospectus;
(f) This Agreement has been duly authorized, executed and
delivered by the Company;
(g) The execution, delivery and performance of this Agreement
and the International Underwriting Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Securities Exchange Act of 1934 (the "Exchange Act") and
applicable state or foreign securities laws in connection with the
purchase and distribution of the Stock by the U.S. Underwriters and
the International Managers, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement or the International Underwriting
Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby;
(h) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act;
(i) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified
stock options plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants;
(j) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein;
(l) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who has delivered the initial letter referred to in Section 9(g)
hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations;
(m) The Company has each of its subsidiaries has good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and
its subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries;
(n) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar businesses in similar industries;
(o) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the
conduct of their respective businesses and have no reason to believe
that the conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict with, any
such rights of others;
(p) Except as described in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries; to the best of the
Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others, and
all descriptions of legal proceedings contained in the Prospectus are
complete and accurate in all material respects;
(q) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to
the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(r) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other
hand, which is required to be described in the Prospectus which is
not so described;
(s) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be
expected to have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries;
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause
the loss of such qualification;
(u) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of
its subsidiaries, might have) a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries;
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock;
(w) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals;
(x) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of
time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject or (iii)
in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any
material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of
its property or to the conduct of its business;
(y) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to the
knowledge of the Company, any of its predecessors in interest) at,
upon or from any of the property now or previously owned or leased by
the Company or its subsidiaries in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or
which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any
of its subsidiaries or with respect to which the Company or any of
its subsidiaries have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release
which would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, a
material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; and the terms "hazardous wastes",
"toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal
and foreign laws or regulations with respect to environmental
protection; and
(z) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder severally represents, warrants and
agrees that:
(a) The Selling Stockholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have, good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder and under the
International Underwriting Agreement on such date, free and clear of
all liens, encumbrances, equities or claims; and upon delivery of
such shares and payment therefor pursuant hereto and thereto, good
and valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several U.S.
Underwriters and International Managers;
(b) The Selling Stockholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all
other similar agreements executed by the other Selling Stockholders,
the "Custody Agreements") with [insert name of custodian], as
custodian (the "Custodian"), for delivery under this Agreement and
under the International Underwriting Agreement, certificates in
negotiable form (with signature guaranteed by a commercial bank or
trust company having an office or correspondent in the United States
or a member firm of the New York or American Stock Exchanges)
representing the shares of Stock to be sold by the Selling
Stockholder hereunder;
(c) The Selling Stockholder has duly and irrevocably executed
and delivered a power of attorney (the "Power of Attorney" and,
together with all other similar agreements executed by the other
Selling Stockholders, the "Powers of Attorney") appointing the
Custodian and one or more other persons, as attorneys-in-fact, with
full power of substitution, and with full authority (exercisable by
any one or more of them) to execute and deliver this Agreement and to
take such other action as may be necessary or desirable to carry out
the provisions hereof on behalf of the Selling Stockholder;
(d) The Selling Stockholder has full right, power and authority
to enter into this Agreement and the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement; the
execution, delivery and performance of this Agreement, the
International Underwriting Agreement, the Power of Attorney and the
Custody Agreement by the Selling Stockholder and the consummation by
the Selling Stockholder of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Selling Stockholder is a party or by which
the Selling Stockholder is bound or to which any of the property or
assets of the Selling Stockholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws
of the Selling Stockholder (with respect to a Selling Stockholder
that is a corporation) or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Selling Stockholder or the property or assets
of the Selling Stockholder; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state or foreign securities
laws in connection with the purchase and distribution of the Stock by
the U.S. Underwriters and the International Managers, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the
International Underwriting Agreement, the Power of Attorney or the
Custody Agreement by the Selling Stockholder and the consummation by
the Selling Stockholder of the transactions contemplated hereby and
thereby;
(e) The Registration Statement and the Prospectus and any
further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable Effective Date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided that no representation or warranty
is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Representatives by or on behalf of any U.S. Underwriter
specifically for inclusion therein;
(f) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company and the Selling
Stockholders contained in Section 1 hereof are not materially true
and correct, is familiar with the Registration Statement and the
Prospectus (as amended or supplemented) and has no knowledge of any
material fact, condition or information not disclosed in the
Registration Statement, as of the Effective Date, or the Prospectus
(or any amendment or supplement thereto), as of the applicable filing
date, which has adversely affected or may adversely affect the
business of the Company and is not prompted to sell shares of Common
Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus; and
(g) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
3. Purchase of the Stock by the U.S. Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms
and conditions of, this Agreement, the Company agrees to sell _______
shares of the Firm Stock and each Selling Stockholder hereby agrees to
sell the number of shares of the Firm Stock set forth opposite such
Selling Stockholder's name in Schedule 2 hereto, severally and not
jointly, to the several U.S. Underwriters, and each of the U.S.
Underwriters, severally and not jointly, agrees to purchase the number of
shares of the Firm Stock set forth opposite that U.S. Underwriter's name
in Schedule 1 hereto. Each U.S. Underwriter shall be obligated to
purchase from the Company, and from each Selling Stockholder, that number
of shares of the Firm Stock which represents the same proportion of the
number of shares of the Firm Stock to be sold by the Company, and by each
Selling Stockholder, as the number of shares of the Firm Stock set forth
opposite the name of such U.S. Underwriter in Schedule 1 represents of the
total number of shares of the Firm Stock to be purchased by all of the
U.S. Underwriters pursuant to this Agreement. The respective purchase
obligations of the U.S. Underwriters with respect to the Firm Stock shall
be rounded among the U.S. Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Selling Stockholders grant to the U.S. Underwriters
an option to purchase up to _______ shares of Option Stock. Such option
is granted solely for the purpose of covering over-allotments in the sale
of Firm Stock and is exercisable as provided in Section 5 hereof. Shares
of Option Stock shall be purchased severally for the account of the U.S.
Underwriters in proportion to the number of shares of Firm Stock set forth
opposite the name of such U.S. Underwriters in Schedule 1 hereto. The
respective purchase obligations of each U.S. Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no U.S.
Underwriter shall be obligated to purchase Option Stock other than in 100
share amounts. The price of both the Firm Stock and any Option Stock
shall be $_____ per share.
The Company and the Selling Stockholders shall not be obligated to
deliver any of the Stock to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as
provided herein and in the International Underwriting Agreement.
4. Offering of Stock by the U.S. Underwriters.
Upon authorization by the Representatives of the release of the Firm
Stock, the several U.S. Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
It is understood that _______ shares of the Firm Stock will initially
be reserved by the several U.S. Underwriters for offer and sale upon the
terms and conditions set forth in the Prospectus and in accordance with
the rules and regulations of the National Association of Securities
Dealers, Inc. to employees and persons having business relationships with
the Company and its subsidiaries who have heretofore delivered to the
Representatives offers or indications of interest to purchase shares of
Firm Stock in form satisfactory to the Representatives, and that any
allocation of such Firm Stock among such persons will be made in
accordance with timely directions received by the Representatives from the
Company; provided, that under no circumstances will the Representatives or
any U.S. Underwriter be liable to the Company or to any such person for
any action taken or omitted in good faith in connection with such offering
to employees and persons having business relationships with the Company
and its subsidiaries. It is further understood that any shares of such
Firm Stock which are not purchased by such persons will be offered by the
U.S. Underwriters to the public upon the terms and conditions set forth in
the Prospectus.
Each U.S. Underwriter agrees that, except to the extent permitted by
the Agreement Between U.S. Underwriters and International Managers, it
will not offer or sell any of the Stock outside of the United States or
Canada.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Lehman Brothers Inc.,
333 West 34th Street, 3rd Floor, New York, New York 10001 at 10:00 A.M.,
New York City time, on the third (fourth, if pricing occurs after 4:30
p.m. New York City time) full business day following the date of this
Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. This date and time
are sometimes referred to as the "First Delivery Date." On the First
Delivery Date, the Company and the Selling Stockholders shall deliver or
cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each U.S. Underwriter against payment
to or upon the order of the Company and the Selling Stockholders of the
purchase price by wire transfer of immediately available funds. Time
shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of
each U.S. Underwriter hereunder. Upon delivery, the Firm Stock shall be
registered in such names and in such denominations as the Representatives
shall request in writing not less than two full business days prior to the
First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company and the
Selling Stockholders shall make the certificates representing the Firm
Stock available for inspection by the Representatives in New York, New
York, not later than 2:00 P.M., New York City time, on the business day
prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 3 may be exercised by written
notice being given to the Selling Stockholders by the Representatives.
Such notice shall set forth the aggregate number of shares of Option Stock
as to which the option is being exercised, the names in which the shares
of Option Stock are to be registered, the denominations in which the
shares of Option Stock are to be issued and the date and time, as
determined by the Representatives, when the shares of Option Stock are to
be delivered; provided, however, that this date and time shall not be
earlier than the First Delivery Date nor earlier than the second business
day after the date on which the option shall have been exercised nor later
than the fifth business day after the date on which the option shall have
been exercised. The date and time the shares of Option Stock are
delivered are sometimes referred to as the "Second Delivery Date" and the
First Delivery Date and the Second Delivery Date are sometimes each
referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this
Section 5 (or at such other place as shall be determined by agreement
between the Representatives and the Company) at 10:00 A.M., New York City
time, on the Second Delivery Date. On the Second Delivery Date, the
Selling Stockholders shall deliver or cause to be delivered the
certificates representing the Option Stock to the Representatives for the
account of each U.S. Underwriter against payment to or upon the order of
the Selling Stockholders of the purchase price by wire transfer of
immediately available funds. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each U.S. Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging
of the certificates for the Option Stock, the Selling Stockholders shall
make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than
2:00 P.M., New York City time, on the business day prior to the Second
Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as
may be required by Rule 430A(a)(3) under the Securities Act; to make
no further amendment or any supplement to the Registration Statement
or to the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the U.S. Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and
exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any
time after the Effective Time in connection with the offering or sale
of the Stock or any other securities relating thereto and if at such
time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply
with the Securities Act, to notify the Representatives and, upon
their request, to prepare and furnish without charge to each U.S.
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such statement
or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by
the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
U.S. Underwriters and obtain the consent of the Representatives to
the filing;
(f) As soon as practicable after the Effective Date (it being
understood that the Company shall have until at least 455 days after
the end of the Company's current fiscal quarter), to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at
the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all
reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Common Stock
may be listed pursuant to requirements of or agreements with such
exchange or to the Commission pursuant to the Exchange Act or any
rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock; provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition by
any person at any time in the future of) any shares of Common Stock
or securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant options,
rights or warrants with respect to any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other
than the grant of options pursuant to option plans existing on the
date hereof), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.; and to cause each officer,
director and stockholder of the Company to furnish to the
Representatives, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the U.S.
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or (2)
enter into any swap or other derivatives transaction that transfers
to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise,
in each case for a period of 180 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the listing of
the Stock on the New York Stock Exchange, Inc. and to use its best
efforts to complete that listing, subject only to official notice of
issuance and evidence of satisfactory distribution, prior to the
First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the U.S. Underwriters and receive and
consider its comments thereon, and to deliver promptly to the
Representatives a signed copy of each report on Form SR filed by it
with the Commission;
(l) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition by
any person at any time in the future of) any shares of Common Stock
or securities convertible into or exchangeable for Common Stock
(other than the Stock) or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock
or other securities, in cash or otherwise, in each case without the
prior written consent of Lehman Brothers Inc.;
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody
for the Selling Stockholder, is subject to the interest of the U.S.
Underwriters and the other Selling Stockholders thereunder, that the
arrangements made by the Selling Stockholder for such custody are to
that extent irrevocable, and that the obligations of the Selling
Stockholder hereunder shall not be terminated by any act of the
Selling Stockholder, by operation of law, by the death or incapacity
of any individual Selling Stockholder or, in the case of a trust, by
the death or incapacity of any executor or trustee or the termination
of such trust, or the occurrence of any other event; and
(c) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-
United States person) or Form W-9 (if the Selling Stockholder is a
United States person.)
8. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement
and any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and
any post-effective amendments thereof (including, in each case, exhibits),
any Preliminary Prospectus, the Prospectus and any amendment or supplement
to the Prospectus, all as provided in this Agreement; (d) the costs of
producing and distributing this Agreement, the International Underwriting
Agreement, the Agreement Between U.S. Underwriters and International
Managers, any Supplemental Agreement Among U.S. Underwriters and any other
related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the costs of delivering and distributing the
Custody Agreements and the Powers of Attorney; (f) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (g) any
applicable listing or other fees; (h) the fees and expenses of qualifying
the Stock under the securities laws of the several jurisdictions as
provided in Section 6(h) and of preparing, printing and distributing a
Blue Sky Memorandum (including related fees and expenses of counsel to the
U.S. Underwriters); (i) all costs and expenses of the U.S. Underwriters,
including the fees and disbursements of counsel for the U.S. Underwriters,
incident to the offer and sale of shares of the Stock by the U.S.
Underwriters to employees and persons having business relationships with
the Company and its subsidiaries, as described in Section 4; and (k) all
other costs and expenses incident to the performance of the obligations of
the Company and the Selling Stockholders under this Agreement; provided
that, except as provided in this Section 8 and in Section 13, the U.S.
Underwriters shall pay their own costs and expenses, including the costs
and expenses of their counsel, any transfer taxes on the Stock which they
may sell and the expenses of advertising any offering of the Stock made by
the U.S. Underwriters.
9. Conditions of U.S. Underwriters' Obligations. The respective
obligations of the U.S. Underwriters hereunder are subject to the
accuracy, when made and on each Delivery Date, of the representations and
warranties of the Company and the Selling Stockholders contained herein,
to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder, and to each of the following additional
terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of
the Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall have been
complied with;
(b) No U.S. Underwriter shall have discovered and disclosed to
the Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Mayer, Brown & Platt, counsel for the U.S. Underwriters, is material
or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading;
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the
International Underwriting Agreement, the Custody Agreements, the
Powers of Attorney, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement
and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the U.S.
Underwriters, and the Company and the Selling Stockholders shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters;
(d) Foley & Lardner shall have furnished to the Representatives
its written opinion, as counsel to the Company, addressed to the U.S.
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company and each of its subsidiaries have been
duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification and have all power and authority necessary to own
or hold their respective properties and to conduct the
businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
and all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and (except for directors'
qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities and claims;
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's
charter or by-laws or any agreement or other instrument known to
such counsel;
(iv) The Company and each of its subsidiaries have good
and marketable title in fee simple to all real property owned by
them, free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all
real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge after
reasonable inquiry and other than as set forth in the
Prospectus, (A) there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a
party or of which any property or assets of the Company or any
of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, might have
a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries; (B) no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others; and (C) all descriptions of
such proceedings contained in the Prospectus are complete and
accurate in all material respects;
(vi) The Registration Statement was declared effective
under the Securities Act as of the date and time specified in
such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge of
such counsel after reasonable inquiry, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules and Regulations;
(viii) The statements contained in the Prospectus under the
captions "Description of Capital Stock', "Shares Eligible for
Future Sale" and "Business - Legal Proceedings", insofar as they
describe federal statutes, rules and regulations, constitute a
fair summary thereof;
(ix) To the best of such counsel's knowledge after
reasonable inquiry, there are no contracts or other documents
which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or
by the Rules and Regulations which have not been described or
filed as exhibits to the Registration Statement or incorporated
therein by reference as permitted by the Rules and Regulations;
(x) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered
by the Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel (after reasonable
inquiry) to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-
laws of the Company or any of its subsidiaries or any statute or
any order, rule or regulation known to such counsel (after
reasonable inquiry) of any court or governmental agency or body
having jurisdiction over the Company or any of subsidiaries or
any of their properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state or foreign securities laws in connection with
the purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement or
the International Underwriting Agreement by the Company and the
consummation of the transactions contemplated hereby and
thereby;
(xii) To the best of such counsel's knowledge after
reasonable inquiry, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act; and
(xiii) The Company owns or possesses adequate rights to use
all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct
of its respective businesses and, except as disclosed in the
Prospectus, no claims have been asserted by any person or are
pending or threatened before any court or governmental agency
challenging the Company's use of material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and
licenses or alleging that the conduct of the Company's and its
subsidiaries' respective businesses conflicts with any such
rights of others.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, and the laws of the State of Wisconsin,
including the Wisconsin Business Corporation Law. Such counsel shall
also have furnished to the Representatives a written statement,
addressed to the U.S. Underwriters and dated such Delivery Date, in
form and substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to the Company on a
regular basis (although the Company is also represented by its
General Counsel), has acted as counsel to the Company in connection
with previous financing transactions, and has acted as counsel to the
Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains
any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus except for the statements made in the Prospectus under the
captions "Description of Capital Stock", "Shares Eligible for Future
Sale" and "Business - Legal Proceedings", insofar as such statements
relate to the Stock and concern legal matters;
(e) Foley & Lardner, the counsel for the Selling Stockholders,
shall have furnished to the Representatives its written opinion, as
counsel to the Selling Stockholders, addressed to the U.S.
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement and the International
Underwriting Agreement , the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of this
Agreement and the International Underwriting Agreement, the
Power of Attorney and the Custody Agreement by each Selling
Stockholder and the consummation by each Selling Stockholder of
the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which
any Selling Stockholder is a party or by which any Selling
Stockholder is bound or to which any of the property or assets
of any Selling Stockholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-
laws of any Selling Stockholder that is a corporation, or any
statute or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction
over any Selling Stockholder or the property or assets of any
Selling Stockholder; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state or foreign
securities laws in connection with the purchase and distribution
of the Stock by the U.S. Underwriters and the International
Managers, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement or the International Underwriting
Agreement, the Power of Attorney or the Custody Agreement by any
Selling Stockholder and the consummation by any Selling
Stockholder of the transactions contemplated hereby and thereby;
(ii) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered
by or on behalf of each Selling Stockholder;
(iii) A Power-of-Attorney and a Custody Agreement have
been duly authorized, executed and delivered by each Selling
Stockholder and constitute valid and binding agreements of each
Selling Stockholder, enforceable in accordance with their
respective terms;
(iv) Immediately prior to such Delivery Date, each Selling
Stockholder had good and valid title to the shares of Stock to
be sold by such Selling Stockholder under this Agreement and the
International Underwriting Agreement, free and clear of all
liens, encumbrances, equities or claims, and full right, power
and authority to sell, assign, transfer and deliver such shares
to be sold by such Selling Stockholder hereunder and thereunder;
and
(v) Good and valid title to the shares of Stock to be sold
by each Selling Stockholder under this Agreement and the
International Underwriting Agreement, free and clear of all
liens, encumbrances, equities or claims, has been transferred to
each of the several U.S. Underwriters and International
Managers.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of Wisconsin and the
laws of the jurisdiction in which each Selling Stockholder is a
resident, if an individual, or organized, if a corporation, and (ii)
in rendering the opinion in Section 9(e)(iv) above, rely upon a
certificate of each Selling Stockholder in respect of matters of fact
as to ownership of and liens, encumbrances, equities or claims on the
shares of Stock sold by such Selling Stockholder, provided that such
counsel shall furnish copies thereof to the Representatives and state
that it believes that both the U.S. Underwriters and it are justified
in relying upon such certificates. Such counsel shall also have
furnished to the Representatives a written statement, addressed to
the U.S. Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect that (x)
such counsel has acted as counsel to each Selling Stockholder on a
regular basis and has acted as counsel to each Selling Stockholder in
connection with the preparation of the Registration Statement, and
(y) based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement
of a material fact relating to any Selling Stockholder or omitted to
state such a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or that the
Prospectus contains any untrue statement of a material fact relating
to any Selling Stockholder or omits to state such a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus;
(f) The Representatives shall have received from Mayer, Brown &
Platt, counsel for the U.S. Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of
the Stock, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass upon
such matters;
(g) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Anderson LLP a
letter, in form and substance satisfactory to the Representatives,
addressed to the U.S. Underwriters and dated the date hereof (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and
other matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings;
(h) With respect to the letter of Arthur Andersen LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to
the U.S. Underwriters and dated such Delivery Date (i) confirming
that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the
date of the bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to
the financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the conclusions
and findings set forth in the initial letter;
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 9(a) and 9(k) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date no event has occurred which
should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus;
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on such Delivery Date a certificate,
dated such Delivery Date, signed by, or on behalf of, each Selling
Stockholder (or the Custodian or one or more attorneys-in-fact)
stating that the representations, warranties and agreements of each
such Selling Stockholder contained herein are true and correct as of
such Delivery Date and that each Selling Stockholder has complied
with all agreements contained herein to be performed by each Selling
Stockholder at or prior to such Delivery Date;
(k) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus or (ii) since such date there shall
not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Representatives, so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus;
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall have
been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war by
the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions
(or the effect of international conditions on the financial markets
in the United States shall be such) as to make it, in the judgment of
a majority in interest of the several U.S. Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus;
(m) The New York Stock Exchange, Inc. shall have approved the
Stock for listing, subject only to official notice of issuance and
evidence of satisfactory distribution; and
(n) The closing under the International Underwriting Agreement
shall have occurred concurrently with the closing hereunder on the
First Delivery Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters.
10. Indemnification and Contribution.
(a) The Company and the Selling Shareholders, jointly and
severally, shall indemnify and hold harmless each U.S. Underwriter,
its officers and employees and each person, if any, who controls any
U.S. Underwriter within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or
any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and
sales of Stock), to which that U.S. Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto or (B) in any blue sky application or
other document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities
laws of any state or other jurisdiction (any such application,
document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any
U.S. Underwriter in connection with, or relating in any manner to,
the Stock or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or
(ii) above (provided that the Company shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment
by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures
to act undertaken or omitted to be taken by such U.S. Underwriter
through its gross negligence or willful misconduct), and shall
reimburse each U.S. Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that U.S. Underwriter, officer,
employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
such amendment or supplement, or in any Blue Sky Application, in
reliance upon and in conformity with written information concerning
such U.S. Underwriter furnished to the Company through the
Representatives by or on behalf of any U.S. Underwriter specifically
for inclusion therein. The foregoing indemnity agreement is in
addition to any liability which the Company may otherwise have to any
U.S. Underwriter or to any officer, employee or controlling person of
that U.S. Underwriter.
(b) Each U.S. Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees,
each of its directors, and each person, if any, who controls the
Company within the meaning of the Securities Act, and the Selling
Stockholders from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the
Company or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the
omission or alleged omission to state in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such U.S. Underwriter furnished to the Company
through the Representatives by or on behalf of that U.S. Underwriter
specifically for inclusion therein, and shall reimburse the Company
and any such director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any
liability which any U.S. Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling
person.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it
may have under this Section 10 except to the extent it has been
materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise
than under this Section 10. If any such claim or action shall be
brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the
defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim
or action, the indemnifying party shall not be liable to the
indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of
investigation; provided, however, that the Representatives shall have
the right to employ counsel to represent jointly the Representatives
and those other U.S. Underwriters and their respective officers,
employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought
by the U.S. Underwriters against the Company or any Selling
Stockholder under this Section 10 if, in the reasonable judgment of
the Representatives, it is advisable for the Representatives and
those U.S. Underwriters, officers, employees and controlling persons
to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the
Company or Selling Stockholders. No indemnifying party shall
(i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or
compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim,
action, suit or proceeding, or (ii) be liable for any settlement of
any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 10(a) or 10(b) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand
and the U.S. Underwriters on the other from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the U.S. Underwriters on the other
with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the
one hand and the U.S. Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Stock purchased under this
Agreement (before deducting expenses) received by the Company and the
Selling Stockholders, on the one hand, and the total underwriting
discounts and commissions received by the U.S. Underwriters with
respect to the shares of the Stock purchased under this Agreement, on
the other hand, bear to the total gross proceeds from the offering of
the shares of the Stock under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by
the Company, the Selling Stockholders or the U.S. Underwriters, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the U.S.
Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 10(d) were to be determined by
pro rata allocation (even if the U.S. Underwriters were treated as
one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action
in respect thereof, referred to above in this Section 10(d) shall be
deemed to include, for purposes of this Section 10(d), any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(d), no U.S.
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Stock underwritten
by it and distributed to the public was offered to the public exceeds
the amount of any damages which such U.S. Underwriter has otherwise
paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
U.S. Underwriters' obligations to contribute as provided in this
Section 10(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) The U.S. Underwriters severally confirm and the Company and
Selling Stockholders acknowledge that the statements with respect to
the public offering of the Stock by the U.S. Underwriters set forth
on the cover page of, the legend concerning over-allotments on the
inside front cover page of and the concession and reallowance figures
appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such U.S.
Underwriters furnished in writing to the Company and Selling
Stockholders by or on behalf of the U.S. Underwriters specifically
for inclusion in the Registration Statement and the Prospectus.
11. Defaulting U.S. Underwriters.
If, on either Delivery Date, any U.S. Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting U.S. Underwriters shall be obligated to purchase the Stock
which the defaulting U.S. Underwriter agreed but failed to purchase on
such Delivery Date in the respective proportions which the number of
shares of the Firm Stock set opposite the name of each remaining non-
defaulting U.S. Underwriter in Schedule 1 hereto bears to the total number
of shares of the Firm Stock set opposite the names of all the remaining
non-defaulting U.S. Underwriters in Schedule 1 hereto; provided, however,
that the remaining non-defaulting U.S. Underwriters shall not be obligated
to purchase any of the Stock on such Delivery Date if the total number of
shares of the Stock which the defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase on such date exceeds 9.09% of
the total number of shares of the Stock to be purchased on such Delivery
Date, and any remaining non-defaulting U.S. Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock
which it agreed to purchase on such Delivery Date pursuant to the terms of
Section 3. If the foregoing maximums are exceeded, the remaining non-
defaulting U.S. Underwriters, or those other underwriters satisfactory to
the Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the
remaining U.S. Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
U.S. Underwriter or U.S. Underwriters agreed but failed to purchase on
such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the U.S. Underwriters to purchase, and of
the Selling Stockholders to sell, the Option Stock) shall terminate
without liability on the part of any non-defaulting U.S. Underwriter or
the Company or the Selling Stockholders, except that the Company will
continue to be liable for the payment of expenses to the extent set forth
in Sections 8 and 13. As used in this Agreement, the term "U.S.
Underwriter" includes, for all purposes of this Agreement unless the
context requires otherwise, any party not listed in Schedule 1 hereto who,
pursuant to this Section 11, purchases Firm Stock which a defaulting U.S.
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting U.S. Underwriter
of any liability it may have to the Company and the Selling Stockholders
for damages caused by its default. If other underwriters are obligated or
agree to purchase the Stock of a defaulting or withdrawing U.S.
Underwriter, either the Representatives or the Company may postpone the
Delivery Date for up to seven full business days in order to effect any
changes that in the opinion of counsel for the Company or counsel for the
U.S. Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
12. Termination. The obligations of the U.S. Underwriters hereunder
may be terminated by the Representatives by notice given to and received
by the Company and the Selling Stockholders prior to delivery of and
payment for the Firm Stock if, prior to that time, any of the events
described in Sections 9(k) or 9(l) shall have occurred or if the U.S.
Underwriters shall decline to purchase the Stock for any reason permitted
under this Agreement.
13. Reimbursement of U.S. Underwriters' Expenses. If (a) the
Company or any Selling Stockholder shall fail to tender the Stock for
delivery to the U.S. Underwriters by reason of any failure, refusal or
inability on the part of the Company or the Selling Stockholders to
perform any agreement on its part to be performed, or because any other
condition of the U.S. Underwriters' obligations hereunder required to be
fulfilled by the Company or the Selling Stockholders is not fulfilled, the
Company and the Selling Stockholders will reimburse the U.S. Underwriters
for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the U.S. Underwriters in connection
with this Agreement and the proposed purchase of the Stock, and upon
demand the Company and the Selling Stockholders shall pay the full amount
thereof to the Representatives. If this Agreement is terminated pursuant
to Section 11 by reason of the default of one or more U.S. Underwriters,
neither the Company nor any Selling Stockholder shall be obligated to
reimburse any defaulting U.S. Underwriter on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the U.S. Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, Attention:
Syndicate Department (Fax: 212-526-6588), with a copy, in the case of
any notice pursuant to Section 10(c), to the Director of Litigation,
Office of the General Counsel, Lehman Brothers Inc., 3 World
Financial Center, 10th Floor, New York, NY 10285;
(b) if to the Company shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: [_________] (Fax:
_________);
(c) if to any Selling Stockholder, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling Stockholder
at the address set forth on Schedule 2 hereto;
provided, however, that any notice to a U.S. Underwriter pursuant to
Section 10(c) shall be delivered or sent by mail, telex or facsimile
transmission to such U.S. Underwriter at its address set forth in its
acceptance telex to the Representatives, which address will be supplied to
any other party hereto by the Representatives upon request. Any such
statements, requests, notices or agreements shall take effect at the time
of receipt thereof. The Company and the Selling Stockholders shall be
entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the U.S. Underwriters by Lehman Brothers Inc.
on behalf of the Representatives, and the Company and the U.S.
Underwriters shall be entitled to act and rely upon any request, consent,
notice or agreement given or made on behalf of the Selling Stockholders by
the Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the U.S. Underwriters, the
Company, the Selling Stockholders and their respective personal
representatives and successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except
that (A) the representations, warranties, indemnities and agreements of
the Company and the Selling Stockholders contained in this Agreement shall
also be deemed to be for the benefit of the person or persons, if any, who
control any U.S. Underwriter within the meaning of Section 15 of the
Securities Act and for the benefit of each International Manager (and
controlling persons thereof) who offers or sells any shares of Common
Stock in accordance with the terms of the Agreement Between U.S.
Underwriters and International Managers and (B) the indemnity agreement of
the U.S. Underwriters contained in Section 10(b) of this Agreement shall
be deemed to be for the benefit of directors of the Company, officers of
the Company who have signed the Registration Statement and any person
controlling the Company within the meaning of Section 15 of the Securities
Act. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section 15, any
legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and
the U.S. Underwriters contained in this Agreement or made by or on behalf
on them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Stock and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of
them or any person controlling any of them.
17. Definition of the Term "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has
the meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the
meaning or interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement, among the
Company, the Selling Stockholders and the U.S. Underwriters, please
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
HK Systems, Inc.
By
Name
Title
The Selling Stockholders named in Schedule 2
to this Agreement
By
Attorney-in-Fact
Accepted:
Lehman Brothers Inc.
Robert W. Baird & Co. Incorporated
Furman Selz LLC
For themselves and as Representatives
of the several U.S. Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
Authorized Representative
By Robert W. Baird & Co. Incorporated
By
Authorized Representative
By Furman Selz LLC
By
Authorized Representative
<PAGE>
SCHEDULE 1
Number of
U.S. Underwriters Shares
Lehman Brothers Inc. . . . . . . . . . . .
Robert W. Baird & Co. Incorporated . . . .
Furman Selz LLC. . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . .
<PAGE>
SCHEDULE 2
Number of Shares
Name and Address of Selling Stockholders of Firm Stock
Total . . . . . . . . . . . . . . . . . . . ===========
DRAFT
______________________________
HK SYSTEMS, INC.
COMMON STOCK
INTERNATIONAL UNDERWRITING AGREEMENT
_____ __, 1997
Lehman Brothers International (Europe)
Robert W. Baird & Co. Incorporated
Furman Selz LLC,
As Representatives of the several
International Managers named in Schedule 1,
c/o Lehman Brothers International (Europe)
Three World Financial Center
New York, New York 10285
Dear Sirs:
HK Systems, Inc., a Wisconsin Corporation (the "Company"), and
certain stockholders of the Company named in Schedule 2 hereto (the
"Selling Stockholders"), propose to sell an aggregate of _________ shares
(the "Firm Stock") of the Company's Common Stock, par value $___ per share
(the "Common Stock"). Of the __________ shares of the Firm Stock,
________ are being sold by the Company and _________ by the Selling
Stockholders. In addition, the Selling Stockholders propose to grant to
the underwriters named in Schedule 1 hereto (the "International Managers")
an option to purchase up to an additional _______ shares of the Common
Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the
agreement concerning the purchase of the Stock from the Company and the
Selling Stockholders by the International Managers named in Schedule 1
hereto.
It is understood by all parties that the Company and the Selling
Stockholders are concurrently entering into an agreement dated the date
hereof (the "U.S. Underwriting Agreement") providing for the sale by the
Company and the Selling Stockholders of an aggregate of ____________
shares of Common Stock (including the over-allotment option thereunder)
(the "U.S. Stock") through arrangements with certain underwriters in the
United States and in Canada (the "U.S. Underwriters"), for whom Lehman
Brothers Inc., and Robert W. Baird & Co. Incorporated and Furman Selz LLC
are acting as representatives. The International Managers and the U.S.
Underwriters simultaneously are entering into an agreement between the
international and U.S. underwriting syndicates (the "Agreement Between
U.S. Underwriters and International Managers") which provides for, among
other things, the transfer of shares of Common Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sales of shares of Common Stock contemplated by the
foregoing, one relating to the Stock and the other relating to the U.S.
Stock. The latter form of prospectus will be identical to the former
except for certain substitute pages as included in the registration
statement and amendments thereto referred to below. Except as used in
Sections 3, 4, 5, 11, and 12 herein, and except as the context may
otherwise require, references herein to the Stock shall include all the
shares which may be sold pursuant to either this Agreement or the U.S.
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall
include both the international and U.S. versions thereof.
1. Representations, Warranties and Agreements of the Company and the
Selling Stockholders. The Company and the Selling Stockholders represent,
warrant and agree that:
(a) A registration statement on Form S-1, and any amendment
thereto, with respect to the Stock has (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rule and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder,
(ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such
registration statement and any amendment thereto have been delivered
by the Company to you as the lead managers (the "Lead Managers") of
the International Managers. As used in this Agreement, "Effective
Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission; "Effective Date" means
the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments
thereof, before it became effective under the Securities Act and any
prospectus filed with the Commission by the Company with the consent
of the Lead Managers pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6(a) hereof and deemed to be a part of the
Registration Statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus;
b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable Effective Date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that no representation or warranty is made as to information
contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Lead Managers by or
on behalf of any International Manager specifically for inclusion
therein;
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the conduct
of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged;
and none of the subsidiaries of the Company is a "significant
subsidiary", as such term is defined in Rule 405 of the Rules and
Regulations;
(d) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares and except as set forth in
the Prospectus, are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(e) The unissued shares of the Stock to be issued and sold by
the Company to the International Managers hereunder and under the
U.S. Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein and in the U.S. Underwriting Agreement, will be duly and
validly issued, fully paid and non-assessable, and the Stock will
conform to the description thereof contained in the Prospectus;
(f) This Agreement has been duly authorized, executed and
delivered by the Company;
(g) The execution, delivery and performance of this Agreement
and the U.S. Underwriting Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Securities Exchange Act of 1934 (the "Exchange Act") and
applicable state or foreign securities laws in connection with the
purchase and distribution of the Stock by the International Managers
and U.S. Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement or the U.S. Underwriting Agreement by
the Company and the consummation of the transactions contemplated
hereby and thereby;
(h) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act;
(i) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified
stock options plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants;
(j) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein;
(l) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who has delivered the initial letter referred to in Section 9(g)
hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations;
(m) The Company has each of its subsidiaries has good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and
its subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries;
(n) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar businesses in similar industries;
(o) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the
conduct of their respective businesses and have no reason to believe
that the conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict with, any
such rights of others;
(p) Except as described in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries; to the best of the
Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others, and
all descriptions of legal proceedings contained in the Prospectus are
complete and accurate in all material respects;
(q) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to
the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(r) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other
hand, which is required to be described in the Prospectus which is
not so described;
(s) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be
expected to have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries;
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause
the loss of such qualification;
(u) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of
its subsidiaries, might have) a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries;
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock;
(w) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals;
(x) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of
time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject or (iii)
in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any
material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of
its property or to the conduct of its business;
(y) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to the
knowledge of the Company, any of its predecessors in interest) at,
upon or from any of the property now or previously owned or leased by
the Company or its subsidiaries in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or
which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any
of its subsidiaries or with respect to which the Company or any of
its subsidiaries have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release
which would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, a
material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; and the terms "hazardous wastes",
"toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal
and foreign laws or regulations with respect to environmental
protection; and
(z) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder severally represents, warrants and
agrees that:
(a) The Selling Stockholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have, good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder and under the U.S.
Underwriting Agreement on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares
and payment therefor pursuant hereto and thereto, good and valid
title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several International Managers
and U.S. Underwriters;
(b) The Selling Stockholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all
other similar agreements executed by the other Selling Stockholders,
the "Custody Agreements") with [insert name of custodian], as
custodian (the "Custodian"), for delivery under this Agreement and
under the U.S. Underwriting Agreement, certificates in negotiable
form (with signature guaranteed by a commercial bank or trust company
having an office or correspondent in the United States or a member
firm of the New York or American Stock Exchanges) representing the
shares of Stock to be sold by the Selling Stockholder hereunder;
(c) The Selling Stockholder has duly and irrevocably executed
and delivered a power of attorney (the "Power of Attorney" and,
together with all other similar agreements executed by the other
Selling Stockholders, the "Powers of Attorney") appointing the
Custodian and one or more other persons, as attorneys-in-fact, with
full power of substitution, and with full authority (exercisable by
any one or more of them) to execute and deliver this Agreement and to
take such other action as may be necessary or desirable to carry out
the provisions hereof on behalf of the Selling Stockholder;
(d) The Selling Stockholder has full right, power and authority
to enter into this Agreement and the U.S. Underwriting Agreement, the
Power of Attorney and the Custody Agreement; the execution, delivery
and performance of this Agreement, the U.S. Underwriting Agreement,
the Power of Attorney and the Custody Agreement by the Selling
Stockholder and the consummation by the Selling Stockholder of the
transactions contemplated hereby and thereby will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is
bound or to which any of the property or assets of the Selling
Stockholder is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Selling
Stockholder (with respect to a Selling Stockholder that is a
corporation) or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Selling Stockholder or the property or assets of the Selling
Stockholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state or foreign securities laws in connection
with the purchase and distribution of the Stock by the International
Managers and U.S. Underwriters, no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement or the U.S. Underwriting Agreement,
the Power of Attorney or the Custody Agreement by the Selling
Stockholder and the consummation by the Selling Stockholder of the
transactions contemplated hereby and thereby;
(e) The Registration Statement and the Prospectus and any
further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable Effective Date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided that no representation or warranty
is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Lead Managers by or on behalf of any International Manager
specifically for inclusion therein;
(f) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company and the Selling
Stockholders contained in Section 1 hereof are not materially true
and correct, is familiar with the Registration Statement and the
Prospectus (as amended or supplemented) and has no knowledge of any
material fact, condition or information not disclosed in the
Registration Statement, as of the Effective Date, or the Prospectus
(or any amendment or supplement thereto), as of the applicable filing
date, which has adversely affected or may adversely affect the
business of the Company and is not prompted to sell shares of Common
Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus; and
(g) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
3. Purchase of the Stock by the International Managers. On the
basis of the representations and warranties contained in, and subject to
the terms and conditions of, this Agreement, the Company agrees to sell
_______ shares of the Firm Stock and each Selling Stockholder hereby
agrees to sell the number of shares of the Firm Stock set forth opposite
such Selling Stockholder's name in Schedule 2 hereto, severally and not
jointly, to the several International Managers, and each of the
International Managers, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set forth opposite that International
Manager's name in Schedule 1 hereto. Each International Manager shall be
obligated to purchase from the Company, and from each Selling Stockholder,
that number of shares of the Firm Stock which represents the same
proportion of the number of shares of the Firm Stock to be sold by the
Company, and by each Selling Stockholder, as the number of shares of the
Firm Stock set forth opposite the name of such International Manager in
Schedule 1 represents of the total number of shares of the Firm Stock to
be purchased by all of the International Managers pursuant to this
Agreement. The respective purchase obligations of the International
Managers with respect to the Firm Stock shall be rounded among the
International Managers to avoid fractional shares, as the Lead Managers
may determine.
In addition, the Selling Stockholders grant to the International
Managers an option to purchase up to _______ shares of Option Stock. Such
option is granted solely for the purpose of covering over-allotments in
the sale of Firm Stock and is exercisable as provided in Section 5 hereof.
Shares of Option Stock shall be purchased severally for the account of the
International Managers in proportion to the number of shares of Firm Stock
set forth opposite the name of such International Managers in Schedule 1
hereto. The respective purchase obligations of each International Manager
with respect to the Option Stock shall be adjusted by the Lead Managers so
that no International Manager shall be obligated to purchase Option Stock
other than in 100 share amounts. The price of both the Firm Stock and any
Option Stock shall be $_____ per share.
The Company and the Selling Stockholders shall not be obligated to
deliver any of the Stock to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as
provided herein and in the U.S. Underwriting Agreement.
4. Offering of Stock by the International Managers.
Upon authorization by the Lead Managers of the release of the Firm
Stock, the several International Managers propose to offer the Firm Stock
for sale upon the terms and conditions set forth in the Prospectus.
Each International Manager agrees that, except to the extent
permitted by the Agreement Between U.S. Underwriters and International
Managers, it will not offer or sell any of the Stock in the United States
or in Canada.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Lehman Brothers Inc.,
333 West 34th Street, 3rd Floor, New York, New York 10001 at 10:00 A.M.,
New York City time, on the third (fourth, if pricing occurs after 4:30
p.m. New York City time) full business day following the date of this
Agreement or at such other date or place as shall be determined by
agreement between the Lead Managers and the Company. This date and time
are sometimes referred to as the "First Delivery Date." On the First
Delivery Date, the Company and the Selling Stockholders shall deliver or
cause to be delivered certificates representing the Firm Stock to the Lead
Managers for the account of each International Manager against payment to
or upon the order of the Company and the Selling Stockholders of the
purchase price by wire transfer of immediately available funds. Time
shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of
each International Manager hereunder. Upon delivery, the Firm Stock shall
be registered in such names and in such denominations as the Lead Managers
shall request in writing not less than two full business days prior to the
First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company and the
Selling Stockholders shall make the certificates representing the Firm
Stock available for inspection by the Lead Managers in New York, New York,
not later than 2:00 P.M., New York City time, on the business day prior to
the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 3 may be exercised by written
notice being given to the Selling Stockholders by the Lead Managers. Such
notice shall set forth the aggregate number of shares of Option Stock as
to which the option is being exercised, the names in which the shares of
Option Stock are to be registered, the denominations in which the shares
of Option Stock are to be issued and the date and time, as determined by
the Lead Managers, when the shares of Option Stock are to be delivered;
provided, however, that this date and time shall not be earlier than the
First Delivery Date nor earlier than the second business day after the
date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been
exercised. The date and time the shares of Option Stock are delivered are
sometimes referred to as the "Second Delivery Date" and the First Delivery
Date and the Second Delivery Date are sometimes each referred to as a
"Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this
Section 5 (or at such other place as shall be determined by agreement
between the Lead Managers and the Company) at 10:00 A.M., New York City
time, on the Second Delivery Date. On the Second Delivery Date, the
Selling Stockholders shall deliver or cause to be delivered the
certificates representing the Option Stock to the Lead Managers for the
account of each International Manager against payment to or upon the order
of the Selling Stockholders of the purchase price by wire transfer of
immediately available funds. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each International Manager hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Lead Managers shall request in the aforesaid written
notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Selling Stockholders shall make the
certificates representing the Option Stock available for inspection by the
Lead Managers in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Lead
Managers and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the Commission's close of business
on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or
to the Prospectus except as permitted herein; to advise the Lead
Managers, promptly after it receives notice thereof, of the time when
any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Lead Managers with
copies thereof; to advise the Lead Managers, promptly after it
receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Lead Managers and to
counsel for the International Managers a signed copy of the
Registration Statement as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Lead Managers such number of the
following documents as the Lead Managers shall reasonably request:
(i) conformed copies of the Registration Statement as originally
filed with the Commission and each amendment thereto (in each case
excluding exhibits other than this Agreement and the computation of
per share earnings) and (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if the
delivery of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the Stock or any
other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to
amend or supplement the Prospectus in order to comply with the
Securities Act, to notify the Lead Managers and, upon their request,
to prepare and furnish without charge to each International Manager
and to any dealer in securities as many copies as the Lead Managers
may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission
or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Lead
Managers, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Lead Managers and counsel for the
International Managers and obtain the consent of the Lead Managers to
the filing;
(f) As soon as practicable after the Effective Date (it being
understood that the Company shall have until at least 455 days after
the end of the Company's current fiscal quarter), to make generally
available to the Company's security holders and to deliver to the
Lead Managers an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at
the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Lead Managers copies of all materials furnished by the
Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be
listed pursuant to requirements of or agreements with such exchange
or to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the Lead
Managers may reasonably request to qualify the Stock for offering and
sale under the securities laws of such jurisdictions as the Lead
Managers may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the
Stock; provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition by
any person at any time in the future of) any shares of Common Stock
or securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant options,
rights or warrants with respect to any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other
than the grant of options pursuant to option plans existing on the
date hereof), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers International (Europe); and to
cause each officer, director and stockholder of the Company to
furnish to the Lead Managers, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for
the International Managers, pursuant to which each such person shall
agree not to, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock or securities convertible into or exchangeable for
Common Stock or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case for a period of 180
days from the date of the Prospectus, without the prior written
consent of Lehman Brothers International (Europe);
(j) Prior to the Effective Date, to apply for the listing of
the Stock on the New York Stock Exchange, Inc. and to use its best
efforts to complete that listing, subject only to official notice of
issuance and evidence of satisfactory distribution, prior to the
First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the International Managers and receive and
consider its comments thereon, and to deliver promptly to the Lead
Managers a signed copy of each report on Form SR filed by it with the
Commission;
(l) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition by
any person at any time in the future of) any shares of Common Stock
or securities convertible into or exchangeable for Common Stock
(other than the Stock) or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock
or other securities, in cash or otherwise, in each case without the
prior written consent of Lehman Brothers International (Europe).;
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody
for the Selling Stockholder, is subject to the interest of the
International Managers and the other Selling Stockholders thereunder,
that the arrangements made by the Selling Stockholder for such
custody are to that extent irrevocable, and that the obligations of
the Selling Stockholder hereunder shall not be terminated by any act
of the Selling Stockholder, by operation of law, by the death or
incapacity of any individual Selling Stockholder or, in the case of a
trust, by the death or incapacity of any executor or trustee or the
termination of such trust, or the occurrence of any other event; and
(c) To deliver to the Lead Managers prior to the First Delivery
Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Stockholder is a non-United
States person) or Form W-9 (if the Selling Stockholder is a United
States person.)
8. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement
and any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and
any post-effective amendments thereof (including, in each case, exhibits),
any Preliminary Prospectus, the Prospectus and any amendment or supplement
to the Prospectus, all as provided in this Agreement; (d) the costs of
producing and distributing this Agreement, the U.S. Underwriting
Agreement, the Agreement Between U.S. Underwriters and International
Managers, any Supplemental Agreement Among U.S. Underwriters and any other
related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the costs of delivering and distributing the
Custody Agreements and the Powers of Attorney; (f) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (g) any
applicable listing or other fees; (h) the fees and expenses of qualifying
the Stock under the securities laws of the several jurisdictions as
provided in Section 6(h) and of preparing, printing and distributing a
Blue Sky Memorandum (including related fees and expenses of counsel to the
International Managers); and (i) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling
Stockholders under this Agreement; provided that, except as provided in
this Section 8 and in Section 13, the International Managers shall pay
their own costs and expenses, including the costs and expenses of their
counsel, any transfer taxes on the Stock which they may sell and the
expenses of advertising any offering of the Stock made by the
International Managers.
9. Conditions of International Managers' Obligations. The
respective obligations of the International Managers hereunder are subject
to the accuracy, when made and on each Delivery Date, of the
representations and warranties of the Company and the Selling Stockholders
contained herein, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of
the Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall have been
complied with;
(b) No International Manager shall have discovered and
disclosed to the Company on or prior to such Delivery Date that the
Registration Statement or the Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in
the opinion of Mayer, Brown & Platt, counsel for the International
Managers, is material or omits to state a fact which, in the opinion
of such counsel, is material and is required to be stated therein or
is necessary to make the statements therein not misleading;
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the U.S.
Underwriting Agreement, the Custody Agreements, the Powers of
Attorney, the Stock, the Registration Statement and the Prospectus,
and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in
all material respects to counsel for the International Managers, and
the Company and the Selling Stockholders shall have furnished to such
counsel all documents and information that they may reasonably
request to enable them to pass upon such matters;
(d) Foley & Lardner shall have furnished to the Lead Managers
its written opinion, as counsel to the Company, addressed to the
International Managers and dated such Delivery Date, in form and
substance reasonably satisfactory to the Lead Managers, to the effect
that:
(i) The Company and each of its subsidiaries have been
duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification and have all power and authority necessary to own
or hold their respective properties and to conduct the
businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
and all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and (except for directors'
qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities and claims;
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's
charter or by-laws or any agreement or other instrument known to
such counsel;
(iv) The Company and each of its subsidiaries have good
and marketable title in fee simple to all real property owned by
them, free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all
real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge after
reasonable inquiry and other than as set forth in the
Prospectus, (A) there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a
party or of which any property or assets of the Company or any
of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, might have
a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries; (B) no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others; and (C) all descriptions of
such proceedings contained in the Prospectus are complete and
accurate in all material respects;
(vi) The Registration Statement was declared effective
under the Securities Act as of the date and time specified in
such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge of
such counsel after reasonable inquiry, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules and Regulations;
(viii) The statements contained in the Prospectus under the
captions "Description of Capital Stock', "Shares Eligible for
Future Sale" and "Business - Legal Proceedings", insofar as they
describe federal statutes, rules and regulations, constitute a
fair summary thereof;
(ix) To the best of such counsel's knowledge after
reasonable inquiry, there are no contracts or other documents
which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or
by the Rules and Regulations which have not been described or
filed as exhibits to the Registration Statement or incorporated
therein by reference as permitted by the Rules and Regulations;
(x) This Agreement and the U.S. Underwriting Agreement
have each been duly authorized, executed and delivered by the
Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the U.S. Underwriting Agreement and the
consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel (after reasonable
inquiry) to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-
laws of the Company or any of its subsidiaries or any statute or
any order, rule or regulation known to such counsel (after
reasonable inquiry) of any court or governmental agency or body
having jurisdiction over the Company or any of subsidiaries or
any of their properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state or foreign securities laws in connection with
the purchase and distribution of the Stock by the International
Managers and U.S. Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the
U.S. Underwriting Agreement by the Company and the consummation
of the transactions contemplated hereby and thereby;
(xii) To the best of such counsel's knowledge after
reasonable inquiry, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act; and
(xiii) The Company owns or possesses adequate rights to use
all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct
of its respective businesses and, except as disclosed in the
Prospectus, no claims have been asserted by any person or are
pending or threatened before any court or governmental agency
challenging the Company's use of material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and
licenses or alleging that the conduct of the Company's and its
subsidiaries' respective businesses conflicts with any such
rights of others.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, and the laws of the State of Wisconsin,
including the Wisconsin Business Corporation Law. Such counsel shall
also have furnished to the Lead Managers a written statement,
addressed to the International Managers and dated such Delivery Date,
in form and substance satisfactory to the Lead Managers, to the
effect that (x) such counsel has acted as counsel to the Company on a
regular basis (although the Company is also represented by its
General Counsel), has acted as counsel to the Company in connection
with previous financing transactions, and has acted as counsel to the
Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains
any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus except for the statements made in the Prospectus under the
captions "Description of Capital Stock", "Shares Eligible for Future
Sale" and "Business - Legal Proceedings", insofar as such statements
relate to the Stock and concern legal matters;
(e) Foley & Lardner, the counsel for the Selling Stockholders,
shall have furnished to the Lead Managers its written opinion, as
counsel to the Selling Stockholders, addressed to the International
Managers and dated such Delivery Date, in form and substance
reasonably satisfactory to the Lead Managers, to the effect that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement and the U.S. Underwriting
Agreement , the Power of Attorney and the Custody Agreement; the
execution, delivery and performance of this Agreement and the
U.S. Underwriting Agreement, the Power of Attorney and the
Custody Agreement by each Selling Stockholder and the
consummation by each Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result
in a breach or violation of any of the terms or provisions of,
or constitute a default under, any statute, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which any Selling
Stockholder is a party or by which any Selling Stockholder is
bound or to which any of the property or assets of any Selling
Stockholder is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of any
Selling Stockholder that is a corporation, or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any Selling
Stockholder or the property or assets of any Selling
Stockholder; and, except for the registration of the Stock under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state or foreign securities laws in
connection with the purchase and distribution of the Stock by
the International Managers and the U.S. Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement or the U.S. Underwriting Agreement, the Power of
Attorney or the Custody Agreement by any Selling Stockholder and
the consummation by any Selling Stockholder of the transactions
contemplated hereby and thereby;
(ii) This Agreement and the U.S. Underwriting Agreement
have each been duly authorized, executed and delivered by or on
behalf of each Selling Stockholder;
(iii) A Power-of-Attorney and a Custody Agreement have
been duly authorized, executed and delivered by each Selling
Stockholder and constitute valid and binding agreements of each
Selling Stockholder, enforceable in accordance with their
respective terms;
(iv) Immediately prior to such Delivery Date, each Selling
Stockholder had good and valid title to the shares of Stock to
be sold by such Selling Stockholder under this Agreement and the
U.S. Underwriting Agreement, free and clear of all liens,
encumbrances, equities or claims, and full right, power and
authority to sell, assign, transfer and deliver such shares to
be sold by such Selling Stockholder hereunder and thereunder;
and
(v) Good and valid title to the shares of Stock to be sold
by each Selling Stockholder under this Agreement and the U.S.
Underwriting Agreement, free and clear of all liens,
encumbrances, equities or claims, has been transferred to each
of the several International Managers and U.S. Underwriters.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of Wisconsin and the
laws of the jurisdiction in which each Selling Stockholder is a
resident, if an individual, or organized, if a corporation, and (ii)
in rendering the opinion in Section 9(e)(iv) above, rely upon a
certificate of each Selling Stockholder in respect of matters of fact
as to ownership of and liens, encumbrances, equities or claims on the
shares of Stock sold by such Selling Stockholder, provided that such
counsel shall furnish copies thereof to the Lead Managers and state
that it believes that both the International Managers and it are
justified in relying upon such certificates. Such counsel shall also
have furnished to the Lead Managers a written statement, addressed to
the International Managers and dated such Delivery Date, in form and
substance satisfactory to the Lead Managers, to the effect that (x)
such counsel has acted as counsel to each Selling Stockholder on a
regular basis and has acted as counsel to each Selling Stockholder in
connection with the preparation of the Registration Statement, and
(y) based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement
of a material fact relating to any Selling Stockholder or omitted to
state such a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or that the
Prospectus contains any untrue statement of a material fact relating
to any Selling Stockholder or omits to state such a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus;
(f) The Lead Managers shall have received from Mayer, Brown &
Platt, counsel for the International Managers, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and
sale of the Stock, the Registration Statement, the Prospectus and
other related matters as the Lead Managers may reasonably require,
and the Company shall have furnished to such counsel such documents
as they reasonably request for the purpose of enabling them to pass
upon such matters;
(g) At the time of execution of this Agreement, the Lead
Managers shall have received from Arthur Anderson LLP a letter, in
form and substance satisfactory to the Lead Managers, addressed to
the International Managers and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of
the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and
other matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings;
(h) With respect to the letter of Arthur Andersen LLP referred
to in the preceding paragraph and delivered to the Lead Managers
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Lead Managers a
letter (the "bring-down letter") of such accountants, addressed to
the International Managers and dated such Delivery Date
(i) confirming that they are independent public accountants within
the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to
the financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the conclusions
and findings set forth in the initial letter;
(i) The Company shall have furnished to the Lead Managers a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 9(a) and 9(k) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date no event has occurred which
should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus;
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Lead Managers on such Delivery Date a certificate,
dated such Delivery Date, signed by, or on behalf of, each Selling
Stockholder (or the Custodian or one or more attorneys-in-fact)
stating that the representations, warranties and agreements of each
such Selling Stockholder contained herein are true and correct as of
such Delivery Date and that each Selling Stockholder has complied
with all agreements contained herein to be performed by each Selling
Stockholder at or prior to such Delivery Date;
(k) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus or (ii) since such date there shall
not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Lead Managers, so material and adverse as
to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus;
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall have
been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war by
the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions
(or the effect of international conditions on the financial markets
in the United States shall be such) as to make it, in the judgment of
a majority in interest of the several International Managers,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus;
(m) The New York Stock Exchange, Inc. shall have approved the
Stock for listing, subject only to official notice of issuance and
evidence of satisfactory distribution; and
(n) The closing under the U.S. Underwriting Agreement shall have
occurred concurrently with the closing hereunder on the First
Delivery Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the International Managers.
10. Indemnification and Contribution.
(a) The Company and the Selling Shareholders, jointly and
severally, shall indemnify and hold harmless each International
Manager, its officers and employees and each person, if any, who
controls any International Manager within the meaning of the
Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that
International Manager, officer, employee or controlling person may
become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other
document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities
laws of any state or other jurisdiction (any such application,
document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any
International Manager in connection with, or relating in any manner
to, the Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided that the Company shall not be
liable under this clause (iii) to the extent that it is determined in
a final judgment by a court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such
International Manager through its gross negligence or willful
misconduct), and shall reimburse each International Manager and each
such officer, employee or controlling person promptly upon demand for
any legal or other expenses reasonably incurred by that International
Manager, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue
Sky Application, in reliance upon and in conformity with written
information concerning such International Manager furnished to the
Company through the Lead Managers by or on behalf of any
International Manager specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability which
the Company may otherwise have to any International Manager or to any
officer, employee or controlling person of that International
Manager.
(b) Each International Manager, severally and not jointly,
shall indemnify and hold harmless the Company, its officers and
employees, each of its directors, and each person, if any, who
controls the Company within the meaning of the Securities Act, and
the Selling Stockholders from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to
which the Company or any such director, officer or controlling person
may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the
omission or alleged omission to state in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such International Manager furnished to the
Company through the Lead Managers by or on behalf of that
International Manager specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any International Manager may
otherwise have to the Company or any such director, officer, employee
or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it
may have under this Section 10 except to the extent it has been
materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise
than under this Section 10. If any such claim or action shall be
brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the
defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim
or action, the indemnifying party shall not be liable to the
indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of
investigation; provided, however, that the Lead Managers shall have
the right to employ counsel to represent jointly the Lead Managers
and those other International Managers and their respective officers,
employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought
by the International Managers against the Company or any Selling
Stockholder under this Section 10 if, in the reasonable judgment of
the Lead Managers, it is advisable for the Lead Managers and those
International Managers, officers, employees and controlling persons
to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the
Company or Selling Stockholders. No indemnifying party shall
(i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or
compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim,
action, suit or proceeding, or (ii) be liable for any settlement of
any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 10(a) or 10(b) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand
and the International Managers on the other from the offering of the
Stock or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the International Managers on the
other with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the
one hand and the International Managers on the other with respect to
such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under
this Agreement (before deducting expenses) received by the Company
and the Selling Stockholders, on the one hand, and the total
underwriting discounts and commissions received by the International
Managers with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholders or the
International Managers, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling
Stockholders and the International Managers agree that it would not
be just and equitable if contributions pursuant to this Section 10(d)
were to be determined by pro rata allocation (even if the
International Managers were treated as one entity for such purpose)
or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above
in this Section 10(d) shall be deemed to include, for purposes of
this Section 10(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions
of this Section 10(d), no International Manager shall be required to
contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the
public was offered to the public exceeds the amount of any damages
which such International Manager has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The
International Managers' obligations to contribute as provided in this
Section 10(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) The International Managers severally confirm and the
Company and Selling Stockholders acknowledge that the statements with
respect to the public offering of the Stock by the International
Managers set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in,
the Prospectus are correct and constitute the only information
concerning such International Managers furnished in writing to the
Company and Selling Stockholders by or on behalf of the International
Managers specifically for inclusion in the Registration Statement and
the Prospectus.
11. Defaulting International Managers.
If, on either Delivery Date, any International Manager defaults in
the performance of its obligations under this Agreement, the remaining
non-defaulting International Managers shall be obligated to purchase the
Stock which the defaulting International Manager agreed but failed to
purchase on such Delivery Date in the respective proportions which the
number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting International Manager in Schedule 1 hereto bears to the
total number of shares of the Firm Stock set opposite the names of all the
remaining non-defaulting International Managers in Schedule 1 hereto;
provided, however, that the remaining non-defaulting International
Managers shall not be obligated to purchase any of the Stock on such
Delivery Date if the total number of shares of the Stock which the
defaulting International Manager or International Managers agreed but
failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any
remaining non-defaulting International Manager shall not be obligated to
purchase more than 110% of the number of shares of the Stock which it
agreed to purchase on such Delivery Date pursuant to the terms of Section
3. If the foregoing maximums are exceeded, the remaining non-defaulting
International Managers, or those other underwriters satisfactory to the
Lead Managers who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the
remaining International Managers or other underwriters satisfactory to the
Lead Managers do not elect to purchase the shares which the defaulting
International Manager or International Managers agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the
Second Delivery Date, the obligation of the International Managers to
purchase, and of the Selling Stockholders to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting
International Manager or the Company or the Selling Stockholders, except
that the Company will continue to be liable for the payment of expenses to
the extent set forth in Sections 8 and 13. As used in this Agreement, the
term "International Manager" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1
hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting International Manager agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting International
Manager of any liability it may have to the Company and the Selling
Stockholders for damages caused by its default. If other underwriters are
obligated or agree to purchase the Stock of a defaulting or withdrawing
International Manager, either the Lead Managers or the Company may
postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or
counsel for the International Manager may be necessary in the Registration
Statement, the Prospectus or in any other document or arrangement.
12. Termination. The obligations of the International Managers
hereunder may be terminated by the Lead Managers by notice given to and
received by the Company and the Selling Stockholders prior to delivery of
and payment for the Firm Stock if, prior to that time, any of the events
described in Sections 9(k) or 9(l) shall have occurred or if the
International Managers shall decline to purchase the Stock for any reason
permitted under this Agreement.
13. Reimbursement of International Managers' Expenses. If (a) the
Company or any Selling Stockholder shall fail to tender the Stock for
delivery to the International Manager by reason of any failure, refusal or
inability on the part of the Company or the Selling Stockholders to
perform any agreement on its part to be performed, or because any other
condition of the International Managers' obligations hereunder required to
be fulfilled by the Company or the Selling Stockholders is not fulfilled,
the Company and the Selling Stockholders will reimburse the International
Managers for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the International Managers in
connection with this Agreement and the proposed purchase of the Stock, and
upon demand the Company and the Selling Stockholders shall pay the full
amount thereof to the Lead Managers. If this Agreement is terminated
pursuant to Section 11 by reason of the default of one or more
International Managers, neither the Company nor any Selling Stockholder
shall be obligated to reimburse any defaulting International Manager on
account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the International Managers, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman Brothers
International (Europe), Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax: 212-526-6588),
with a copy, in the case of any notice pursuant to Section 10(c), to
the Director of Litigation, Office of the General Counsel, Lehman
Brothers International (Europe), 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: [_________] (Fax:
_________);
(c) if to any Selling Stockholder, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling Stockholder
at the address set forth on Schedule 2 hereto;
provided, however, that any notice to an International Manager pursuant to
Section 10(c) shall be delivered or sent by mail, telex or facsimile
transmission to such International Manager at its address set forth in its
acceptance telex to the Lead Managers, which address will be supplied to
any other party hereto by the Lead Managers upon request. Any such
statements, requests, notices or agreements shall take effect at the time
of receipt thereof. The Company and the Selling Stockholders shall be
entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the International Managers by Lehman Brothers
International (Europe) on behalf of the Lead Managers, and the Company and
the International Managers shall be entitled to act and rely upon any
request, consent, notice or agreement given or made on behalf of the
Selling Stockholders by the Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the International Managers,
the Company, the Selling Stockholders and their respective personal
representatives and successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except
that (A) the representations, warranties, indemnities and agreements of
the Company and the Selling Stockholders contained in this Agreement shall
also be deemed to be for the benefit of the person or persons, if any, who
control any International Manager within the meaning of Section 15 of the
Securities Act and for the benefit of each U.S. Underwriter (and
controlling persons thereof) who offers or sells any shares of Common
Stock in accordance with the terms of the Agreement Between U.S.
Underwriters and International Managers and (B) the indemnity agreement of
the International Managers contained in Section 10(b) of this Agreement
shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this
Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and
the International Managers contained in this Agreement or made by or on
behalf on them, respectively, pursuant to this Agreement, shall survive
the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of
them or any person controlling any of them.
17. Definition of the Term "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has
the meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the
meaning or interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement, among the
Company, the Selling Stockholders and the International Managers, please
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
HK Systems, Inc.
By
Name
Title
The Selling Stockholders named in
Schedule 2 to this Agreement
By
Attorney-in-Fact
Accepted:
Lehman Brothers International (Europe)
Robert W. Baird & Co. Incorporated
Furman Selz LLC
For themselves and as Lead Managers
of the several International Managers named
in Schedule 1 hereto
By Lehman Brothers International (Europe)
By
Authorized Lead Manager
By Robert W. Baird & Co. Incorporated
By
Authorized Lead Manager
By Furman Selz LLC
By
Authorized Lead Manager
<PAGE>
SCHEDULE 1
Number of
International Managers Shares
Lehman Brothers International (Europe)
Robert W. Baird & Co. Incorporated . . .
Furman Selz LLC. . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . =========
<PAGE>
SCHEDULE 2
Number of Shares
Name and Address of Selling Stockholders of Firm Stock
Total . . . . . . . . . . . . . . . . . . . . . =============
$90,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
by and among
HK SYSTEMS, INC.,
and
HARRIS TRUST AND SAVINGS BANK,
Individually and as Agent,
and
The Lenders
which are or become parties hereto
Dated as of November 15, 1996
<PAGE>
Table of Contents
Page
Section 1. The Credits. 1
Section 1.1. Present Loans 1
Section 1.2. Revolving Credit. 2
Section 1.3. The Loans 3
Section 1.4. Letters of Credit 3
Section 1.5. Manner and Disbursement of Borrowings. 5
Section 2. Interest and Change In Circumstances. 6
Section 2.1. Interest Rate Options. 6
Section 2.2. Minimum Amounts. 8
Section 2.3. Computation of Interest. 8
Section 2.4. Manner of Rate Selection. 8
Section 2.5. Change of Law. 8
Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR. 9
Section 2.7. Taxes and Increased Costs. 9
Section 2.8. Change in Capital Adequacy Requirements. 10
Section 2.9. Funding Indemnity 10
Section 2.10. Lending Branch. 11
Section 2.11. Discretion of Lenders as to Manner of Funding. 11
Section 3. Fees, Prepayments, Terminations, Applications and
Notations. 11
Section 3.1. Fees. 11
Section 3.2. Voluntary Prepayments. 12
Section 3.3. Mandatory Prepayments. 13
Section 3.4. Terminations. 13
Section 3.5. Place and Application of Payments. 14
Section 3.6. Notations and Requests. 15
Section 4. Collateral. 16
Section 4.1. Collateral. 16
Section 4.2. Subsidiary Guarantees. 16
Section 4.3. North Carolina Subsidiary Stock 16
Section 4.4. Canadian Subsidiary Collateral 16
Section 4.5. North Carolina Subsidiary Collateral 17
Section 5. Definitions 17
Section 5.1. Definitions. 17
Section 5.2. Interpretation. 27
Section 6. Representations and Warranties. 27
Section 6.1. Company's Organization and Qualification. 27
Section 6.2. Subsidiaries. 28
Section 6.3. Margin Stock. 28
Section 6.4. Financial Reports 29
Section 6.5. Full Disclosure 29
Section 6.6. Good Title 29
Section 6.7. Litigation and Other Controversies. 29
Section 6.8. Taxes. 30
Section 6.9. Approvals. 30
Section 6.10. Affiliate Transactions. 30
Section 6.11. Investment Company 30
Section 6.12. ERISA. 31
Section 6.13. Compliance with Laws. 31
Section 6.14. Other Agreements. 31
Section 7. Conditions Precedent. 31
Section 7.1. All Advances. 32
Section 7.2. Initial Advance. 32
Section 7.3. Certain Real Estate Collateral 34
Section 7.4. North Carolina Real Estate Collateral 35
Section 7.5 Authority Documents 36
Section 7.6. Good Standing Certificates 37
Section 8. Covenants. 37
Section 8.1. Maintenance of Business. 37
Section 8.2. Maintenance of Property. 37
Section 8.3. Taxes and Assessments 37
Section 8.4. Insurance. 38
Section 8.5. Financial Reports. 38
Section 8.6. Current Ratio 39
Section 8.7. Leverage Ratio 39
Section 8.8. Funded Debt Ratio 40
Section 8.9. Interest Coverage Ratio 40
Section 8.10. Capital Expenditures 40
Section 8.11. Indebtedness for Borrowed Money. 41
Section 8.12. Liens. 41
Section 8.13. Investments, Acquisitions, Loans, Advances and
Guaranties. 42
Section 8.14. Operating Leases. 44
Section 8.15. Sales and Leasebacks. 44
Section 8.16. Dividends and Certain Other Restricted Payments 45
Section 8.17. Mergers, Consolidations and Sales. 45
Section 8.18. Maintenance of Subsidiaries 46
Section 8.19. Formation of Subsidiaries. 46
Section 8.20. ERISA. 46
Section 8.21. Compliance with Laws. 46
Section 8.22. Burdensome Contracts With Affiliates. 46
Section 8.23. Changes in Fiscal Year. 47
Section 8.24. Change in the Nature of Business. 47
Section 8.25. Amendments to Subordinated Indebtedness 47
Section 8.26. Use of Loan Proceeds 47
Section 9. Events of Default and Remedies. 47
Section 9.1. Events of Default 47
Section 9.2. Non-Bankruptcy Defaults 50
Section 9.3. Bankruptcy Defaults 50
Section 9.4. Collateral for Undrawn Letters of Credit 50
Section 10. The Agent. 51
Section 10.1. Appointment and Authorization. 51
Section 10.2. Rights as a Lender 51
Section 10.3. Standard of Care 51
Section 10.4. Costs and Expenses 52
Section 10.5. Indemnity 53
Section 10.6. Credit Decision 53
Section 11. Miscellaneous. 53
Section 11.1. Holidays. 53
Section 11.2. No Waiver, Cumulative Remedies. 53
Section 11.3. Waivers, Modifications and Amendments 53
Section 11.4. Costs and Expenses 54
Section 11.5. Documentary Taxes. 55
Section 11.6. Survival of Representations. 55
Section 11.7. Survival of Indemnities. 55
Section 11.8. Notices 55
Section 11.9. Headings 56
Section 11.10. Severability of Provisions. 56
Section 11.11. Counterparts. 56
Section 11.12. Binding Nature, Governing Law, Etc 56
Section 11.13. Entire Understanding 57
Section 11.14. Participations 57
Section 11.15. Assignment Agreements 57
Section 11.16. Terms of Collateral Documents not Superseded 58
Section 11.17. Confidentiality 58
Signature 60
Exhibit A - Revolving Credit Note
Exhibit B - Form of Opinion of Counsel
Exhibit C - Compliance Certificate
Schedule 6.3 - Subsidiaries
<PAGE>
HK Systems, Inc.
Third Amended and Restated Credit Agreement
To:
Harris Trust and Savings Bank Bank One, Milwaukee, NA
Chicago, Illinois Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A. The Northern Trust Company
Milwaukee, Wisconsin Chicago, Illinois
and their from time to time assigns
Ladies and Gentlemen:
The undersigned, HK Systems, Inc., a Wisconsin corporation (the
"Company"), is the successor by merger to a former Delaware corporation
known as HK Systems, Inc. ("Old HK"). The Company refers to the Credit
Agreement dated as of October 29, 1993 as amended by the Amended and
Restated Credit Agreement dated as of February 13, 1995 and as further
amended by the Second Amended and Restated Credit Agreement dated as of
May 23, 1996 and currently in effect (the "Prior Credit Agreement")
between the Company and the Lenders currently party thereto (the "Existing
Lenders"). Old HK issued to the Existing Lenders under the Prior Credit
Agreement its revolving credit notes dated May 23, 1996 payable to the
order of the Existing Lenders in the face principal amount of $40,000,000
(the "Prior Notes") to evidence the loans outstanding under the revolving
credit provided under the Prior Credit Agreement. As a result of Old HK's
merger with and into the Company, the Company has assumed liability for
the indebtedness evidenced by the Prior Notes (the "Present Loans"). The
Company has requested that the Existing Lenders modify the terms and
conditions applicable to the Present Loans and extend the maturity thereof
and that the Lenders provide to the Company a new revolving credit
facility covering the Present Loans and additional credit to be extended
by the Lenders to the Company from time to time, all on and subject to the
terms and conditions set forth below. Accordingly, this Agreement is
executed and delivered by the Company to the Lenders for the sake of
convenience and clarity, to amend and restate the Prior Credit Agreement
and in so doing set forth and confirm the terms and conditions applicable
to such new credit facilities and the covenants, representations and
warranties to be made in connection therewith. Accordingly, upon
execution by the Company and the Lenders in the spaces provided for that
purpose below, Sections 1 through 11 of the Prior Credit Agreement and the
Exhibits and Schedules thereto shall be amended and as so amended shall be
restated in their entirety as follows:
.c1.Section 1. The Credits.
.c2.Section 1.1. Present Loans;. The Company acknowledges that
it is justly and truly indebted to the Existing Lenders on the Present
Loans in the principal amount of $18,000,000.00 plus accrued and unpaid
interest thereon. Substantially concurrently herewith, the Company is
executing and delivering to the Lenders the Notes hereinafter identified
and defined. Upon satisfaction of the conditions precedent to
effectiveness set forth in Section 7 hereof, the Present Loans evidenced
by the Prior Notes shall automatically, and without further action on the
part of either the Lenders or the Company, become evidenced by the Notes
issued under this Agreement to the Existing Lenders and, to that extent,
such Notes are issued in renewal of, and evidence the same indebtedness
formerly evidenced by, the Prior Notes, as well as evidencing all
additional Loans made pursuant to this Agreement. Except as set forth in
the last sentence of this paragraph, all of the Present Loans shall, for
all purposes of this Agreement, be treated as though they constituted
Loans under this Agreement in an amount equal to the aggregate unpaid
principal balance of the Present Loans outstanding on such date. If any
accrued and unpaid interest and commitment fees are outstanding in respect
of any of the Present Loans as of the date that the Present Loans become
evidenced by the Notes, such accrued interest shall be evidenced by the
Notes and shall be due and payable on the first interest payment date
applicable to the Notes and such accrued fees shall be payable on the
first date on which the corresponding fees are due and payable under this
Agreement. Simultaneously with such satisfaction of such conditions
precedent, any commitment of the Existing Lenders under the Prior Credit
Agreement shall terminate.
.c2.Section 1.2. Revolving Credit.; Subject to the terms and
conditions hereof, each Lender severally agrees to extend a revolving
credit (the "Revolving Credit") to the Company which may be availed of by
the Company from time to time, and borrowings thereunder may be repaid and
used again, during the period from the date hereof to and including the
Termination Date, at which time the commitments of the Lenders to extend
credit under the Revolving Credit shall expire. The maximum amount of the
Revolving Credit which each Lender party hereto as of the date hereof
agrees to extend to the Company shall be as set forth below opposite such
Lender's name:
Harris Trust and Savings Bank $30,000,000 33.3333334%
Firstar Bank Milwaukee, N.A. $20,000,000 22.2222222%
The Northern Trust Company $20,000,000 22.2222222%
Bank One, Milwaukee, NA $20,000,000 22.2222222%
----------- -----------
Total $90,000,000 100.00%
The Revolving Credit may be utilized by the Company in the form of
Loans and Letters of Credit, all as more fully hereinafter set forth,
provided that the aggregate amount of Loans and Letters of Credit
outstanding at any one time shall not exceed the Available Commitments.
During the period from and including the date hereof to but not including
the Termination Date, the Company may use the Commitments by borrowing,
repaying and reborrowing Loans in whole or in part and/or by having the
Agent issue Letters of Credit, having such Letters of Credit expire or
otherwise terminate without having been drawn upon or, if drawn upon,
reimbursing the Agent for each such drawing, and having the Agent issue
new Letters of Credit, all in accordance with the terms and conditions of
this Agreement. For purposes of this Agreement, where a determination of
the unused or available amount of the Available Commitments is necessary,
the Loans and Letters of Credit shall be deemed to utilize the Available
Commitments. The obligations of the Lenders hereunder are several and not
joint, and no Lender shall under any circumstances be obligated to extend
credit under the Revolving Credit in excess of its Available Commitment.
.c2.Section 1.3. The Loans;. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form
of loans (individually a "Loan" and collectively the "Loans"). Each Loan
shall be in a minimum amount of $50,000 or such greater amount which is an
integral multiple of $10,000, and each Loan shall be made pro rata by the
Lenders in accordance with the amounts of their Commitment. Each advance
made by a Lender of its pro rata share of a Loan shall be evidenced by a
Note of the Company (individually a "Note" and collectively the "Notes")
payable to the order of such Lender in the amount of its Commitment, with
each Note to be in the form (with appropriate insertions) attached hereto
as Exhibit A. Each Note shall be dated the date of issuance thereof, be
expressed to bear interest as provided in Section 2 hereof and be
expressed to mature on the Termination Date. Without regard to the
principal amount of each Note stated on its face, the actual principal
amount at any time outstanding and owing by the Company on account thereof
shall be the sum of all advances then or theretofore made thereon less all
payments of principal actually received.
.c2.Section 1.4. Letters of Credit;.
(a) General Terms. Subject to the terms and conditions hereof,
the Revolving Credit may be availed of by the Company in the form of
standby letters of credit issued by the Agent for the account of the
Company (individually a "Letter of Credit" and collectively the "Letters
of Credit"), provided that the aggregate amount of Letters of Credit
issued and outstanding hereunder shall not at any time exceed the lesser
of (i) the L/C Commitment or (ii) the excess (if any) of the Available
Commitments over the principal amount of Loans then outstanding. For
purposes of this Agreement, a Letter of Credit shall be deemed outstanding
as of any time in an amount equal to the maximum amount which could be
drawn thereunder under any circumstances and over any period of time plus
any unreimbursed drawings then outstanding with respect thereto. If and
to the extent any Letter of Credit expires or otherwise terminates without
having been drawn upon, the availability under the Commitments shall to
such extent be reinstated. The Letters of Credit shall be issued by the
Agent, but each Lender shall be obligated to reimburse the Agent for such
Lender's Percentage of the amount of each draft drawn under a Letter of
Credit in accordance with this Section 1.4 and, accordingly, each Letter
of Credit shall be deemed to utilize the Commitments of all Lenders pro
rata in accordance with their respective amounts thereof.
(b) Term. Each Letter of Credit issued hereunder shall expire
not later than the earlier of (i) twelve (12) months from the date of
issuance (or be cancelable not later than twelve (12) months from the date
of issuance and each renewal) or (ii) the Termination Date. In the event
the Agent issues any Letter of Credit with an expiration date that is
automatically extended unless the Agent gives notice that the expiration
date will not so extend beyond its then scheduled expiration date, the
Agent will give such notice of non-renewal before the time necessary to
prevent such automatic extension if before such required notice date (i)
the expiration date of such Letter of Credit if so extended would be after
the Termination Date, (ii) the Commitments have terminated or (iii) an
Event of Default exists and the Required Lenders have given the Agent
instructions not to so permit the extension of the expiration date of such
Letter of Credit.
(c) General Characteristics. Each Letter of Credit issued
hereunder shall be a standby letter of credit, payable in U.S. dollars,
conform to the general requirements of the Agent for the issuance of
standby letters of credit as to form and substance, and be a letter of
credit which the Agent may lawfully issue.
(d) Applications. At the time the Company requests each Letter
of Credit to be issued (or prior to the first issuance of a Letter of
Credit in the case of a continuing application), the Company shall execute
and deliver to the Agent an application for such Letter of Credit in the
form then customarily prescribed by the Agent (individually an
"Application" and collectively the "Applications"). The current form of
the Agent's Application for standby letter of credit is attached as
Schedule 1.4 hereto. The obligation of the Company to reimburse the Agent
for all drawings under a Letter of Credit shall be governed by the
Application related to such Letter of Credit, except that reimbursement of
each drawing shall be made in immediately available funds at the Agent's
principal office in Chicago, Illinois by no later than 12:00 noon (Chicago
time) on the date when such drawing is paid or, if such drawing was paid
after 11:30 a.m. (Chicago time), by the end of such day. Subject to the
other provisions of this subsection, the obligation of the Company to
reimburse the Agent for drawings under a Letter of Credit shall be
governed by the Application for such Letter of Credit. Anything contained
in the Applications to the contrary notwithstanding, (i) in the event the
Agent is not reimbursed by the Company for the amount the Agent pays on
any draft drawn under a Letter of Credit issued hereunder by 12:00 noon
(Chicago time) on the date when such drawing is paid or, if such drawing
was paid after 11:30 a.m. (Chicago time), by the end of such day, the
obligation of the Company to reimburse the Agent for the amount of such
draft paid shall bear interest (which the Company hereby promises to pay
on demand) from and after the date the draft is paid until payment in full
thereof at a fluctuating rate per annum determined by adding 2% and the
Applicable Margin for Domestic Rate Portions to the Domestic Rate as from
time to time in effect (computed on the basis of a year of 365 or 366
days, as the case may be), (ii) the Company shall pay fees in connection
with each Letter of Credit as set forth in Section 3 hereof, (iii) prior
to the occurrence of a Default or an Event of Default the Agent will not
call for additional collateral security for the obligations of the Company
under the Applications other than the collateral security contemplated by
this Agreement and the Collateral Documents and collateral security
consisting of rights in goods (or documents of title covering the same)
financed under such Applications, and (iv) except as otherwise provided in
Section 3.3 hereof, prior to the occurrence of a Default or an Event of
Default the Agent will not call for the funding of a Letter of Credit by
the Company prior to being presented with a draft drawn thereunder (or, in
the event the draft is a time draft, prior to its due date).
(e) Change in Laws. If the Agent or any Lender shall determine
in good faith that any change in any applicable law, regulation or
guideline (including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) or any new law, regulation or
guideline, or any interpretation of any of the foregoing by any
governmental authority charged with the administration thereof or any
central bank or other fiscal, monetary or other authority having
jurisdiction over the Agent or such Lender (whether or not having the
force of law), shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against the Letters of Credit, or the
Agent's or such Lender's or the Company's liability with respect thereto;
or
(ii) impose on the Agent or such Lender any penalty with respect
to the foregoing or any other condition regarding this Agreement, the
Applications or the Letters of Credit;
and the Agent or such Lender shall determine that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding
to a cost) to the Agent or such Lender of issuing, maintaining or
participating in the Letters of Credit hereunder, then the Company shall
pay on demand to the Agent or such Lender from time to time as specified
by the Agent or such Lender such additional amounts as the Agent or such
Lender shall determine are sufficient to compensate and indemnify it for
such increased cost. If the Agent or any Lender makes such a claim for
compensation, it shall provide the Company (with a copy to the Agent in
the case of any Lender) a certificate setting forth the computation of the
increased cost as a result of any event mentioned herein in reasonable
detail and such certificate shall be conclusive if reasonably determined.
(f) Participations in Letters of Credit. Each Lender shall
participate on a pro rata basis in the Letters of Credit issued by the
Agent, which participation shall automatically arise upon the issuance of
each Letter of Credit. Each Lender unconditionally agrees that in the
event the Agent is not immediately reimbursed by the Company for the
amount paid by the Agent on any draft presented under a Letter of Credit,
then in that event such Lender shall pay to the Agent that portion of the
amount of each draft so paid by the Agent which is equal to the same
percentage of the amount so paid as the percentage that its Commitment
bears to the aggregate of the Commitments and in return such Lender shall
automatically receive an equivalent percentage participation in the rights
of the Agent to obtain reimbursement from the Company for the amount of
such draft, together with interest thereon as provided for herein. The
obligations of the Lenders to the Agent under this subsection shall be
absolute, irrevocable and unconditional under any and all circumstances
whatsoever and shall not be subject to any set-off, counterclaim or
defense to payment which any Lender may have or have had against the
Company, the Agent, any other Lender or any other party whatsoever.
.c2.Section 1.5. Manner and Disbursement of Borrowings.; (a)
Generally. The Company shall give written or telephonic notice to the
Agent (which notice shall be irrevocable once given and, if given by
telephone, shall be promptly confirmed in writing) by no later than 12:00
noon (Chicago time) on the date the Company requests that any Loan be made
to it under the Commitments, and the Agent shall promptly notify each
Lender of the Agent's receipt of each such notice. Each such notice shall
specify the date of the Loan requested (which must be a Business Day) and
the amount of such Loan. The Company agrees that the Agent may rely upon
any written or telephonic notice given by any person the Agent in good
faith believes is an Authorized Representative without the necessity of
independent investigation and, in the event any telephonic notice
conflicts with the written confirmation, such notice shall govern if the
Agent and the Lenders have acted in reliance thereon. Each Loan shall
initially constitute part of the applicable Domestic Rate Portion except
to the extent the Company has otherwise timely elected as provided in
Section 2 hereof. Not later than 2:00 p.m. (Chicago time) on the date
specified for any Loan to be made by a Lender hereunder, such Lender shall
make the proceeds of its pro rata share of such Loan available to the
Agent in Chicago in immediately available funds. Subject to the
provisions of Section 7 hereof, the proceeds of each Loan shall be made
available to the Company at the principal office of the Agent in Chicago,
Illinois, in immediately available funds, upon receipt by the Agent from
each Lender of its pro rata share of such Loan.
(b) Unpaid Reimbursement Obligation. In the event the Company
fails to give notice pursuant to Section 1.5(a) above of a Loan equal to
the amount of its obligation to reimburse the Agent for a drawing on a
Letter of Credit and has not notified the Agent by 12:00 noon (Chicago
time) on the day such obligation becomes due that it intends to repay such
obligation through funds not borrowed under this Agreement, the Company
shall be deemed to have requested a Loan on such day constituting part of
the Domestic Rate Portion in the amount of such obligation then due,
subject to Section 7.1 hereof, which Loan shall be disbursed to the Agent
and applied to pay such obligation then due.
(c) Agent Reliance on Book Funding. Unless the Agent shall have
been notified by a Lender prior to 1:00 p.m. (Chicago time) on the date a
Loan is to be made hereunder that such Lender does not intend to make its
pro rata share of such Loan available to the Agent, the Agent may assume
that such Lender has made such share available to the Agent on such date
and the Agent may in reliance upon such assumption make available to the
Company a corresponding amount. If such corresponding amount is not in
fact made available to the Agent by such Lender and the Agent has made
such amount available to the Company, the Agent shall be entitled to
receive such amount from such Lender forthwith upon the Agent's demand,
together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Company and
ending on but excluding the date the Agent recovers such amount at a rate
per annum equal to the effective rate charged to the Agent for overnight
federal funds transactions with member Lenders of the federal reserve
system for each day as determined by the Agent (or in the case of a day
which is not a Business Day, then for the preceding day).
.c1.Section 2. Interest and Change In Circumstances.
.c2.Section 2.1. Interest Rate Options.; (a) Subject to the
terms and conditions of this Section 2, portions of the principal
indebtedness evidenced by the Notes ("Portions") may, at the option of the
Company, bear interest with reference to the Domestic Rate ("Domestic Rate
Portions") or with reference to Adjusted LIBOR ("LIBOR Portions"), and
Portions may be converted from time to time from one basis to the other.
All of the indebtedness evidenced by the Notes which is not part of a
LIBOR Portion shall constitute a single Domestic Rate Portion. All of the
indebtedness evidenced by the Notes which bears interest with reference to
a particular Adjusted LIBOR for a particular Interest Period shall
constitute a single LIBOR Portion. There shall not be more than eight (8)
LIBOR Portions applicable to the Revolving Credit outstanding at any one
time and each Lender shall have a ratable interest in each Portion.
Anything contained herein to the contrary notwithstanding, the obligation
of the Lenders to create, continue or effect by conversion any LIBOR
Portion shall be conditioned upon the fact that at the time no Event of
Default shall have occurred and be continuing. The Company hereby
promises to pay interest on each Portion at the rates and times specified
in this Section 2. The Company irrevocably authorizes and directs the
Agent to charge the interest on the Notes as and when due against amounts
on deposit in the Company's general operating accounts with the Agent; but
the inadequacy of such deposits shall not impair or affect the Company's
obligation to pay such interest, which is absolute and unconditional.
(b) Domestic Rate Portion. Each Domestic Rate Portion shall
bear interest (which the Company hereby promises to pay at the times
herein provided) at the rate per annum determined by adding the
Applicable Margin to the Domestic Rate as in effect from time to time,
provided that if a Domestic Rate Portion or any part thereof is not paid
when due (whether by lapse of time, acceleration or otherwise) such
Portion shall bear interest (which the Company hereby promises to pay at
the times herein provided), whether before as well as after judgment,
until payment in full thereof at the rate per annum determined by adding
2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on the Domestic Rate Portions shall be payable
monthly on the last day of each month in each year (commencing November
30, 1996) and at maturity of the Notes, and interest after maturity shall
be due and payable upon demand. Any change in the interest rate on the
Domestic Rate Portions resulting from a change in the Domestic Rate shall
be effective on the date of the relevant change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest
(which the Company hereby promises to pay at the times herein provided)
for each Interest Period selected therefor at a rate per annum determined
by adding the Applicable Margin to the Adjusted LIBOR for such Interest
Period, provided that if any LIBOR Portion is not paid when due (whether
by lapse of time, acceleration or otherwise) such Portion shall bear
interest (which the Company hereby promises to pay at the times herein
provided), whether before or after judgment, until payment in full thereof
through the end of the Interest Period then applicable thereto at the rate
per annum determined by adding 2% to the interest rate which would
otherwise be applicable thereto, and effective at the end of such Interest
Period such LIBOR Portion shall automatically be converted into and added
to the Domestic Rate Portion and shall thereafter bear interest at the
interest rate applicable to the Domestic Rate Portion after default.
Interest on each LIBOR Portion shall be due and payable on the last day of
each Interest Period applicable thereto and, with respect to any Interest
Period applicable to a LIBOR Portion in excess of three (3) months, on the
date occurring every three (3) months after the date such Interest Period
began and at the end of such Interest Period, and interest after maturity
shall be due and payable upon demand. The Company shall notify the Agent
on or before 12:00 noon (Chicago time) on the third Business Day preceding
the end of an Interest Period applicable to a LIBOR Portion whether such
LIBOR Portion is to continue as a LIBOR Portion, in which event the
Company shall notify the Agent of the new Interest Period selected
therefor, and in the event the Company shall fail to so notify the Agent,
such LIBOR Portion shall automatically be converted into and added to the
applicable Domestic Rate Portion as of and on the last day of such
Interest Period. The Agent shall promptly notify each Lender of each
notice received from the Company pursuant to the foregoing provision.
.c2.Section 2.2. Minimum Amounts.; Each LIBOR Portion shall be
in a minimum amount of $1,000,000 or such greater amount which is an
integral multiple of $100,000.
.c2.Section 2.3. Computation of Interest.; All interest on the
LIBOR Portions of the Notes shall be computed on the basis of a year of
360 days for the actual number of days elapsed. All interest on the
Domestic Rate Portion of each Note shall be computed on the basis of a
year of 365 or 366 days, as the case may be.
.c2.Section 2.4. Manner of Rate Selection.; The Company shall
notify the Agent by 12:00 noon (Chicago time) at least three (3) Business
Days prior to the date upon which it requests that any LIBOR Portion be
created or that any part of a Domestic Rate Portion be converted into a
LIBOR Portion and the Agent shall advise each Lender of each notice by
2:00 p.m. (Chicago time) on the same Business Day the Agent receives such
notice. If any request is made to convert a LIBOR Portion into the
Domestic Rate Portion, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto.
All requests for the creation, continuance or conversion of Portions under
this Agreement shall be irrevocable. Such requests may be written or oral
and the Agent is hereby authorized to honor telephonic requests for
creations, continuances and conversions received by it from any person the
Agent in good faith believes to be an Authorized Representative, the
Company hereby indemnifying the Agent and the Lenders from any liability
or loss ensuing from so acting.
.c2.Section 2.5. Change of Law.; Notwithstanding any other
provisions of this Agreement or of the Notes, if at any time any Lender
shall determine in good faith that any change in applicable laws, treaties
or regulations or in the interpretation thereof makes it unlawful for such
Lender to create or continue to maintain any LIBOR Portions, it shall
promptly so notify the Agent (which shall in turn promptly notify the
Company and the other Lenders) and the obligation of such Lender to
create, continue or maintain any LIBOR Portion under this Agreement shall
terminate until it is no longer unlawful for such Lender to create,
continue or maintain LIBOR Portions. The Company, on demand, shall, if
the continued maintenance of any LIBOR Portion is unlawful, thereupon
prepay the outstanding principal amount of the affected LIBOR Portion,
together with all interest accrued thereon and all other amounts payable
to affected Lender with respect thereto under this Agreement; provided,
however, that the Company may instead elect to convert the principal
amount of the affected LIBOR Portion into the Domestic Rate Portion,
subject to the terms and conditions of this Agreement.
.c2.Section 2.6. Unavailability of Deposits or Inability to
Ascertain Adjusted LIBOR.; Notwithstanding any other provision of this
Agreement or of the Notes, if prior to the commencement of any Interest
Period, the Required Lenders shall determine that United States dollar
deposits in the amount of any LIBOR Portion scheduled to be outstanding
during such Interest Period are not readily available to such Lenders in
the offshore interbank market or by reason of circumstances affecting the
offshore interbank market, adequate and reasonable means do not exist for
ascertaining Adjusted LIBOR, then such Lenders shall promptly give notice
thereof to the Agent (which shall in turn promptly notify the Company and
the other Lenders) and the obligations of the Lenders to create, continue
or effect by conversion any LIBOR Portion in such amount and for such
Interest Period shall terminate until United States dollar deposits in
such amount and for the Interest Period selected by the Company shall
again be readily available in the offshore interbank market and adequate
and reasonable means exist for ascertaining Adjusted LIBOR.
.c2.Section 2.7. Taxes and Increased Costs.; With respect to the
LIBOR Portion, if any Lender shall determine in good faith that any change
after the date hereof in any applicable law, treaty, regulation or
guideline (including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the foregoing by
any governmental authority charged with the administration thereof or any
central bank or other fiscal, monetary or other authority having
jurisdiction over such Lender or its lending branch or the LIBOR Portions
contemplated by this Agreement (whether or not having the force of law)
shall:
(i) impose, increase, or deem applicable any reserve, special
deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, or any other acquisition of funds or
disbursements by, such Lender which is not in any instance already
accounted for in computing the Adjusted LIBOR Rate;
(ii) subject such Lender, the LIBOR Portion or a Note to the
extent it evidences such Portions, to any tax (including, without
limitation, any United States interest equalization tax or similar tax
however named applicable to the acquisition or holding of debt obligations
and any interest or penalties with respect thereto), duty, charge, stamp
tax, fee, deduction or withholding in respect of this Agreement, any LIBOR
Portion or a Note to the extent it evidences such a Portion, except such
taxes as may be measured by the overall net income or gross receipts of
such Lender or its lending branches and imposed by the jurisdiction
(whether or not within the United States), or any political subdivision or
taxing authority thereof, in which such Lender's principal executive
office or its lending branch is located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to such Lender hereunder or under a Note to
the extent it evidences any LIBOR Portion (other than by a change in
taxation of the overall net income or gross receipts of such Lender); or
(iv) impose on such Lender any penalty with respect to the
foregoing or any other condition regarding this Agreement, its
disbursement, any LIBOR Portion or a Note to the extent it evidences any
LIBOR Portion;
and such Lender shall determine that the result of any of the foregoing is
to increase the cost (whether by incurring a cost or adding to a cost) to
such Lender of creating or maintaining any LIBOR Portion hereunder or to
reduce the amount of principal or interest received or receivable by such
Lender (without benefit of, or credit for, any prorations, exemption,
credits or other offsets available under any such laws, treaties,
regulations, guidelines or interpretations thereof), then the Company
shall pay on demand to such Lender from time to time as specified by such
Lender such additional amounts as such Lender shall reasonably determine
are sufficient to compensate and indemnify it for such increased cost or
reduced amount. If a Lender makes such a claim for compensation, it shall
provide to the Company (with a copy to the Agent) a certificate setting
forth the computation of the increased cost or reduced amount as a result
of any event mentioned herein in reasonable detail and such certificate
shall be conclusive if reasonably determined.
.c2.Section 2.8. Change in Capital Adequacy Requirements.; If
any Lender shall determine that the adoption after the date hereof of any
applicable law, rule or regulation regarding capital adequacy, or any
change after the date hereof in any existing law, rule or regulation, or
any change after the date hereof in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance
by such Lender (or its lending office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital as a
consequence of such Lender's obligations hereunder or for the credit which
is the subject matter hereof to a level below that which such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies with respect to liquidity and capital
adequacy) by an amount deemed by such Lender to be material, then from
time to time, within fifteen (15) days after demand by such Lender, the
Company shall pay to the Lender such additional amount or amounts
reasonably determined by such Lender as will compensate such Lender for
such reduction. If a Lender makes such a claim for compensation, it shall
provide to the Company (with a copy to the Agent) a certificate setting
forth the computation of the increased cost or reduced amount as a result
of any event mentioned herein in reasonable detail and such certificate
shall be conclusive if reasonably determined.
.c2.Section 2.9. Funding Indemnity;. In the event any Lender
shall incur any loss, cost or expense (including, without limitation, any
loss (including loss of profit), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired or
contracted to be acquired by such Lender to fund or maintain its part of
any LIBOR Portion or the relending or reinvesting of such deposits or
other funds or amounts paid or prepaid to such Lender) as a result of:
(i) any payment of a LIBOR Portion on a date other than the last
day of the then applicable Interest Period for any reason, whether before
or after default, and whether or not such payment is required by any
provisions of this Agreement, but in any event excluding such a payment to
the extent required by Section 2.5 hereof; or
(ii) any failure by the Company to create, borrow, continue or
effect by conversion a LIBOR Portion on the date specified in a notice
given pursuant to this Agreement, unless such failure results from such
Lender's inability or unwillingness pursuant to Sections 2.5 or 2.6 hereof
to create, continue or effect by conversion such LIBOR Portion;
then, upon the demand of such Lender, the Company shall pay to the Lender
such amount as will reimburse such Lender for such loss, cost or expense.
If a Lender requests such a reimbursement, it shall provide to the Company
(with a copy to the Agent) a certificate setting forth the computation of
the loss, cost or expense giving rise to the request for reimbursement in
reasonable detail and such certificate shall be conclusive if reasonably
determined.
.c2.Section 2.10. Lending Branch.; Each Lender may, at its
option, elect to make, fund or maintain its pro rata share of the Loans
hereunder at the branches or offices specified on the signature pages
hereof or on any Assignment Agreement executed and delivered pursuant to
Section 11.15 hereof or at such of its branches or offices as such Lender
may from time to time elect.
.c2.Section 2.11. Discretion of Lenders as to Manner of Funding.;
Notwithstanding any provision of this Agreement to the contrary, each
Lender shall be entitled to fund and maintain its funding of all or any
part of its Notes in any manner it sees fit, it being understood, however,
that for the purposes of this Agreement all determinations hereunder
(including, without limitation, determinations under Sections 2.6, 2.7 and
2.9 hereof) shall be made as if each Lender had actually funded and
maintained each LIBOR Portion during each Interest Period applicable
thereto through the purchase of United States dollar deposits in the
offshore interbank market in the amount of its share of such LIBOR
Portion, having a maturity corresponding to such Interest Period, and
bearing an interest rate equal to LIBOR for such Interest Period.
.c1.Section 3. Fees, Prepayments, Terminations, Applications and
Notations.
.c2.Section 3.1. Fees. ;
(a) Commitment Fee. For the period from the date hereof to and
including the Termination Date, the Company shall pay to the Agent for the
ratable account of the Lenders a commitment fee at the rate per annum
(computed on the basis of a year of 360 days and the actual number of days
elapsed) equal to the Applicable Margin in effect as of the time such fee
is payable on the average daily unused portion of the Commitments (whether
or not available). Such commitment fee shall be payable quarterly in
arrears on the last day of each January, April, July and October in each
year (commencing on January 31, 1997) and on the Termination Date.
(b) Contingency Fee. On October 31, 1997, if the Company has
not by such date consummated an initial public offering of equity
securities issued by it, the Company shall pay to the Agent for the
ratable account of the Lenders, a non-refundable fee in the amount of
$60,000 in consideration of the Lenders' agreements herein.
(c) Agent's Fees. The Company shall pay to the Agent the fees
agreed to in a letter exchanged between them dated September 27, 1996.
(d) Closing Fee. On the date hereof, the Company shall pay to
the Agent a non-refundable closing fee of $165,000 to be distributed by
the Agent to the Lenders party hereto as of the date hereof as set forth
below:
Harris Trust and Savings Bank $75,000
Firstar Bank Milwaukee, N.A. $30,000
The Northern Trust Company $30,000
Bank One, Milwaukee, NA $30,000
(e) Letter of Credit Fees. On the date of issuance of each
Letter of Credit, the Company shall pay to the Agent for its own account
an issuance fee equal to 0.125% of the face amount of such Letter of
Credit. Additionally, quarterly in arrears, on the last day of each
January, April, July and October of each year (commencing on January 31,
1997), the Company shall pay to the Agent for the ratable account of the
Lenders a letter of credit fee (computed on the basis of a year of 360
days for the actual number of days elapsed) at a rate of 1% per annum on
the average daily face amount of all the outstanding Letters of Credit
during such quarter. In addition to the letter of credit fees called for
above, the Company further agrees to pay to the Agent for its own account
such processing and transaction fees and charges as the Agent from time to
time customarily imposes in connection with any amendment, cancellation,
negotiation and/or payment of letters of credit and drafts drawn
thereunder.
(f) Audit Fees. The Company shall pay to the Agent for its own
use and benefit charges for audits of the Collateral in such amounts as
the Agent may from time to time request (the Agent acknowledging and
agreeing that such charges shall be computed in the same manner as it at
the time customarily uses for the assessment of charges for similar
collateral audits), provided, however, that in the absence of any Event of
Default, (i) the Company shall not be required to reimburse the Agent for
more than two such audits per fiscal year and (ii) the aggregate amount
for which the Company shall be liable to so reimburse the Agent during any
fiscal year shall not exceed $5,000.
.c2.Section 3.2. Voluntary Prepayments.; (a) Domestic Rate
Portion. The Company shall have the privilege of prepaying without
premium or penalty and in whole or in part (but if in part, then in an
amount not less than $100,000) the Domestic Rate Portion of the Note at
any time upon notice to the Agent, which shall promptly notify the
Lenders, prior to 11:00 a.m. (Chicago time) on the date fixed for
prepayment.
(b) LIBOR Portions. The Company may prepay any LIBOR Portion of
the Note only on the last date of the then applicable Interest Period, in
whole or in part (but if in part, then in an amount not less than
$1,000,000 or such greater amount which is an integral multiple of
$100,000), upon notice to the Agent (which notice shall be irrevocable
once given, must be received by the Agent no later than 11:00 a.m.
(Chicago time) on the date fixed for prepayment in the case of a
prepayment in whole of a LIBOR Portion and on the third Business Day
preceding the date of any such prepayment in part of a LIBOR Portion, and
in each case shall specify the principal amount to be repaid), which shall
promptly notify the Lenders; provided, however, that the outstanding
principal amount of any LIBOR Portion of the Note prepaid in part shall
not be less than $1,000,000 or such greater amount which is an integral
multiple of $100,000 after giving effect to such prepayment. Any such
prepayment shall be effected by payment of the principal amount to be
prepaid and accrued interest thereon to the end of the applicable Interest
Period.
.c2.Section 3.3. Mandatory Prepayments. ; (a) Deficiency. The
Company agrees that if at any time the then outstanding principal balance
of the Notes plus the then outstanding amount of Letters of Credit shall
for any reason exceed the Available Commitments as then in effect, the
Company shall immediately and without notice or demand pay over to the
Agent (for the ratable account of the Lenders) the amount of the excess as
and for a mandatory prepayment on the Notes until paid in full, with any
excess held as collateral security for the Company's obligations under the
Applications.
(b) Certain Events. The Company shall immediately and without
notice or demand by the Agent or any Lender, pay to the Agent (for the
ratable account of the Lenders) all principal of and accrued interest on
the Notes and all fees, charges and other amounts payable hereunder and
under the Collateral Documents in the event: (i) any payment or
distribution of principal or interest or premium (not otherwise permitted
by Section 8.16 hereof) shall be made on or in respect of, or the Company
or any Subsidiary shall acquire, prepay or retire (except to the extent
permitted by Section 8.16 hereof), in each case the Subordinated
Indebtedness prior to the stated maturity thereof (without acceleration)
or prior to any other times required for payment thereof (without
acceleration) as are in force and effect as of the date hereof; or (ii)
any holder of any Subordinated Indebtedness shall enforce any right
(including making a demand) to require any such payment, distribution,
prepayment, acquisition or retirement on or in respect of the Subordinated
Indebtedness (except to the extent permitted by Section 8.16 hereof); or
(iii) any acquisition or redemption of any preferred capital stock of the
Company; or (iv) any holder of any preferred capital stock of the Company
shall enforce any right (including making a demand) to require any
redemption of such preferred capital stock.
.c2.Section 3.4. Terminations.; The Company shall have the right
at any time and from time to time, upon three (3) Business Days' prior
notice to the Agent (which shall promptly notify the Lenders), to ratably
terminate without premium or penalty and in whole or in part (but if in
part, then in an amount not less than $250,000) the Commitments, provided
that the Commitments may not be reduced to an amount less than the
aggregate principal amount of the Loans and Letters of Credit then
outstanding. Any reduction of the Commitments to an amount less than the
L/C Commitment shall reduce the L/C Commitment so as to equal the
Commitments after giving effect to such reduction. Any termination of the
Commitments or L/C Commitment pursuant to this Section may not be
reinstated.
.c2.Section 3.5. Place and Application of Payments.; Unless
otherwise specified herein, all payments of principal, interest, fees and
all other amounts payable hereunder shall be made to the Agent at its
office at 111 West Monroe Street, Chicago, Illinois (or at such other
place as the Agent may specify) on the date any such payment is due and
payable. All amounts payable pursuant to Sections 1.4(e), 2.7, 2.8 or 2.9
hereof shall be paid directly to the Lender making demand under such
Section. All such payments shall be made in lawful money of the United
States of America, in immediately available funds at the place of payment,
without setoff or counterclaim and without reduction for, and free from,
any and all present or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions or conditions of any
nature imposed by any government or any political subdivision or taxing
authority thereof (but excluding any taxes imposed on or measured by the
net income of the Lender). Payments received by the Agent after 12:00
noon (Chicago time) shall be deemed received as of the opening of business
on the next Business Day. Except as herein provided, all payments shall
be received by the Agent for the ratable account of the Lenders and shall
be promptly distributed by the Agent ratably to the Lenders. Unless the
Company otherwise directs, principal payments shall be first applied to
the Domestic Rate Portion until payment in full thereof, with any balance
applied to the LIBOR Portions in the order in which their Interest Periods
expire.
Anything contained herein to the contrary notwithstanding, all
payments and collections received in respect of the Obligations and all
proceeds of the Collateral received, in each instance, by the Agent or any
of the Lenders after the occurrence of an Event of Default shall be
remitted to the Agent and distributed as follows:
(a) first, to the payment of any outstanding costs and expenses
incurred by the Agent in monitoring, verifying, protecting, preserving or
enforcing the Liens on the Collateral or in protecting, preserving or
enforcing rights under this Agreement and the other Loan Documents and in
any event including all costs and expenses of a character which the
Company has agreed to pay under Section 11.4 hereof (such funds to be
retained by the Agent for its own account unless it has previously been
reimbursed for such costs and expenses by the Lenders, in which event such
amounts shall be remitted to the Lenders to reimburse them for payments
theretofore made to the Agent);
(b) second, to the payment of any outstanding interest or other
fees or amounts due under the Notes, the Applications or any of the other
Loan Documents, in each case, other than for principal, ratably as among
the Agent and the Lenders in accord with the amount of such interest and
other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes and any
liabilities in respect of unpaid drawings under the Letters of Credit, pro
rata as among the Lenders in accord with the then respective unpaid
principal balances of the Notes and the then unpaid liabilities in respect
of unpaid drawings under the Letters of Credit;
(d) fourth, to the Agent, to be held as collateral security for
any undrawn Letters of Credit, until the Agent is holding an amount of
cash equal to the then outstanding amount of all Letters of Credit;
(e) fifth, to the payment of the Hedging Liability;
(f) sixth, to the Agent and the Lenders ratably in accord with
the amounts of any other indebtedness, obligations or liabilities of the
Company owing to each of them and secured by the Collateral Documents
unless and until all such indebtedness, obligations and liabilities have
been fully paid and satisfied; and
(g) seventh, to the Company or to whoever the Agent reasonably
determines to be lawfully entitled thereto.
In the event that the amount of the Hedging Liability is not fixed
and determined at the time any such payments or collections are received
which are to be allocated thereto, such amounts so allocated shall be held
by the Agent as collateral security until the Hedging Liability is fixed
and determined and the same shall then be applied to the Hedging
Liability, with any overplus applied to any other remaining obligations of
the Company under or in connection with this Agreement and with such other
applications to be reallocated among the Lenders and their Affiliates to
cover any deficiency which would not have existed had the exact amount of
the Hedging Liability been known at the time such amounts were originally
distributed.
.c2. Section 3.6. Notations and Requests.; All Loans made
against a Note, the status of all amounts evidenced by a Note as
constituting part of the Domestic Rate Portion or a LIBOR Portion, and the
rates of interest and Interest Periods applicable to such Portions shall
be recorded by each Lender on its books and records or, at its option in
any instance, endorsed on a schedule to its Note and the unpaid principal
balance and status, rates and Interest Periods so recorded or endorsed by
such Lender shall be prima facie evidence in any court or other proceeding
brought to enforce its Note of the principal amount remaining unpaid
thereon, the status of the Loans evidenced thereby and the interest rates
and Interest Periods applicable thereto; provided that the failure of a
Lender to record any of the foregoing shall not limit or otherwise affect
the obligation of the Company to repay the principal amount of each Note
together with accrued interest thereon. Prior to any negotiation of a
Note, a Lender shall record on a schedule thereto the status of all
amounts evidenced thereby as constituting part of the Domestic Rate
Portion or LIBOR Portion and the rates of interest and the Interest
Periods applicable thereto.
.c1.Section 4. Collateral.;
.c2.Section 4.1. Collateral.; Subject to Sections 7.3 and 7.4
hereof, the Loans and other Obligations shall be secured by valid and
perfected first priority Liens in favor of the Agent for the benefit of
the Lenders on all now existing or hereafter arising or acquired accounts,
general intangibles, inventory, equipment, chattel paper, instruments,
documents and certain other assets and property (including the real
property of the Company and its Subsidiaries in Salisbury, North Carolina,
Montgomery, Alabama and Bountiful, Utah) of the Company and the
Subsidiaries as more fully described therein. The Company covenants and
agrees that it will comply, and will cause the Subsidiaries to comply,
with all terms and conditions of each of the Collateral Documents and that
it will, at any time and from time to time at the request of the Agent or
the Required Lenders execute and deliver such further instruments and do
such acts and things as the Agent or the Required Lenders may deem
necessary or desirable to provide for or protect or perfect the Lien of
the Agent in the Collateral.
.c2.Section 4.2. Subsidiary Guarantees.; The Loans and other
Obligations shall be guaranteed by each Subsidiary pursuant to a written
guaranty from such Subsidiary in form and substance reasonably acceptable
to the Required Lenders (all of the foregoing, as the same may from time
to time be modified, amended or restated, being referred to collectively
as the "Subsidiary Guarantees").
.c2. Section 4.3. North Carolina Subsidiary Stock;. The Loans
and other Obligations shall be secured by a valid and perfected first Lien
on all Voting Stock in the North Carolina Subsidiary pursuant to a Pledge
Agreement from the Company to the Agent (such Pledge Agreement as the same
may be modified or amended from time to time being hereinafter referred to
as the "Pledge Agreement"). Notwithstanding anything herein or in the
Pledge Agreement to the contrary, the Lenders agree to release the Voting
Stock pledged pursuant to the Pledge Agreement promptly after the
Company's written request to the Agent therefor if (i) the sole purpose
and function of the North Carolina Subsidiary is at the time of such
release to own the North Carolina Property and the other Property of the
so-called Taylor Conveyors Division of Western Atlas acquired by the North
Carolina Subsidiary as a result of the Western Atlas Acquisition (the
North Carolina Property and such other Property being hereinafter referred
to collectively as the "Taylor Division"), (ii) at the time of such
release, such Voting Stock is being sold in a bona fide sale at arm's
length to an unaffiliated third party not later than 90 days from the date
hereof and (iii) at the time of such release and immediately after giving
effect thereto, no Default or Event of Default shall occur or be
continuing.
.c2.Section 4.4. Canadian Subsidiary Collateral;.
Notwithstanding anything contained herein to the contrary, the Company
need not furnish the Lenders with the Collateral Documents required by the
foregoing provisions of this Section 4 to be delivered by the Canadian
Subsidiary (other than its Subsidiary Guarantee), if and so long as (i)
the Canadian Subsidiary's sole purpose and function consists exclusively
of acting as a nominee for the Company in booking sales to Canadian
account debtors, such that the accounts receivable arising from such sales
are the sole property of the Company and the Canadian Subsidiary does not
have any rights in the same and (ii) the Canadian Subsidiary transfers by
way of a quitclaim assignment, any and all of its rights (if any) in each
such account receivable to the Company substantially concurrent with the
creation of such account receivable (provided that no such transfer need
be made unless and until the aggregate unpaid amount outstanding on such
accounts receivable exceeds $100,000).
.c2.Section 4.5. North Carolina Subsidiary Collateral;.
Notwithstanding anything contained herein to the contrary, the Company
need not furnish the Lenders with the Collateral Documents required by the
foregoing provisions of this Section 4 to be delivered by the North
Carolina Subsidiary (other than its Subsidiary Guarantee), if and so long
as (i) the North Carolina Subsidiary's sole purpose and function consists
exclusively of its ownership of the Taylor Division and (ii) the aggregate
amount outstanding on accounts receivable owing to the North Carolina
Subsidiary, when taken together with market value of the inventory of the
North Carolina Subsidiary, does not exceed $200,000.
.c1.Section 5. Definitions; Interpretation.
.c2.Section 5.1. Definitions.; The following terms when used
herein shall have the following meanings:
"Adjusted LIBOR" means a rate per annum determined by the Agent
pursuant to the following formula:
Adjusted LIBOR = LIBOR
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR,
the maximum rate of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental or other special
reserves) imposed by the Board of Governors of the Federal Reserve System
(or any successor) under Regulation D on Eurocurrency liabilities (as such
term is defined in Regulation D) for the applicable Interest Period as of
the first day of such Interest Period, but subject to any amendments to
such reserve requirement by such Board or its successor, and taking into
account any transitional adjustments thereto becoming effective during
such Interest Period. For purposes of this definition, LIBOR Portions
shall be deemed to be Eurocurrency liabilities as defined in Regulation D
without benefit of or credit for prorations, exemptions or offsets under
Regulation D. "LIBOR" means, for each Interest Period, (a) the LIBOR
Index Rate for such Interest Period, if such rate is available, and (b) if
the LIBOR Index Rate cannot be determined, the arithmetic average of the
rate of interest per annum (rounded upward, if necessary, to the nearest
1/100th of 1%) at which deposits in United States dollars in immediately
available funds are offered to the Agent at 11:00 a.m. (London, England
time) two (2) Business Days before the beginning of such Interest Period
by major banks in the interbank Eurodollar market for a period equal to
such Interest Period and in an amount equal or comparable to the part of
the LIBOR Portion to be outstanding from the Agent during such Interest
Period. Each determination of LIBOR made by the Agent shall be conclusive
and binding absent manifest error. "LIBOR Index Rate" means, for any
Interest Period, the rate per annum (rounded upwards, if necessary, to the
next higher one hundred-thousandth of a percentage point) for deposits in
U.S. dollars for a period equal to such Interest Period, which appears on
the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day
two (2) Business Days before the commencement of such Interest Period.
"Telerate Page 3750" means the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying
British Bankers' Association Interest Settlement Rates for U.S. Dollar
deposits).
"Affiliate" means any Person, directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another
Person. A Person shall be deemed to control another Person for the
purposes of this definition if such Person possesses, directly or
indirectly, the power to direct, or cause the direction of, the management
and policies of the other Person, whether through the ownership of voting
securities, common directors, trustees or officers, by contract or
otherwise; provided, however, that notwithstanding the foregoing, no
Person shall be considered an Affiliate of the Company or any Subsidiary
solely by virtue of its relationship with SWIB.
"Agent" means Harris Trust and Savings Bank and any successor thereto
appointed pursuant to Section 10.1 hereof.
"Applicable Margin" with respect to Loans and the commitment fee payable
under Section 3.1(a) hereof shall mean the rate specified for such
obligation below, subject to quarterly adjustment as hereinafter provided:
Applicable
When Following Margin Applicable Applicable
Status Exists For For Domestic Margin Margin
any Margin Rate Portion For LIBOR For Commitment
Determination Date Is: Portions Is: Fee Is:
Level I Status 0% 1.000% 0.125%
Level II Status 0% 1.375% 0.250%
Level III Status 0% 1.750% 0.375%
Level IV Status .25% 2.00% .50%
provided, however, that all of the foregoing is subject to the following:
(i) the initial Applicable Margin shall be the Applicable Margin for
Level IV Status and shall remain in effect until any redetermination
pursuant to the following clauses (ii) and (iii);
(ii) not later than five (5) Business Days after the Lenders' receipt of
the quarterly financial statements required by Section 8.5(a) hereof for a
given fiscal quarter and the compliance certificate required for such
quarter by Section 8.5 hereof (commencing with the first fiscal quarter to
follow the date hereof), the Agent shall determine whether such financial
information indicates such a change in the Funded Debt Ratio (the Funded
Debt Ratio to be computed as of the close of such fiscal quarter [each
such close being hereinafter referred to as a "Test Date"]) as would
justify a change in the Applicable Margins and shall then notify the
Company and the Lenders of such determination and of any change in the
Applicable Margins resulting therefrom; and
(iii) any change in the Applicable Margins shall be effective as
of the date the Agent so notifies the Company of such determination and
with such new Applicable Margins to continue in effect until the
effectiveness of the next redetermination thereof. In determining the
Funded Debt Ratio as of any Test Date, the Agent will accept the financial
statements for the Company pursuant to Section 8.5(a) hereof, provided
that such determination shall be subject to redetermination (to be
effective retroactively as of the date the Agent had notified the Company
of the corresponding change in the Applicable Margins) in the event the
final audited statements of the Company so indicate;
(iv) anything contained herein to the contrary notwithstanding, the
Applicable Margins shall be the highest Applicable Margins set forth
herein during the continuance of: (x) any Event of Default, (y) any
Default (whether or not any grace applicable thereto has passed) in the
payment of any principal or interest on any Note or any fee or other
amount payable by the Company hereunder or (z) any Default by the Company
in supplying the financial statements required by Sections 8.5(a) or
8.5(b) hereof by the deadlines expressed in such Sections.
Any determination by the Agent of the Funded Debt Ratio shall be
conclusive and binding upon the Company provided that it has been made
reasonably and in good faith.
"Application" is defined in Section 1.4 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 7.2(a) hereof or on
any update of any such list provided by the Company to the Agent, or any
further or different officers of the Company so named by any Authorized
Representative of the Company in a written notice to the Agent.
"Available Commitment" means as of any time for any Lender, such Lender's
Commitment less such Lender's ratable share of the Reserve.
"Business Day" means any day (other than a Saturday or Sunday) on which
banks are not authorized or required to close in Chicago, Illinois and
Milwaukee, Wisconsin and, when used with respect to LIBOR Portions, a day
on which banks are dealing in United States Dollar deposits in the
interbank market in London, England and Nassau, Bahamas.
"Canadian Subsidiary" shall mean HISCO Systems of Canada Ltd., a
corporation organized under the federal laws of Canada and a Wholly Owned
Subsidiary.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease determined
in accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests and privileges from
time to time subject to the Liens granted to the Agent for the benefit of
the Lenders by the Collateral Documents.
"Collateral Documents" means the Subsidiary Guarantees and all mortgages,
deeds of trust, security agreements, assignments, financing statements and
other documents as shall from time to time guaranty or secure the Notes
and the other Obligations hereunder as the same may from time to time be
modified, supplemented or amended.
"Commitments" means the commitments of the Lenders to extend credit under
the Revolving Credit in the amounts set forth opposite their names in
Section 1.2 hereof and opposite their signatures on Assignment Agreements
delivered pursuant to Section 11.15 hereof under the heading "Commitment",
as such amounts may be reduced pursuant hereto.
"Company" is defined in the introductory paragraph hereof.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common
control which, together with the Company or any Subsidiary, are treated as
a single employer under Section 414 of the Code.
"Current Ratio" means, as of any time the same is to be determined, the
ratio of current assets of the Company and the Subsidiaries to current
liabilities of the Company and the Subsidiaries, all as determined on a
consolidated basis in accordance with GAAP consistently applied, but in
any event excluding current maturities on the Notes from current
liabilities.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Domestic Rate" means, for any day, the greater of (i) the rate of
interest announced by the Agent from time to time as its prime commercial
rate, as in effect on such day; and (ii) the sum of (x) the rate
determined by the Agent to be the average (rounded upwards, if necessary,
to the next higher 1/100 of 1%) of the rates per annum quoted to the Agent
at approximately 10:00 a.m. (Chicago time) (or as soon thereafter as is
practicable) on such day (or, if such day is not a Business Day, on the
immediately preceding Business Day) by two or more Federal funds brokers
selected by the Agent for the sale to the Agent at face value of Federal
funds in an amount equal or comparable to the principal amount owed to the
Agent for which such rate is being determined, plus (y) 1/2 of 1% (0.5%).
"Domestic Rate Portions" is defined in Section 2.1(a) hereof.
"Eaton" means Eaton-Kenway, Inc., an Ohio corporation.
"Eaton Debt" shall mean all principal of and interest on that certain
Subordinated Promissory Note of HK payable to the order of Eaton-Kenway,
Inc., an Ohio corporation, in the face principal amount of $10,000,000.
"EBITA" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect
of (i) Interest Expense for such period, plus (ii) federal, state and
local income taxes for such period, plus (iii) all amounts properly
charged for amortization of intangible assets during such period on the
books of the Company and the Subsidiaries, all as determined on a
consolidated basis for the Company and the Subsidiaries in accordance with
GAAP.
"EBITDA" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect
of (i) Interest Expense for such period, plus (ii) federal, state and
local income taxes for such period, plus (iii) all amounts properly
charged for depreciation of fixed assets and amortization of intangible
assets during such period on the books of the Company and the
Subsidiaries, all as determined on a consolidated basis for the Company
and the Subsidiaries in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"Funded Debt" means all Indebtedness for Borrowed Money of the Company,
and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Funded Debt Ratio" means, as of any time the same is to be determined,
the ratio of (i) Senior Funded Debt at such time to (ii) the sum of (x)
EBITDA for the four most recently completed fiscal quarters of the Company
and (y) the Western Atlas Adjustment Amount.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and the Subsidiaries on a basis
consistent with the preparation of the opening day balance sheet furnished
to the Lenders pursuant to Section 8.26 hereof.
"Hedging Arrangements" shall mean any interest rate swaps, interest rate
caps, interest rate collars or other interest rate hedging arrangements as
the Company may from time to time enter into with any one or more of the
Lenders or their Affiliates.
"Hedging Liability" shall mean the liability of the Company to the Lenders
and their Affiliates and any of the foregoing in respect of the Hedging
Arrangements. Unless and until the amount of the Hedging Liability is
fixed and determined, the Hedging Liability shall be deemed to be 10% per
annum of the notional amount of the hedge from the date of computation to
the date the hedge expires.
"HII Indemnity Agreement" means that certain Restated Supplemental
Agreement dated as of February 13, 1995 by and among the Company and Old
HK and any Indemnity Agreement (as such term is defined in such
Supplemental Agreement) provided by Old HK pursuant to the terms thereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any
manner by such Person representing money borrowed (including by the
issuance of debt securities), (ii) all indebtedness for the deferred
purchase price of property or services (other than trade accounts payable
arising in the ordinary course of business), (iii) all indebtedness
secured by any Lien upon Property of such Person, whether or not such
Person has assumed or become liable for the payment of such indebtedness,
(iv) all Capitalized Lease Obligations of such Person and (v) all
obligations of such Person on or with respect to letters of credit and
bankers' acceptances.
"Interest Coverage Ratio" means, as of any time the same is to be
determined, the ratio of (i) the sum of (x) EBITA for the four most
recently completed fiscal quarters of the Company and (y) the Western
Atlas Adjustment Amount to (ii) Interest Expense for the same period of
four fiscal quarters.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to
Capitalized Lease Obligations and all amortization of debt discount and
expense) of the Company and the Subsidiaries for such period determined in
accordance with GAAP.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or
conversion date with respect to such LIBOR Portion and ending one (1), two
(2), three (3) or six (6) months thereafter as selected by the Company in
its notice as provided herein; provided that, all of the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless in the case of an Interest Period for a
LIBOR Portion the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the Termination Date;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect thereto the
Company will be unable to make a principal payment scheduled to be made
during such Interest Period without paying part of a LIBOR Portion on a
date other than the last day of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period
starting on one day in a calendar month and ending on a numerically
corresponding day in the next calendar month, provided, however, if an
Interest Period begins on the last day of a month or if there is no
numerically corresponding day in the month in which an Interest Period is
to end, then such Interest Period shall end on the last Business Day of
such month.
"L/C Commitment" shall mean $10,000,000 as such amount as may be reduced
pursuant to Section 3.4 hereof.
"Lender" means Harris Trust and Savings Bank, the other signatories hereto
(other than the Company) and all other lenders becoming parties hereto
pursuant to Section 11.15 hereof.
"Letter of Credit" is defined in Section 1.4 hereof.
"Level I Status" shall mean, for any Test Date, that as of the close of
the accounting period with reference to which such Test Date was set, the
Funded Debt Ratio is less than or equal to 1.50 to 1.0.
"Level II Status" shall mean, for any Test Date, that as of the close of
the accounting period with reference to which such Test Date was set, the
Funded Debt Ratio is greater than 1.50 to 1.0 but less than or equal to
2.0 to 1.0.
"Level III Status" shall mean, for any Test Date, that as of the close of
the accounting period with reference to which such Test Date was set, the
Funded Debt Ratio is greater than 2.0 to 1.0 but less than or equal to 2.5
to 1.0.
"Level IV Status" shall mean, for any Test Date, that as of the close of
the accounting period with reference to which such Test Date was set, the
Funded Debt Ratio is greater than 2.5 to 1.0.
"Leverage Ratio" means, as of any time the same is to be determined, the
ratio of Senior Funded Debt at such time to Total Capitalization at such
time.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the
interests of a vendor or lessor under any conditional sale, capital lease
or other title retention arrangement.
"Loan Documents" means this Agreement, the Notes, the Applications, the
Collateral Documents and each other instrument or document to be delivered
hereunder or thereunder or otherwise in connection therewith.
"Loans" is defined in Section 1.3 hereof.
"M&I Ventures" means M&I Ventures Corporation, a Wisconsin corporation.
"Material Plan" is defined in Section 9.1(p) hereof.
"Net Income" means, with reference to any period, the net income (or net
deficit) of the Company and the Subsidiaries for such period as computed
on a consolidated basis in accordance with GAAP, and without limiting the
foregoing, after deduction from gross income of all expenses and reserves,
including reserves for all taxes on or measured by income, but excluding
any extraordinary profits and also excluding any taxes on such profits.
"North Carolina Property" is defined in Section 7.4 hereof.
"North Carolina Subsidiary" means HK Taylor Industries, Inc., a North
Carolina corporation.
"Notes" is defined in Section 1.3 hereof.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, the Hedging
Liability and all other payment obligations of the Company arising under
or in relation to any Loan Document, in each case whether now existing or
hereafter arising, due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired.
"Old HK" is defined in the introductory paragraph hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Permitted Sub Debt Prepayments" is defined in Section 8.16 hereof.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the
Code that either (i) is maintained by a member of the Controlled Group for
employees of a member of the Controlled Group, (ii) is maintained pursuant
to a collective bargaining agreement or any other arrangement under which
more than one employer makes contributions and to which a member of the
Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made
contributions, or (iii) under which a member of the Controlled Group has
any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any
time during the preceding five years or by reason of being deemed a
contributing sponsor under Section 4064 of ERISA.
"Portion" is defined in Section 2.1(a) hereof.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Required Lenders" means, as of the date of determinations thereof, those
Lenders holding at least 67% of the Commitments or, in the event that no
Commitments are outstanding hereunder, holding at least 67% in aggregate
principal amount of the Loans and credit risk on the Letters of Credit
outstanding hereunder.
"Reserve" shall mean $10,000,000 unless and until (i) the aggregate
principal amount outstanding on the Eaton Debt and Western Atlas Debt,
taken together, is reduced to $8,000,000 and (ii) at the time of such
repayment and immediately after giving effect thereto, no Default or Event
of Default shall have occurred and be continuing, in which event the
Reserve shall be $0. Each Lender's share of the Reserve shall be in the
same proportion such Lender's Commitment bears to the Commitments of all
the Lenders.
"Revolving Credit" is defined in Section 1.2 hereof.
"Senior Funded Debt" means all Funded Debt other than Subordinated
Indebtedness.
"Service Subsidiary" shall mean HEI Services, Inc., a Delaware corporation
and a Wholly Owned Subsidiary.
"Shareholder's Equity" means, as of any date the same is to be determined,
the total shareholder's equity (including capital stock, additional
paid-in-capital and retained earnings after deducting treasury stock, but
excluding minority interests in subsidiaries) which would appear on a
balance sheet of the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Subordination Agreements" shall mean (i) that certain Restated
Subordination Agreement relating to the Subordinated Indebtedness dated as
of February 13, 1995 originally by and between the Company, Old HK, Eaton
and the Agent, as the same may from time to time be modified or amended in
accordance with the provisions thereof and (ii) the Western Atlas
Subordination Agreement.
"Subordinated Indebtedness" means (i) the Eaton Debt and (ii) the Western
Atlas Debt.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is
at the time directly or indirectly owned by the Company, by one or more of
its Subsidiaries, or by the Company and one or more of its Subsidiaries.
"Subsidiary Guarantees" is defined in Section 4.2 hereof.
"SWIB" shall mean the State of Wisconsin Investment Board.
"Termination Date" means November 1, 1999, or such earlier date on which
the Commitments are terminated in whole pursuant to Sections 3.3, 9.2 or
9.3 hereof.
"Total Capitalization" means, as of any time the same is to be determined,
the sum of Funded Debt and Shareholder's Equity.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent
valuation date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the Controlled Group to
the PBGC or the Plan under Title IV of ERISA.
"Voting Stock" of any Person means the capital stock of any class or
classes or other equity interest (however designated) having ordinary
voting power for the election of directors or similar governing body of
such Person, other than stock or other equity interests having such power
only by reason of the happening of a contingency.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Western Atlas" means Western Atlas Inc., a Delaware corporation.
"Western Atlas Acquisition" means the acquisition by the Company of
substantially all of the assets of the Material Handling Systems Division
and the Vantage Ware Division of Western Atlas pursuant to the Western
Atlas Purchase Agreement.
"Western Atlas Adjustment Amount" means, as of any time, (a) when used in
the Funded Debt Ratio, (i) $7,200,000 to but not including the close of
the first fiscal quarter of the Company's 1997 fiscal year, (ii)
$5,400,000 thereafter and to but not including the close of the second
fiscal quarter of the Company's 1997 fiscal year, (iii) $3,600,000
thereafter and to but not including the close of the third fiscal quarter
of the Company's 1997 fiscal year and (iv) $1,800,000 thereafter and to
but not including the close of the Company's 1997 fiscal year and (b) when
used in the Interest Coverage Ratio, (i) $4,800,000 to but not including
the close of the first fiscal quarter of the Company's 1997 fiscal year,
(ii) $3,600,000 thereafter and to but not including the close of the
second fiscal quarter of the Company's 1997 fiscal year, (iii) $2,400,000
thereafter and to but not including the close of the third fiscal quarter
of the Company's 1997 fiscal year and (iv) $1,200,000 thereafter and to
but not including the close of the Company's 1997 fiscal year.
"Western Atlas Debt" means all principal of and interest on that certain
Subordinated Promissory Note of the Company dated November 13, 1996
payable to the order of Western Atlas in the face principal amount of
$8,000,000.
"Western Atlas Purchase Agreement" means that certain Asset Purchase
Agreement dated as of November 13, 1996 by and between the Company and
Western Atlas.
"Western Atlas Subordination Agreement" means that certain Subordination
Agreement dated as of November 13, 1996 by and among the Company, Western
Atlas and the Agent, as the same may from time to time be modified or
amended in accordance with the provisions thereof.
"Wholly Owned Subsidiary" means a Subsidiary of which all of the issued
and outstanding shares of capital stock (other than directors' qualifying
shares as required by law) or other equity interests are owned by the
Company and/or one or more Wholly Owned Subsidiaries within the meaning of
this definition.
.c2.Section 5.2.Interpretation. ; The foregoing definitions are
equally applicable to both the singular and plural forms of the terms
defined. All references to time of day herein are references to Chicago,
Illinois time unless otherwise specifically provided. Where the character
or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, it
shall be done in accordance with GAAP except where such principles are
inconsistent with the specific provisions of this Agreement.
.c1.Section 6. Representations and Warranties.
The Company represents and warrants to the Lenders as follows:
.c2.Section 6.1. Company's Organization and Qualification.; The
Company is duly organized, validly existing and in good standing as a
corporation under the laws of the State of Wisconsin, has full and
adequate corporate power to own its Property and carry on its business as
now conducted, and is duly licensed or qualified and in good standing in
each jurisdiction in which the nature of the business conducted by it or
the nature of the Property owned or leased by it requires such licensing
or qualifying, except where the failure to be so licensed or qualified and
in good standing would not have a material adverse effect on the financial
condition or Property, business or operations of the Company. The Company
has full right and authority to enter into Loan Documents, to make the
borrowings herein provided for, to issue its Notes in evidence thereof, to
execute and deliver the Applications, to grant to the Agent for the
benefit of the Lenders the Lien described in the Collateral Documents, and
to perform each and all of the matters and things herein and therein
provided for; and this Agreement and the other Loan Documents do not, nor
does the performance or observance by the Company of any of the matters
and things herein or therein provided for, contravene or constitute a
default under any provision of law or any judgment, injunction, order or
decree binding upon the Company or any charter or by-law provision of the
Company or any covenant, indenture or agreement of or affecting the
Company or any of its Properties, or result in the creation or imposition
of any Lien on any Property of the Company.
.c2.Section 6.2. Subsidiaries.; Each Subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized, as the case may be,
has full and adequate power to own its Property and carry on its business
as now conducted, and is duly licensed or qualified and in good standing
in each jurisdiction in which the nature of the business conducted by it
or the nature of the Property owned or leased by it requires such
licensing or qualifying unless and to the extent that the failure to be so
licensed or qualified or to be in such good standing would not have any
material adverse effect on the financial condition, Properties, business
or operations of the Company and the Subsidiaries taken as a whole. Each
Subsidiary has full right, power and authority to execute and deliver the
Collateral Documents being executed by it and to observe and perform each
and all of the matters and things therein provided for, and such
Collateral Documents do not, nor will the performance or observance by the
Subsidiaries of any of the matters and things therein provided for,
contravene any provision of law or any charter or by-law provision of the
Subsidiaries or any covenant, indenture or agreement of or affecting the
Subsidiaries or any of their respective Properties. Schedule 6.2 hereto
identifies each Subsidiary, the jurisdiction of its incorporation or
organization, as the case may be, the percentage of issued and outstanding
shares of each class of its capital stock or other equity interests owned
by the Company and the Subsidiaries and, if such percentage is not 100%
(excluding directors' qualifying shares as required by law), a description
of each class of its authorized capital stock and other equity interests
and the number of shares of each class issued and outstanding. All of the
outstanding shares of capital stock and other equity interests of each
Subsidiary indicated on Schedule 6.2 as owned by the Company or a
Subsidiary are owned, beneficially and of record, by the Company or such
Subsidiary free and clear of all Liens. There are no outstanding
commitments or other obligations of any Subsidiary to issue, and no
options, warrants or other rights of any Person to acquire, any shares of
any class of capital stock or other equity interests of any Subsidiary.
.c2.Section 6.3. Margin Stock.; Neither the Company nor any of
the Subsidiaries is engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and
no part of the proceeds of any Loan will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
.c2.Section 6.4. Financial Reports;. The audit report of the
Company for the fiscal year ended October 28, 1995, including a
consolidated balance sheet and statement of shareholder's equity of the
Company and the Subsidiaries as at said date and the income statement and
cash flow statement of the Company and the Subsidiaries for the fiscal
year ending such date, certified by Arthur Andersen, and the unaudited
interim consolidated balance sheet of the Company and its Subsidiaries as
at August 3, 1996, and the related consolidated statements of income,
retained earnings and cash flows of the Company and its Subsidiaries for
the nine (9) months then ended, heretofore furnished to the Lenders,
fairly presents the consolidated financial condition of the Company and
the Subsidiaries as at said dates and the consolidated results of their
operations for the periods then ended in conformity with GAAP applied on a
consistent basis. Neither the Company nor any Subsidiary has contingent
liabilities which are material to it other than as indicated on such
financial statements and the pro forma financial statements referred to in
Section 6.6 hereof or, with respect to future periods, on the financial
statements furnished pursuant to Section 8.5 hereof. Since October 28,
1995, or if later, the date as of which were prepared the most recent
financial statements for the Company furnished pursuant to Sections 8.5(a)
or 8.5(b) hereof, there has been no material adverse change in the
condition (financial or otherwise) or business prospects of the Company or
any Subsidiary nor any change to the Company or any Subsidiary except for
the Western Atlas Acquisition and those occurring in the ordinary course
of business.
.c2.Section 6.5. Full Disclosure;. To the best knowledge and
belief of the Company, the statements and information furnished to the
Agent and the Lenders in connection with the negotiation of this Agreement
and the Commitments by the Lenders to provide all or part of the financing
contemplated hereby (including without limitation the pro forma financial
statements for the Company as of the closing of the Western Atlas
Acquisition furnished by it to the Lenders and dated October 31, 1996) do
not contain any untrue statements of a material fact or omit a material
fact necessary to make the material statements contained therein or herein
not misleading, the Lenders acknowledging that as to any projections
furnished to any Lender, the Company only represents that the same were
prepared on the basis of information and estimates the Company believed to
be reasonable.
.c2.Section 6.6. Good Title;. The Company and the Subsidiaries
have good and defensible title to their respective assets as reflected on
the most recent consolidated balance sheet of the Company and the
Subsidiaries furnished to the Lenders (except for sales of assets by the
Company and its Subsidiaries in the ordinary course of their respective
businesses), subject to no Liens other than such thereof as are permitted
by Section 8.12 hereof.
.c2.Section 6.7. Litigation and Other Controversies.; Except to
the extent disclosed in writing to the Lenders promptly after either the
chief financial officer or chief executive officer of the Company becomes
aware of the same, there is no litigation or governmental proceeding or
labor controversy pending, nor to the knowledge of the Company threatened,
against the Company or any Subsidiary which if adversely determined would
reasonably be expected to result in any material adverse change in the
financial condition, Properties, business or operations of the Company or
any Subsidiary.
.c2.Section 6.8. Taxes.; All tax returns required to be filed by
the Company or any Subsidiary in any jurisdiction have, in fact, been
filed, and all taxes, assessments, fees and other governmental charges
upon the Company or any Subsidiary or upon any of their respective
Properties, income or franchises, which are shown to be due and payable in
such returns, have been paid. The Company does not know of any proposed
additional tax assessment against it or its Subsidiaries for which
adequate provision in accordance with GAAP has not been made on its
accounts. Adequate provisions in accordance with GAAP for taxes on the
books of the Company and each Subsidiary have been made for all open
years, and for its current fiscal period.
.c2.Section 6.9. Approvals.; No authorization, consent, license,
exemption, filing or registration with any court or governmental
department, agency or instrumentality, nor any approval or consent of the
stockholders of the Company or any other Person, other than such of the
foregoing as has already been obtained, is or will be necessary to the
valid execution, delivery or performance by the Company or any Subsidiary
of this Agreement or the other Loan Documents.
.c2.Section 6.10. Affiliate Transactions.; Neither the Company
nor any Subsidiary is a party to any contracts or agreements with any of
its Affiliates (other than with Wholly Owned Subsidiaries) on terms and
conditions which are materially less favorable to the Company or such
Subsidiary than would be usual and customary in similar contracts or
agreements between Persons not affiliated with each other, except for the
following: (i) the Employment and Noncompetition Agreement dated October
28, 1993 among the Company and John W. Splude, (ii) the Employment and
Noncompetition Agreement dated October 28, 1993 currently in effect by
and among the Company and Glen P. Davis, (iii) the Employment and
Noncompetition Agreement dated October 28, 1993 currently in effect by
and among the Company and Gordon W. Jones, (iv) the Employment and
Noncompetition Agreement dated October 28, 1993 currently in effect by and
among the Company and John C. Hines, (v) Investment Agreement dated
October 28, 1993 among the Company, M&I Ventures and SWIB as amended by
the First Amended and Restated Investment Agreement dated February 13,
1995, (vi) the Shareholders Agreement dated October 28, 1993 currently in
effect by and among M&I Ventures, SWIB, the Company, John W. Splude, Glen
P. Davis, Gordon W. Jones and John C. Hines as amended by the First
Amended and Restated Shareholders Agreement dated February 13, 1995, (vii)
the Class B and Class D Preferred Stock as set forth in the articles of
incorporation of the Company as amended and in effect as of the date of
this Agreement, (viii) any contractual arrangements by which management,
consulting or similar fees become due and payable to M&I Ventures, SWIB or
entities related to either in amounts aggregating not more than $400,000
during calendar year 1996 and not more than $150,000 during any other
calendar year and (ix) the HII Indemnity Agreement.
.c2.Section 6.11. Investment Company; Public Utility Holding
Company.; Neither the Company nor any Subsidiary is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "public
utility holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
.c2.Section 6.12. ERISA.; The Company and the Subsidiaries are in
compliance in all material respects with ERISA to the extent applicable to
them and have received no notice to the contrary from the PBGC or any
other governmental entity or agency. As of the date hereof, the Company
and the Subsidiaries have no liability to the PBGC in respect of Unfunded
Vested Liabilities as they do not currently maintain any Plan. No
condition exists nor has any event or transaction occurred with respect to
any Plan which could reasonably be expected to result in the incurrence by
the Company or any Subsidiary of any material liability, fine or penalty
under ERISA or the Code or in connection with any Plan. Neither the
Company nor any Subsidiary has any contingent liability for any
post-retirement benefits under a Welfare Plan, other than liability for
continuation of coverage described in Part 6 of Title I of ERISA.
.c2.Section 6.13. Compliance with Laws.; The Company and the
Subsidiaries are in compliance with the requirements of all federal, state
and local laws, rules and regulations applicable to or pertaining to the
Properties or business operations of the Company or any Subsidiary
(including, without limitation, the Occupational Safety and Health Act of
1970, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water,
land and toxic or hazardous wastes or substances), non-compliance with
which could have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
Except to the extent disclosed in writing to the Lenders promptly after
either the chief financial officer or chief executive officer of the
Company becomes aware of the same, neither the Company nor any Subsidiary
has received notice to the effect that its operations are not in
compliance with any of the requirements of applicable federal, state or
local environmental, health and safety statutes and regulations or are the
subject of any governmental investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous waste
or substance into the environment, which non-compliance or remedial action
could have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
.c2.Section 6.14. Other Agreements.; Neither the Company nor any
Subsidiary is in default under the terms of any covenant, indenture or
agreement of or affecting the Company, any Subsidiary or any of their
Properties, which default if uncured would have a material adverse effect
on the financial condition, Properties, business or operations of the
Company or any Subsidiary.
.c1.Section 7. Conditions Precedent.
The obligation of the Lenders to make any Loan or of the Agent to
issue any Letter of Credit under this Agreement is subject to the
following conditions precedent:
.c2.Section 7.1. All Advances.; As of the time of the making of
each Loan (including the initial Loan) hereunder:
(a) each of the representations and warranties set forth in
Section 6 hereof and in the Collateral Documents shall be true and correct
as of such time, except to the extent the same relate expressly to an
earlier date;
(b) no Default or Event of Default shall have occurred and be
continuing hereunder; and
(c) in the case of the issuance of any Letter of Credit, the
Agent shall have received a properly completed Application therefor
together with the fees called for hereby.
The Company's request for any Loan or Letter of Credit shall constitute
its warranty to the Agent and the Lenders as to the foregoing effects.
.c2.Section 7.2. Initial Advance.; Prior to the making of the
initial extension of credit hereunder, the following conditions precedent
shall also have been satisfied:
(a) the Agent shall have received the following for the account
of the Lenders (each to be properly executed and completed) and the same
shall have been approved as to form and substance by the Lenders:
(i) the Notes;
(ii) the Subsidiary Guarantees from the Canadian Subsidiary, the
Service Subsidiary and the North Carolina Subsidiary;
(iii) security agreements from the Company in substantially the
form of the following existing Collateral Documents to confirm and assure
that Property of Company subject to or of the same type as that covered by
such existing Collateral Documents or consisting of investment property of
the Company secures the Revolving Credit, together with any financing
statements or financing statement amendments requested by the Agent in
connection with such security agreements: (a) that certain Security
Agreement from the Company to the Agent dated as of October 29, 1993, as
supplemented by that certain Supplement to Security Documents dated as of
February 13, 1995 and as further supplemented by that certain Second
Supplement to Security Documents dated as of May 23, 1996; and (b) that
certain Security Agreement re: Intellectual Property from the Company to
the Agent dated as of October 29, 1993, as supplemented by that certain
Supplement to Security Documents dated as of February 13, 1995 and as
further supplemented by that certain Second Supplement to Security
Documents dated as of May 23, 1996;
(iv) security agreement from the Service Subsidiary in
substantially the form of the following existing Collateral Document to
confirm and assure that Property of Service Subsidiary subject to or of
the same type as that covered by such existing Collateral Document or
consisting of investment property of the Service Subsidiary secures the
Revolving Credit, together with any financing statements or financing
statement amendments requested by the Agent in connection with such
security agreement: that certain Security Agreement from the Service
Subsidiary to the Agent dated as of March 10, 1995 as supplemented by that
certain Supplement to Security Agreement dated as of May 23, 1996;
(v) the Pledge Agreement and the certificates evidencing all of
the issued and outstanding capital stock of the North Carolina Subsidiary
to be pledged pursuant to the Pledge Agreement, together with blank stock
powers therefor;
(vi) certified copies of the resolutions of the Board of
Directors of the Company authorizing the execution, delivery and
performance of the Agreement and the other Loan Documents to which the
Company is a part and the supplements to the Collateral Document to which
the Company is a party to the extent the Agent or its counsel may
reasonably request;
(vii) copies of the Company's Articles of Incorporation and
by-laws certified by the Secretary or other appropriate officer of the
Company;
(viii) an incumbency certificate containing the name, title and
genuine signatures of each of the Company's Authorized Representatives;
(ix) evidence of insurance required by Section 8.4 hereof;
(x) a copy of the Western Atlas Purchase Agreement;
(xi) the Western Atlas Subordination Agreement; and
(xi) copies of all instruments and documents evidencing, securing
or otherwise setting forth any terms or conditions applicable to any
Western Atlas Debt;
(b) the Agent and Lenders shall have received the initial fees
called for hereby;
(c) each Lender shall have received such certifications as it
may require in order to satisfy itself as to the financial condition of
the Company and its Subsidiaries and the lack of material contingent
liabilities of the Company and its Subsidiaries;
(d) legal matters incident to the execution and delivery of this
Agreement, the Notes, the Applications and the Collateral Documents (as
supplemented as contemplated above) and to the transactions contemplated
hereby shall be satisfactory to the Required Lenders and their counsel;
and the Agent shall have received for the account of the Lenders the
favorable written opinion of counsel for the Company in the form attached
hereto as Exhibit B and otherwise satisfactory to the Required Lenders and
its counsel;
(e) the Western Atlas Acquisition shall have occurred except for
the Lenders' funding of approximately $35,000,000 of the purchase price
therefor and the Agent shall have received evidence satisfactory to it of
the foregoing;
(f) nothing shall come to the attention of the Company or the
Agent or any Lender which indicates that the capital structure and
financial condition of the Company (including without limitation its
current assets and current liabilities) immediately after giving effect to
the Western Atlas Acquisition shall be detrimentally at variance, in any
material respect, from those presumed in the pro forma financial
statements and other financial materials furnished by the Company to the
Lenders and dated October 31, 1996;
(g) the Agent shall have received for the account of the Lenders
a good standing certificate (or equivalent) for the Company (dated as of
the date no earlier than five (5) days prior to the date hereof) from the
office of the Secretary of State of Wisconsin; and
(h) the Liens granted to the Agent under the Collateral
Documents referred to in this Section 7.2 shall have been perfected in a
manner satisfactory to the Agent and Required Lenders and their counsel.
.c2.Section 7.3. Certain Real Estate Collateral;. No later than
60 days from the date hereof, the following conditions precedent shall
also have been satisfied:
(a) the Agent shall have received the following for the account
of the Lenders (each to be properly executed and completed) and the same
shall have been approved as to form and substance by the Lenders:
(i) a supplement to that certain Deed of Trust, Security
Agreement and Assignment of Rents dated as of February 13, 1995, and
recorded in the Recorder's Office of Davis County, Utah on February 24,
1995, as Document No. 1167017, at Book 1850, Page 765 as amended by that
certain First Amendment to Deed of Trust, Security Agreement and
Assignment of Rents dated as of March 15, 1995, and recorded in the
Recorder's Office of Davis County, Utah on October 4, 1995, as Document
No. 1203494, at Book 1923, Page 141 and as further amended by that certain
Second Amendment to Deed of Trust, Security Agreement and Assignment of
Rents dated as of May 23, 1996, and recorded in the Recorder's Office of
Davis County, Utah on July 18, 1996, as Document No. 1262471, at Book
2024, Page 27 (the "Existing Utah Mortgage") to confirm and assure that
the Existing Utah Mortgage secures the Revolving Credit, together with any
financing statements or financing statement amendments requested by the
Agent in connection therewith;
(ii) an endorsement to the mortgagee's policy of title insurance
(or a binding commitment therefor) for the Existing Utah Mortgage (as
supplemented as contemplated by this Agreement) creating liens on the
Company's real property in Bountiful, Utah to confirm that such policy
secures the Revolving Credit which endorsement shall bring the effective
date of coverage thereunder down to the date of disbursement of the first
Loan under the new Revolving Credit and show no exceptions to title or
coverage other than those shown on such policy as originally issued
(except than no exception shall appear for taxes which are now due and
payable);
(iii) a mortgagee's title insurance policy (or a prepaid binding
commitment therefor) insuring the lien on the Company's real property
located in Montgomery, Alabama (the "Alabama Property") in the aggregate
amount of its current appraised fair market value to be a valid first lien
subject to no defects or objections which are unacceptable to the Bank,
together with such endorsements as the Bank may require;
(iv) an ALTA survey prepared by a licensed surveyor on each
parcel of real property subject to the lien on the Alabama Property, which
survey shall also state whether or not any portion of the real property is
in a designated flood hazard area;
(v) a report of an independent firm of environmental engineers
acceptable to the Bank concerning the environmental hazards and matters
with respect to the parcels of real property subject to the lien on the
Alabama Property;
(vi) the most recent appraisal report if any, held by the Company
describing the fair market value of each parcel of real property subject
to the lien on the Alabama Property; and
(vii) a landlord's waiver from the owner of the facilities leased
by the Company in Hebron, Kentucky (provided that the failure to furnish
such waiver shall not constitute a default under this clause (xi) if the
Company used reasonable efforts to obtain the same);
(b) the Liens granted to the Agent under the Collateral
Documents referred to in this Section 7.3 shall have been perfected in a
manner satisfactory to the Agent and Required Lenders and their counsel;
and
(c) legal matters incident to the execution and delivery of such
Collateral Documents and to the transactions contemplated thereby shall be
satisfactory to the Required Lenders and their counsel.
Any failure of the Company to satisfy the above conditions precedent by
the deadline also set forth above in this Section 7.3 will constitute an
Event of Default.
.c2.Section 7.4. North Carolina Real Estate Collateral;. Not
later than 90 days from the date hereof, unless the Company has prior to
that date consummated a bona fide sale at arms' length to an unaffiliated
third party of (i) the real property of the Company or the North Carolina
Subsidiary located in Salisbury, North Carolina (the "North Carolina
Property") or (ii) the Voting Stock in any Subsidiary if its sole purpose
and function is then to own the North Carolina Property, the following
conditions precedent shall also have been satisfied:
(a) the Agent shall have received the following for the account
of the Lenders (each to be properly executed and completed) and the same
shall have been approved as to form and substance by the Lenders:
(i) a mortgagee's title insurance policy (or a prepaid binding
commitment therefor) insuring the lien on the North Carolina Property in
the aggregate amount of its current appraised fair market value to be a
valid first lien subject to no defects or objections which are
unacceptable to the Bank, together with such endorsements as the Bank may
require;
(ii) an ALTA survey prepared by a licensed surveyor on each
parcel of real property subject to the lien on the North Carolina
Property, which survey shall also state whether or not any portion of the
real property is in a designated flood hazard area;
(iii) a report of an independent firm of environmental engineers
acceptable to the Bank concerning the environmental hazards and matters
with respect to the parcels of real property subject to the lien on the
North Carolina Property;
(iv) the most recent appraisal report, if any, held by the
Company describing the fair market value of each parcel of real property
subject to the lien on the North Carolina Property;
(b) the Liens granted to the Agent under the Collateral
Documents referred to in this Section 7.4 shall have been perfected in a
manner satisfactory to the Agent and Required Lenders and their counsel;
and
(c) legal matters incident to the execution and delivery of such
Collateral Documents and to the transactions contemplated thereby shall be
satisfactory to the Required Lenders and their counsel.
Any failure of the Company to satisfy the above conditions precedent by
the deadline also set forth above in this Section 7.4 will constitute an
Event of Default.
.c2.Section 7.5 Authority Documents;. No later than five (5) days
from the date hereof, the following conditions precedent shall also have
been satisfied:
(a) certified copies of resolutions of the Board of Directors of
the Service Subsidiary, authorizing the execution, delivery and
performance of its Subsidiary Guarantee and security agreement;
(b) certified copies of resolutions of the Board of Directors of
the Canadian Subsidiary authorizing the execution, delivery and
performance of its Subsidiary Guarantee; and
(c) copies of the Articles of Incorporation and by-laws
certified by the Secretary or other appropriate officer of the Service
Subsidiary and the Canadian Subsidiary.
Any failure of the Company to satisfy the above conditions precedent by
the deadline also set forth above in this Section 7.5 will constitute an
Event of Default.
.c2.Section 7.6. Good Standing Certificates;. (i) Not later than
thirty (30) days from the date hereof, the Agent shall have received for
the account of the Lenders a good standing certificate (or equivalent) for
the Company (dated no earlier than five (5) days prior to the date hereof)
from the offices of the Secretary of State of Utah, Kentucky, North
Carolina and Alabama; and (ii) not later than 120 days from the date
hereof, the Agent shall have received for the account of the Lenders a
good standing certificate (or equivalent) for the Company (dated no
earlier than five (5) days prior to the date hereof) from the office of
the Secretary of State of California.
Any failure of the Company to satisfy the above conditions precedent by
the deadlines also set forth above in this Section 7.6 will constitute an
Event of Default.
.c1.Section 8. Covenants.
The Company agrees that, so long as any credit is available to or in
use by the Company hereunder, except to the extent compliance in any case
or cases is waived in writing by the Required Lenders:
.c2.Section 8.1. Maintenance of Business.; The Company shall,
and shall cause each Subsidiary to, preserve and keep in force and effect
its corporate existence and all licenses, permits and franchises necessary
to the proper conduct of its business; provided, however, that (i) until
thirty (30) days from the date hereof, the Company shall not be in default
of this Section by reason of its failure to qualify as a foreign
corporation to do business in the states of Utah, Kentucky, North Carolina
and Alabama and (ii) until 120 days from the date hereof, the Company
shall not be in default of this Section by reason of its failure to
qualify as a foreign corporation to do business in the State of
California.
.c2.Section 8.2. Maintenance of Property.; The Company will
maintain, preserve and keep those of its Properties necessary for the
proper conduct of its business in the ordinary course as currently
conducted in good repair, working order and condition (ordinary wear and
tear excepted) and will from time to time make all needful and proper
repairs, renewals, replacements, additions and betterments thereto so that
at all times the efficiency thereof shall be fully preserved and
maintained, and will cause each Subsidiary to do so in respect of such
Property owned or used by it.
.c2.Section 8.3. Taxes and Assessments;. The Company will duly
pay and discharge, and will cause each Subsidiary to duly pay and
discharge, all taxes, rates, assessments, fees and governmental charges
upon or against it or its Properties, in each case before the same become
delinquent and before penalties accrue thereon, unless and to the extent
that (i) the failure to pay the same would not reasonably be expected to
result in any material adverse change in the financial condition,
Properties, business or operations of the Company or any Subsidiary or
(ii) the same are being contested in good faith and by appropriate
proceedings which prevent enforcement of the matter under contest and
adequate reserves are provided therefor.
.c2.Section 8.4. Insurance.; The Company will insure and keep
insured, and will cause each Subsidiary to insure and keep insured, with
good and responsible insurance companies, all insurable Property owned by
it which is of a character usually insured by Persons similarly situated
and operating like Properties against loss or damage from such hazards and
risks, and in such amounts, as are insured by Persons similarly situated
and operating like Properties; and the Company will insure, and cause each
Subsidiary to insure, such other hazards and risks (including employers'
and public liability risks) with good and responsible insurance companies
as and to the extent usually insured by Persons similarly situated and
conducting similar businesses. The Company will in any event maintain
insurance on the Collateral to the extent required by the Collateral
Documents. The Company will upon request of the Agent furnish a
certificate setting forth in summary form the nature and extent of the
insurance maintained pursuant to this Section.
.c2.Section 8.5. Financial Reports.; The Company will, and will
cause each Subsidiary to, maintain a standard system of accounting in
accordance with GAAP and will permit the Agent, each Lender and any
designee of the Agent to visit and inspect the Properties (including books
and records) of the Company or any Subsidiary during normal business hours
with prior notice to the Company and will furnish to the Agent and each
Lender such information respecting the business and financial condition of
the Company and the Subsidiaries as the Agent or such Lender may
reasonably request; and without any request, will furnish to the Lenders:
(a) as soon as available, and in any event within forty-five
(45) days after the close of each quarterly fiscal period of the Company,
(i) copies of the balance sheet as of the close of such period and
statements of income, retained earnings and cash flows for such period,
all on a consolidated basis for the Company and the Subsidiaries prepared
by the Company in accordance with GAAP (subject to normal year end audit
adjustments) and in reasonable detail, and showing in comparative form the
figures for the corresponding date and period in the previous fiscal year,
and each certified to by the chief financial officer of the Company, and
(ii) a copy of a backlog report of contract work of the Company in
progress as of the close of such period, prepared by the Company in the
form previously submitted to the Lenders and certified to by the chief
financial officer of the Company;
(b) as soon as available, and in any event within one hundred
twenty (120) days after the close of each fiscal year of the Company, a
copy of the consolidated balance sheet of the Company and its Subsidiaries
as of the close of such fiscal year and the consolidated statements of
income, retained earnings and cash flows of the Company and its
Subsidiaries for such period, and accompanying notes thereto, all in
reasonable detail and showing in comparative form the figures for the
previous fiscal year, accompanied by an unqualified opinion thereon of a
firm of independent public accountants which is either of recognized
national standing or satisfactory to the Required Lenders, to the effect
that the financial statements have been prepared in accordance with GAAP
and present fairly in accordance with GAAP the consolidated financial
condition of the Company and its Subsidiaries as of the close of such
fiscal year and the results of their operations and cash flows for the
fiscal year then ended and that an examination of such accounts in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, such examination
included such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances; and
(c) not later than ninety (90) days after receipt thereof, a
copy of any management letters on internal accounting controls of the
Company or any Subsidiary prepared by its independent public accountants;
and
(d) promptly after knowledge thereof shall have come to the
attention of the chief executive officer or chief financial officer of the
Company, written notice of any threatened or pending litigation or
governmental proceeding or labor controversy against the Company or any
Subsidiary which, if adversely determined, would reasonably be expected to
have a material adverse effect on the financial condition, Properties,
business or operations of the Company or any Subsidiary or of the
occurrence of any Default or Event of Default hereunder.
Each of the financial statements furnished to the Lenders pursuant to
clauses (a) and (b) of this Section shall be accompanied by a written
compliance certificate in the form attached hereto as Exhibit C signed by
the chief financial officer of the Company to the effect that to the best
of the chief financial officer's knowledge and belief no Default or Event
of Default has occurred during the period covered by such statements or,
if any such Default or Event of Default has occurred during such period,
setting forth a description of such Default or Event of Default and
specifying the action, if any, taken by the Company to remedy the same.
Such certificate shall also set forth the calculations supporting such
statements in respect of Sections 8.6, 8.7, 8.8, 8.9 and 8.10 of this
Agreement.
.c2.Section 8.6. Current Ratio;. The Company will at all times
during each of the periods specified below maintain a Current Ratio of not
less than:
Current Ratio
From and To and Through shall not be
Including Close of Less than:
The date hereof 3rd fiscal quarter of the 0.90 to 1.0
Company's 1997 fiscal year
4th fiscal quarter of the All times thereafter 1.00 to 1.0
Company's 1997 fiscal year
.c2.Section 8.7. Leverage Ratio;. The Company will at all times
during each of the periods specified below maintain its Leverage Ratio at
not more than:
Leverage Ratio
From and To and Through shall not be
Including Close Of Greater than:
The date hereof 3rd fiscal quarter of the 0.70 to 1.0
Company's 1997 fiscal year
4th fiscal quarter of 3rd fiscal quarter of the 0.65 to 1.0
the Company's 1997 Company's 1998 fiscal year
fiscal year
4th fiscal quarter of 3rd fiscal quarter of the 0.55 to 1.0
the Company's 1998 Company's 1999 fiscal year
fiscal year
4th fiscal quarter of All times thereafter 0.50 to 1.0
the Company's 1999
fiscal year
.c2.Section 8.8. Funded Debt Ratio;. The Company will at all
times during each of the periods specified below maintain its Funded Debt
Ratio at not more than:
Funded Debt Ratio
From and To and Through shall not be
including Close Of more than:
The date hereof 3rd fiscal quarter of the 3.25 to 1.0
Company's 1997 fiscal year
4th fiscal quarter of 3rd fiscal quarter of the 2.75 to 1.0
the Company's 1997 Company's 1998 fiscal year
fiscal year
4th fiscal quarter of 3rd fiscal quarter of the 2.50 to 1.0
the Company's 1998 Company's 1999 fiscal year
fiscal year
4th fiscal quarter of All times thereafter 2.00 to 1.0
the Company's 1999
fiscal year
.c2.Section 8.9. Interest Coverage Ratio;. The Company will, as
of the last day of each fiscal quarter of the Company, maintain its
Interest Coverage Ratio at not less than 2.50 to 1.0.
.c2.Section 8.10. Capital Expenditures;. The Company will not,
nor will permit any Subsidiary to, expend or become obligated for capital
expenditures (as determined in accordance with GAAP) in an aggregate
amount for the Company and the Subsidiaries taken together, in excess of
$7,000,000 during any fiscal year of the Company. For purposes of this
Section, capital expenditures shall not include (i) the purchase price
expended by the Company to effect the Western Atlas Acquisition and (ii)
Capitalized Lease Obligations assumed by the Company as part of the
Western Atlas Acquisition.
.c2.Section 8.11. Indebtedness for Borrowed Money.; The Company
will not, nor will either permit any Subsidiary to, issue, incur, assume,
create or have outstanding any Indebtedness for Borrowed Money; provided,
however, that the foregoing provisions shall not restrict nor operate to
prevent:
(a) the indebtedness of the Company on the Notes;
(b) Capitalized Lease Obligations to the extent the amount
thereof was incurred in compliance with Section 8.10 hereof (including
Capitalized Lease Obligations assumed as part of the Western Atlas
Acquisition);
(c) purchase money indebtedness in an aggregate amount not to
exceed $2,000,000 at any one time outstanding secured by Liens permitted
by Section 8.12(f) hereof;
(d) the Subordinated Indebtedness if and so long as the same
remains subordinate (by the Subordination Agreements) to the prior payment
of the Notes and the other Obligations;
(e) unsecured indebtedness of the Company representing the
deferred amount of consideration owed to employees of the Company or their
successors for the Company's repurchase of such employee's common stock in
the Company under the terms of existing employee stock repurchase
agreements or similar agreements entered into by the Company with the
Company's employees after the date hereof in the ordinary course of
business; and
(f) indebtedness not otherwise permitted by this Section 8.11
aggregating not more than $2,000,000 at any one time outstanding.
.c2.Section 8.12. Liens.; The Company will not, nor will either
permit any Subsidiary to, create, incur or permit to exist any Lien of any
kind on any Property owned by the Company or any Subsidiary; provided,
however, that this Section shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar
charges, provided in each case that the obligation is not for borrowed
money and that the obligation secured is not overdue or, if overdue, is
being contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest and adequate reserves have been
established therefor;
(b) good faith cash deposits in connection with tenders,
contracts or leases to which the Company or any Subsidiary is a party or
other cash deposits required to be made in the ordinary course of
business, provided in each case that (i) the obligation is not for
borrowed money, (ii) the obligation secured is not overdue or, if overdue,
is being contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest, (iii) adequate reserves have been
established therefor and (iv) a payment or performance bond, or similar
instrument, or letter of credit, could not have been used in lieu of such
cash deposit;
(c) mechanics', workmen's, materialmen's, landlords', carriers',
or other similar Liens arising in the ordinary course of business with
respect to obligations which are not due or which are being contested in
good faith by appropriate proceedings which prevent enforcement of the
matter under contest;
(d) the pledge of assets for the purpose of securing an appeal,
stay or discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and the Subsidiaries
secured by a pledge of assets permitted under this clause, including
interest and penalties thereon, if any, shall not be in excess of $250,000
at any one time outstanding;
(e) the Liens granted in favor of the Agent for the benefit of
the Lenders by the Collateral Documents; and
(f) purchase money Liens securing indebtedness permitted by
Section 8.11(c) hereof in respect of equipment now owned or hereafter
acquired by the Company or any Subsidiary (not extending to any other
Property), or Liens securing Capitalized Lease Obligations permitted by
Section 8.11(b) hereof in respect of equipment now owned or hereafter
acquired by the Company or any Subsidiary (not extending to any other
Property), or Liens on equipment so acquired (not extending to any other
Property) existing at the time of acquisition thereof, or renewals,
extensions and refundings of any such Liens (not extending to any other
Property), provided that the principal amount of indebtedness secured by
any such Lien shall not exceed 100% of the cost of the Property covered by
such Lien at the time of the creation thereof or the acquisition of such
Property.
.c2.Section 8.13. Investments, Acquisitions, Loans, Advances and
Guaranties.; The Company will not, nor will either permit any Subsidiary
to, directly or indirectly, make, retain or have outstanding any
investments (whether through purchase of stock or obligations or
otherwise) in, or loans or advances to, any other Person, or acquire all
or any substantial part of the assets or business of any other Person, or
be or become liable as endorser, guarantor, surety or otherwise for any
debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds
thereto or invest therein or otherwise assure a creditor of another
against loss or apply for or become liable to the issuer of a letter of
credit which supports an obligation of another, or subordinate any claim
or demand it may have to the claim or demand of any other Person;
provided, however, that the foregoing provisions shall not apply to nor
operate to prevent:
(a) investments in direct obligations of the United States of
America or of any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America, provided that any such obligations shall mature within one year
of the date of issuance thereof;
(b) investments in commercial paper rated at least P-1 by
Moody's Investors Services, Inc. and at least A-1 by Standard & Poor's
Corporation maturing within 270 days of the date of issuance thereof;
(c) investments in certificates of deposit issued by any United
States commercial bank having capital and surplus of not less than
$100,000,000 which have a maturity of one year or less;
(d) investments in repurchase obligations with a term of not
more than seven (7) days for underlying securities of the types described
in subsection (a) above entered into with any bank meeting the
qualifications specified in subsection (c) above;
(e) investments in money market funds that invest solely in
investments of the type described in the immediately preceding subsections
(a), (b), (c) and (d) above;
(f) advances in the ordinary course of business as currently
conducted of selling, travel and relocation expenses to officers and
employees aggregating not more than $500,000 at any one time outstanding;
(g) equity interests of the Company in partnerships or joint
ventures formed to perform, and engaged exclusively in a business related
or complementary to the type of business currently conducted by the
Company in the ordinary course, provided (i) the aggregate amount so
invested at no time exceeds $2,500,000 and (ii) no such partnership or
joint venture shall at any time incur or have outstanding any Indebtedness
for Money Borrowed or any other material liabilities except for such of
the foregoing as are under all circumstances non-recourse to the Company
and the Subsidiaries;
(h) obligations of the Company incurred in the ordinary course
of business in respect of surety obligations, including payment or
performance bonds, bid bonds, appeal bonds, or license, use or similar
instruments, in each case which guarantee the payment or performance by
the Company, the Canadian Subsidiary or the Service Subsidiary of their
obligations to perform under service contracts entered into by the
Company, the Canadian Subsidiary or the Service Subsidiary in the ordinary
course of their businesses as currently conducted;
(i) the Subsidiary Guarantees;
(j) endorsement of items for deposit or collection of commercial
paper received in the ordinary course of business;
(k) the Western Atlas Acquisition;
(l) equity investments by the Company in WILC/HKS L.L.C., a
Wisconsin limited liability company, provided the aggregate amount of such
investments does not exceed $3,200,000 and Mooney LaSage and Associates,
Ltd. or an entity controlled by it is the managing member of such limited
liability company;
(m) acquisitions of all or substantially all of the assets or
business of any other Person engaged in the same or similar business as
the Company, or of a division of a Person engaged in such a business, or
of all or substantially all the Voting Stock of a Person, so long as (i)
no Default or Event of Default exists or would exist after giving effect
to such acquisition, (ii) the Board of Directors or other governing body
of such Person whose Property or Voting Stock is being so acquired has
approved the terms of such acquisition, (iii) the Company shall have
delivered to the Lenders an updated Schedule 6.3 to reflect any new
Subsidiary resulting from such acquisition, (iv) the Company can
demonstrate that on a pro forma basis after giving effect to such
acquisition it will continue to comply through the term of this Agreement
with all the terms and conditions of the Loan Documents and (v) the
Company has provided to the Lenders such financial and other information
regarding the Person whose Property or Voting Stock is being so acquired,
including historical financial statements, and a description of such
Person, as the Agent or the Required Lenders have reasonably requested;
and
(n) investments, loans, advances and guaranties not otherwise
permitted by this Section 8.13 aggregating not more than $1,000,000 at any
one time outstanding.
In determining the amount of investments, acquisitions, loans,
advances and guarantees permitted under this Section, investments and
acquisitions shall always be taken at the original cost thereof
(regardless of any subsequent appreciation or depreciation therein), loans
and advances shall be taken at the principal amount thereof then remaining
unpaid and guarantees shall be taken at the amount of obligations
guaranteed thereby.
.c2.Section 8.14. Operating Leases.; The Company will not, nor
will either permit any Subsidiary to, acquire the use or possession of any
Property under a lease or similar arrangement, whether or not the Company
or any Subsidiary has the express or implied right to acquire title to or
purchase such Property at any time if, after giving effect thereto, the
aggregate amount of fixed rentals and other consideration payable by the
Company and the Subsidiaries under all such leases or arrangements would
exceed $6,000,000 during any fiscal year of the Company. Capital Leases
shall not be included in computing compliance with this Section to the
extent the Company's and the Subsidiaries' liability in respect of the
same is permitted by Section 8.11(b) hereof.
.c2.Section 8.15. Sales and Leasebacks.; The Company will not,
nor will either permit any Subsidiary to, enter into any arrangement with
any Lender, insurance company or any other lender or investor providing
for the leasing by the Company or any Subsidiary of any Property
theretofore owned by it and which has been or is to be sold or transferred
by such owner to such lender or investor.
.c2.Section 8.16. Dividends and Certain Other Restricted
Payments;. The Company will not (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its
capital stock (other than dividends payable solely in its capital stock),
(b) directly or indirectly purchase, redeem or otherwise acquire or retire
any of its capital stock or (c) make any payment or other distribution on
or in respect of any Subordinated Indebtedness (whether for principal or
interest or otherwise); provided, however, that:
(a) the Company may pay regularly scheduled (absent
acceleration) installments of accrued interest due upon the unpaid
principal amount of the Subordinated Indebtedness, provided (i) such
payment is made at an interest rate not in excess of the rate which the
instrument evidencing such Indebtedness states as of the date hereof is
applicable to such payment at the time it is made and (ii) if and only if
at the time each such payment is made and immediately after giving effect
thereto, (x) no Event of Default or Default shall occur or be continuing
and (y) such payment is not prohibited by the Subordination Agreement;
(b) the Company may expend up to $10,000,000 on and after the
date hereof to prepay the Eaton Debt or the Western Atlas Debt in each
case if and so long as at the time of each such prepayment and immediately
after giving effect thereto, no Event of Default or Default shall occur or
be continuing (each prepayment of the Eaton Debt or Western Atlas Debt so
permitted by this clause (b) being hereinafter referred to collectively as
"Permitted Sub Debt Prepayments");
(c) the Company may, in the ordinary course, purchase or redeem
common capital stock of the Company from its employees under currently
existing employee stock repurchase agreements or similar agreements
entered into with the Company's employees in the ordinary course of
business, provided the aggregate amount so expended in any calendar year
does not exceed the sum of $500,000 plus the proceeds received by the
Company during such year under key man life insurance policies maintained
by the Company for such purpose; and
(d) the Company may declare and pay dividends on its capital
stock if and only if at the time each such payment is made and immediately
after giving effect thereto, (i) no Default or Event of Default shall
occur or be continuing and (ii) the aggregate amount of dividends paid in
any calendar year does not exceed $100,000.
.c2.Section 8.17. Mergers, Consolidations and Sales.; The Company
will not, nor will either permit any Subsidiary to, be a party to any
merger or consolidation, or sell, transfer, lease or otherwise dispose of
all or any substantial part of its Property (except for sales of inventory
in the ordinary course of business), or in any event sell or discount
(with or without recourse) any of its notes or accounts receivable;
provided, however, that any Subsidiary (including any corporation which
immediately after giving effect to an acquisition permitted by Section
8.13(m) hereof becomes such a Subsidiary) may merge or consolidate with or
into the Company or any Wholly Owned Subsidiary of the Company; further
provided, however, that the Company shall be the surviving or continuing
corporation and the net worth of the Company shall not be less than the
net worth of the Company immediately prior to such merger or
consolidation. The term "substantial" as used herein shall mean the
sale, transfer, lease or other disposition of 10% of the total assets of
the Company.
.c2.Section 8.18. Maintenance of Subsidiaries; The Company will
not assign, sell or transfer, or permit any Subsidiary to issue, assign,
sell or transfer, any shares of capital stock of a Subsidiary, provided
that the foregoing shall not operate to prevent the issuance, sale and
transfer to any person of any shares of capital stock of a Subsidiary
solely for the purpose of qualifying, and to the extent legally necessary
to qualify, such person as a director of such Subsidiary.
.c2.Section 8.19. Formation of Subsidiaries.; Except for existing
Subsidiaries designated on Schedule 6.3 hereto and Subsidiaries acquired
in acquisitions or formed to effect acquisitions in each case permitted by
Section 8.13(m) hereof, the Company will not, nor will either permit any
Subsidiary to, form or acquire any Subsidiary without the prior written
consent of the Required Lenders. As a condition to establishing or
acquiring any Subsidiary, unless the Required Lenders otherwise agree, the
Company shall (i) cause such Subsidiary to execute a Subsidiary Guaranty,
(ii) cause such Subsidiary to deliver documentation similar to that
described in Section 7.1(a)(xix), (d) and (g) relating to the
authorization for, execution and delivery of, and validity of such
Subsidiary's obligations under the Subsidiary Guarantees in form and
substance satisfactory to the Required Lenders and (iii) deliver an
updated Schedule 6.3 to reflect the new Subsidiary.
.c2.Section 8.20. ERISA.; The Company will, and will cause each
Subsidiary to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might
result in the imposition of a Lien against any of their respective
Properties. The Company will, and will cause each Subsidiary to, promptly
notify the Lenders of (i) the occurrence of any reportable event (as
defined in ERISA) with respect to a Plan, (ii) receipt of any notice from
the PBGC of its intention to seek termination of any Plan or appointment
of a trustee therefor, (iii) its intention to terminate or withdraw from
any Plan, and (iv) the occurrence of any event with respect to any Plan
which would result in the incurrence by the Company or any Subsidiary of
any material liability, fine or penalty, or any material increase in the
contingent liability of the Company or any Subsidiary with respect to any
post-retirement Welfare Plan benefit.
.c2.Section 8.21. Compliance with Laws.; The Company will, and
will cause each Subsidiary to, comply in all respects with the
requirements of all federal, state and local laws, rules, regulations,
ordinances and orders applicable to or pertaining to the Properties or
business operations of the Company or any Subsidiary, non-compliance with
which could have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary or
could result in a Lien upon any of their Property.
.c2.Section 8.22. Burdensome Contracts With Affiliates.; Except
for the agreements, the preferred stock provisions and the fees set forth
in Section 6.11 hereof, the Company will not, nor will it permit any
Subsidiary to, enter into any contract, agreement or business arrangement
with any of its Affiliates (other than with Wholly Owned Subsidiaries) on
terms and conditions which are materially less favorable to the Company or
such Subsidiary than would be usual and customary in similar contracts,
agreements or business arrangements between Persons not affiliated with
each other.
.c2.Section 8.23. Changes in Fiscal Year.; The Company will not,
and it will not permit any Subsidiary to, change its fiscal year from its
present basis without the prior written consent of the Required Lenders.
.c2.Section 8.24. Change in the Nature of Business.; The Company
will not, and it will not permit any Subsidiary to, engage in any business
or activity if as a result the general nature of the business of the
Company or any Subsidiary would be changed in any material respect from
the general nature of the business engaged in by the Company or such
Subsidiary on the date of this Agreement after giving effect to the
Western Atlas Acquisition.
.c2.Section 8.25. Amendments to Subordinated Indebtedness;. The
Company will not amend or modify the terms and conditions applicable to
the Subordinated Indebtedness, except the Company may agree to a decrease
in the interest rate applicable thereto or to a deferral of repayment of
any of the principal of or interest on the Subordinated Indebtedness
beyond the due date applicable thereto as of the date of this Agreement or
to any amendment or modification to the extent the same would make the
terms and conditions applicable to the Subordinated Indebtedness less
burdensome on the Company. This Section shall not be deemed to prohibit
the Permitted Sub Debt Prepayments.
.c2.Section 8.26. Use of Loan Proceeds;. The Company will use all
credit under this Agreement solely to: (i) finance the Western Atlas
Acquisition, (ii) pay fees and expenses incurred directly as a result of
the Western Atlas Acquisition, (iii) prepay up to $10,000,000 of the
aggregate principal amount outstanding on the Eaton Debt and Western Atlas
Debt, taken together and (iv) finance general working capital needs.
.c1.Section 9. Events of Default and Remedies.
.c2.Section 9.1. Events of Default;. Any one or more of the
following shall constitute an Event of Default hereunder:
(a) default in the payment when due of all or any part of the
principal of any Note (whether at the stated maturity thereof or at any
other time provided for in this Agreement); or
(b) default for a period of five (5) days in the payment when
due of all or any part of the interest on any Note (whether at the stated
maturity thereof or at any other time provided for in this Agreement) or
of any reimbursement obligation owing under any Application; or
(c) default in the payment when due of any fee or other amount
payable by the Company hereunder or under any Collateral Document which is
not remedied within thirty (30) days after written notice thereof to the
Company by the Agent or any Lender; or
(d) default in the observance or performance of any covenant set
forth in Sections 8.11, 8.12, 8.13, 8.14, 8.15, 8.16, 8.17, 8.18, 8.20,
8.25 or 8.26 hereof or of any provision of any Collateral Document
requiring the maintenance of insurance on the Collateral subject thereto
or dealing with the use or remittance of proceeds of Collateral; or
(e) default in the observance or performance of any covenants
set forth in Section 8.5, 8.6, 8.7, 8.8, 8.9 or 8.10 hereof which is not
remedied within five (5) days after written notice thereof to the Company
by the Agent or any Lender; or
(f) default in the observance or performance of any other
provision hereof or of any Collateral Document or Application which is not
remedied within thirty (30) days after written notice thereof to the
Company by the Agent or any Lender; or
(g) any representation or warranty made by the Company herein or
in any Application or Collateral Document, or in any written statement or
certificate furnished by it pursuant hereto or thereto, or in connection
with any Loan, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(h) any event occurs or condition exists (other than those
described in clauses (a) through (g) above) which is specified as an Event
of Default under any Collateral Document; or
(i) without the prior written consent of the Agent, any
Collateral Document shall for any reason not be, or shall cease to be, in
full force and effect or shall be declared to be null and void; or
(j) default shall occur under any evidence of Indebtedness for
Borrowed Money issued, assumed or guaranteed by the Company or any
Subsidiary aggregating $2,000,000 or more or under any indenture,
agreement or other instrument under which the same may be issued and such
default shall continue for a period of time sufficient to permit the
acceleration of the maturity of any such Indebtedness for Borrowed Money
(whether or not such maturity is in fact accelerated) or any such
Indebtedness for Borrowed Money expressed to mature upon demand shall not
be paid when demanded; or
(k) any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $500,000 shall be entered or filed against
the Company or any of its Subsidiaries or against any of their Property
and which remains unvacated, unbonded, unstayed or unsatisfied for a
period of thirty (30) days; or
(l) John W. Splude, SWIB and M&I Ventures shall, taken together
as a group, at any time and for any reason cease to own, both legally and
beneficially, at least 51% of the issued and outstanding Voting Stock of
the Company;
(m) any guarantor of the Loans or any other Obligations shall
purport to disavow, revoke, repudiate or terminate its guaranty or such
guaranty shall otherwise cease to have any force or effect; or
(n) the Company makes any payment or other distribution on
account of the principal of or interest on any indebtedness (whether or
not such payment is then permitted by Section 8.16 hereof) which payment
or distribution is prohibited under the terms of the Subordination
Agreement or in the case of any indebtedness not subject thereto, any
instruments subordinating such indebtedness to the prior payment of the
Loans or any other Obligations (provided that the Permitted Sub Debt
Prepayments shall not be deemed an Event of Default under this Section
9.1(n)); or
(o) (i) the Company shall permanently waive any right to accrue
(rather than pay in cash) any interest on the Subordinated Indebtedness or
the Company shall permanently waive any right to pay (by issuance of
shares of preferred capital stock) any dividends accrued on its preferred
capital stock (provided, however, that it is not an Event of Default under
this Agreement if the Company shall fail to exercise or temporarily waive
such rights); or
(p) the Company or any member of the Controlled Group shall fail
to pay when due an amount or amounts aggregating in excess $500,000 which
it shall have become liable to pay to the PBGC or to a Plan under Title IV
of ERISA; or notice of intent to terminate a Plan or Plans having
aggregate Unfunded Vested Liabilities in excess of $500,000 (collectively,
a "Material Plan") shall be filed under Title IV of ERISA by the Company
or any other member of the Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be appointed
to administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of the
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(q) the Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
inability to pay, its debts generally as they become due, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its Property, (v) institute any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code, as
amended, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to Bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, or (vi) fail to contest in good faith any appointment or
proceeding described in Section 9.1(r) hereof; or
(r) a custodian, receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Company or any of the
Subsidiaries or any substantial part of any of their Property, or a
proceeding described in Section 9.1(q)(v) shall be instituted against the
Company or any of its Subsidiaries, and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a
period of sixty (60) days.
.c2.Section 9.2. Non-Bankruptcy Defaults;. When any Event of
Default described in clauses (a) through (p) both inclusive, of Section
9.1 has occurred and is continuing, the Agent shall, upon request of the
Required Lenders, by notice to the Company, take one or more of the
following actions:
(a) terminate the obligations of the Lenders to extend any
further credit hereunder on the date (which may be the date thereof)
stated in such notice;
(b) declare the principal of and the accrued interest on the
Notes to be forthwith due and payable and thereupon the Notes, including
both principal and interest and all fees, charges and other amounts
payable hereunder and under the other Loan Documents, shall be and become
immediately due and payable without further demand, presentment, protest
or notice of any kind.
.c2.Section 9.3. Bankruptcy Defaults;. When any Event of Default
described in clauses (q) or (r) of Section 9.1 has occurred and is
continuing, then the Notes, including both principal and interest, and all
fees, charges and other amounts payable hereunder and under the other Loan
Documents, shall immediately become due and payable without presentment,
demand, protest or notice of any kind, and the obligations of the Lenders
to extend further credit pursuant to any of the terms hereof shall
immediately terminate.
.c2.Section 9.4. Collateral for Undrawn Letters of Credit;.
When any Event of Default, other than an Event of Default described in
clauses (q) or (r) of Section 9.1, has occurred and is continuing, the
Company shall, upon demand of the Agent (which demand shall be made upon
the request of the Required Lenders), and when any Event of Default
described in clause (q) or (r) of Section 9.1 has occurred the Company
shall, without notice or demand from the Agent, immediately pay to the
Agent the full undrawn amount of each Letter of Credit then outstanding,
the Company agreeing to immediately make such payment and acknowledging
and agreeing that the Agent and the Lenders would not have an adequate
remedy at law for failure of the Company to honor any such demand and that
the Agent and the Lenders shall have the right to require the Company to
specifically perform such undertaking whether or not any draws have been
made under any such Letters of Credit.
.c1.Section 10. The Agent.
.c2.Section 10.1. Appointment and Authorization.; Each Lender
hereby appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers hereunder and under the other Loan
Documents as are designated to the Agent by the terms hereof and thereof
together with such powers as are reasonably incidental thereto. The
Lenders expressly agree that the Agent is not acting as a fiduciary of the
Lenders in respect to the Loan Documents, the Company or otherwise, and
nothing herein or in any of the other Loan Documents shall result in any
duties or obligations on the Agent or any of the Lenders except as
expressly set forth herein. The Agent may resign at any time by sending
thirty (30) days prior written notice to the Company and the Lenders and
may be removed by the Required Lenders upon thirty (30) days prior written
notice to the Company and the Lenders. In the event of any such
resignation or removal, the Required Lenders may appoint a new agent with
the Company's consent, which shall succeed to all the rights, powers and
duties of the Agent hereunder and under the other Loan Documents. Any
resigning or removed Agent shall be entitled to the benefit of all the
protective provisions hereof with respect to its acts as an agent
hereunder, but no successor Agent shall in any event be liable or
responsible for any actions of its predecessor. If the Agent resigns or
is removed and no successor is appointed, the rights and obligations of
such Agent shall be automatically assumed by the Required Lenders and (i)
the Company shall be directed to make all payments due each Lender
hereunder directly to such Lender and (ii) the Agent's rights in the Loan
Documents shall be assigned without representation, recourse or warranty
to the Lenders as their interests may appear.
.c2.Section 10.2. Rights as a Lender;. The Agent has and reserves
all of the rights, powers and duties hereunder and under its Notes, the
Applications and the other Loan Documents as any Lender may have and may
exercise the same as though it were not the Agent and the terms "Lender"
or "Lenders" as used herein and in all of such documents shall, unless the
context otherwise expressly indicates, include the Agent in its individual
capacity as a Lender.
.c2.Section 10.3. Standard of Care;. The Lenders acknowledge that
they have received and approved copies of the Loan Documents and such
other information and documents concerning the transactions contemplated
and financed hereby as they have requested to receive and/or review. The
Agent makes no representations or warranties of any kind or character to
the Lenders with respect to the validity, enforceability, genuineness,
perfection, value, worth or collectibility hereof or of the other Loan
Documents or of the Liens provided for thereby or of any other documents
called for hereby or thereby or of the Collateral. The Agent need not
verify the worth or existence of the Collateral, provided that the Agent
agrees to furnish the Lenders with copies of any field audit reports made
in connection with inspections which it or any designee may make pursuant
to Section 8.5 hereof but the Agent makes no representations or warranties
of any kind in connection therewith nor shall the Agent have any liability
in connection therewith except for its own gross negligence or willful
misconduct. Neither the Agent nor any director, officer, employee, agent
or representative thereof (including any security trustee therefor) shall
in any event be liable for any clerical errors or errors in judgment,
inadvertence or oversight, or for action taken or omitted to be taken by
it or them hereunder or under the other Loan Documents or in connection
herewith or therewith except for its or their own gross negligence or
willful misconduct. The Agent shall incur no liability under or in
respect of this Agreement or the other Loan Documents by acting upon any
notice, certificate, warranty, instruction or statement (oral or written)
of anyone (including anyone in good faith believed by it to be authorized
to act on behalf of the Company), unless it has actual knowledge of the
untruthfulness of same (except to the extent the Agent's lack of such
knowledge constitutes gross negligence or willful misconduct). The Agent
may execute any of its duties hereunder by or through employees, agents,
and attorneys-in-fact and shall not be answerable to the Lenders for the
default or misconduct of any such agents or attorneys-in-fact selected
with reasonable care except for the gross negligence or willful misconduct
of its employees. The Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agencies hereby created and its
duties hereunder, and shall incur no liability to anyone and be fully
protected in acting upon the advice of such counsel. The Agent shall be
entitled to assume that no Default or Event of Default exists unless
notified to the contrary by a Lender. The Agent shall in all events be
fully protected in acting or failing to act in accord with the
instructions of the Required Lenders. Upon the occurrence of an Event of
Default hereunder, the Agent shall take such action with respect to the
enforcement of the Liens on the Collateral and the preservation and
protection thereof as it shall be directed to take by the Required Lenders
but unless and until the Required Lenders have given such direction the
Agent shall take or refrain from taking such actions as it deems
appropriate and in the best of interest of all Lenders. The Agent shall
in all cases be fully justified in failing or refusing to act hereunder
unless it shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by the Agent by
reason of taking or continuing to take any such action. The Agent may
treat the owner of any Note as the holder thereof until written notice of
transfer shall have been filed with the Agent signed by such owner in form
satisfactory to the Agent. Each Lender acknowledges that it has
independently and without reliance on the Agent or any other Lender and
based upon such information, investigations and inquiries as it deems
appropriate made its own credit analysis and decision to extend credit to
the Company. It shall be the responsibility of each Lender to keep itself
informed as to the creditworthiness of the Company and the Agent shall
have no liability to any Lender with respect thereto.
.c2.Section 10.4. Costs and Expenses;. Each Lender agrees to
reimburse the Agent for all costs and expenses suffered or incurred by the
Agent or any security trustee in performing its duties hereunder and under
the other Loan Documents, or in the exercise of any right or power imposed
or conferred upon the Agent hereby or thereby, all such costs and expenses
to be borne by the Lenders ratably in accordance with the amounts of their
respective Commitments; provided, however, that no such reimbursement
shall be required (x) to the extent that the Agent is promptly reimbursed
for such costs and expenses by the Company or out of the Collateral and
(y) to the extent such costs and expenses were caused by the Agent's gross
negligence or willful misconduct. Amounts received by the Agent in
reimbursement from the Company or recovered out of the Collateral in each
case subsequent to such payments by the Lenders shall be distributed to
the Lenders in accordance with the provisions of Section 3.5 hereof.
.c2.Section 10.5. Indemnity;. The Lenders, to the extent not
prohibited by applicable law, shall ratably indemnify and hold the Agent,
and its directors, officers, employees, agents or representatives
(including as such any security trustee therefor) harmless from and
against any liabilities, losses, costs and expenses suffered or incurred
by them hereunder or under the other Loan Documents or in connection with
the transactions contemplated hereby or thereby, regardless of when
asserted or arising, except to the extent they are promptly reimbursed for
the same by the Company or out of the Collateral and except to the extent
that any event giving rise to a claim was caused by the gross negligence
or willful misconduct of the party seeking to be indemnified. Amounts
received by the Agent in reimbursement from the Company or recovered out
of the Collateral in each case subsequent to such payments by the Lenders
shall be distributed to the Lenders in accordance with the provisions of
Section 3.5 hereof.
.c2.Section 10.6. Credit Decision;. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking any
action under this Agreement or any other Loan Document.
.c1.Section 11. Miscellaneous.
.c2.Section 11.1. Holidays. ; If any payment of principal or
interest on any Note or any fee hereunder shall fall due on a day which is
not a Business Day, principal together with interest at the rate the Note
bears for the period prior to maturity or any fee at the rate such fee
accrues shall continue to accrue from the stated due date thereof to and
including the next succeeding Business Day, on which the same is payable.
.c2.Section 11.2. No Waiver, Cumulative Remedies. ; No delay or
failure on the part of the Lender or on the part of the holder of the Note
in the exercise of any power or right shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise of any power or right preclude any other or further exercise
thereof, or the exercise of any other power or right, and the rights and
remedies hereunder of the Lender and of the holder of the Note are
cumulative to, and not exclusive of, any rights or remedies which any of
them would otherwise have.
.c2.Section 11.3. Waivers, Modifications and Amendments;. Any
provision hereof or of the Notes or the other Loan Documents may be
amended, modified, waived or released and any Default or Event of Default
and its consequences may be rescinded and annulled (any such amendment,
modification, waiver, release, rescission or annulment being hereinafter
referred to collectively as a "Modification") upon the written consent of
the Required Lenders; provided, however, that without the consent of all
Lenders, no such Modification shall increase the amount or extend the term
of any Lender's Commitment or reduce the interest rate applicable to or
extend the maturity of its Notes or reduce the amount of the fees to which
it is entitled hereunder or release any substantial (in value) part of the
collateral security afforded by the Collateral Documents (except in
connection with a sale or other disposition required to be effected by the
provisions hereof or of the Collateral Documents) or change this Section
or change the definition of "Required Lenders" or change the number of
Lenders required to take any action hereunder or under the Collateral
Documents. No Modification of the Agent's protective provisions shall be
effective without the prior written consent of the Agent. In the event
any Lender (hereinafter, a "non-consenting Lender") refuses to consent in
writing to any Modification requested by the Company to which the Agent is
willing to consent in writing, the Company shall have the right, with the
assistance of the Agent if the Company so desires and such assistance can
be rendered without material cost or burden to the Agent, to seek a
substitute bank or banks reasonably satisfactory to the Agent (which may
be one or more of the other Lenders) to replace the non-consenting Lender
under this Agreement. The non-consenting Lender shall cooperate with the
Company and substitute bank to accomplish such substitution on the terms
of Section 11.15 hereof, provided that the non-consenting Lender's entire
Commitment is replaced, and the $2,500 processing fee payable under
Section 11.15 shall not be payable in connection with any such assignment
required under this Section. The purchase price to be paid by such
substitute bank for such assignment shall be equal to the sum of (i) the
principal amount of all of the non-consenting Lender's outstanding Loans
plus any accrued and unpaid interest thereon, (ii) the amount unpaid to
the non-consenting Lender on unreimbursed draws honored on Letters of
Credit plus any unpaid and accrued interest thereon, (iii) the accrued but
unpaid commitment fees in respect of the non-consenting Lender's
Commitment hereunder, (iv) any reasonable out-of-pocket expenses of the
non-consenting Lender (including reasonable attorneys' fees) directly
incurred as a result of such assignment and (v) any other amount that may
be owing to such Lender hereunder (including any such amount as may be due
under Section 2.9 hereof).
.c2.Section 11.4. Costs and Expenses;. The Company agrees to pay
on demand the costs and expenses of the Agent in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
other Loan Documents and the other instruments and documents to be
delivered hereunder or thereunder or in connection with the recording or
filing of any of the foregoing or in connection with the transactions
contemplated hereby or thereby or in connection with any consents
hereunder or waivers or amendments hereto or thereto, including the
reasonable fees (subject to the limit expressed in the immediately
following sentence) and expenses of Messrs. Chapman and Cutler, counsel
for the Agent, with respect to all of the foregoing (whether or not the
transactions contemplated hereby are consummated), and all costs and
expenses (including reasonable attorneys' fees), if any, incurred by the
Agent, the Lenders or any other holders of a Note in connection with a
default under or the enforcement of this Agreement or any other Loan
Document or any other instrument or document to be delivered hereunder or
thereunder, including such of the foregoing as have been so incurred in a
proceeding of the type described in Section 9.1(q) or 9.1(r) hereof.
Notwithstanding anything in the foregoing to the contrary, (i) the Company
shall not be liable, without its consent, to reimburse the Agent for more
than $35,000 of the fees (as opposed to disbursements and separately
charged items) of Messrs. Chapman and Cutler in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
other Loan Documents and the other instruments and documents to be
delivered hereunder or thereunder as a condition precedent to the initial
extension of credit hereunder and (ii) the Company shall not be liable,
unless it so consents, to reimburse the Agent for more than $5,000 for the
fees (as opposed to disbursements and separately charged items) of Messrs.
Chapman and Cutler in connection with the negotiation, preparation,
execution and delivery of each separate waiver or amendment to this
Agreement or any other Loan Documents. The Company agrees to indemnify
and save the Lenders, the Agent and any security trustee for the Lenders
harmless from any and all liabilities, losses, costs and expenses incurred
by the Lenders or the Agent in connection with any action, suit or
proceeding brought against the Agent, security trustee or any Lender by
any Person (but excluding attorneys' fees for litigation solely between
the Lenders to which the Company is not a party) which arises out of the
transactions contemplated or financed hereby or by any other Loan Document
or out of any action or inaction by the Agent, any security trustee or any
Lender hereunder or thereunder, except for such thereof as is caused by
the gross negligence or willful misconduct of the Agent or any Lender.
The provisions of this Section and the protective provisions of Article 2
hereof shall survive payment of the Obligations.
.c2.Section 11.5. Documentary Taxes.; The Company agrees to pay
on demand any documentary, stamp or similar taxes payable in respect of
this Agreement or any other Loan Document, including interest and
penalties, in the event any such taxes are assessed, irrespective of when
such assessment is made and whether or not any credit is then in use or
available hereunder.
.c2.Section 11.6. Survival of Representations.; All
representations and warranties made herein or in any other Loan Document
or in certificates given pursuant hereto or thereto shall survive the
execution and delivery of this Agreement and the other Loan Documents, and
shall continue in full force and effect with respect to the date as of
which they were made as long as any credit is in use or available
hereunder.
.c2.Section 11.7. Survival of Indemnities.; All indemnities and
other provisions relative to reimbursement to the Lenders of amounts
sufficient to protect the yield of the Lenders with respect to the Loans
and Letters of Credit, including, but not limited to, Sections 1.4, 2.7,
2.8 and 2.9 hereof, shall survive the termination of this Agreement and
the payment of the Obligations.
.c2.Section 11.8. Notices;. Except as otherwise specified herein,
all notices hereunder shall be in writing (including cable, telecopy or
telex) and shall be given to the relevant party at its address, telecopier
number or telex number set forth below, in the case of the Company, or on
the appropriate signature page hereof, in the case of the Lenders and the
Agent, or such other address, telecopier number or telex number as such
party may hereafter specify by notice to the Agent and the Company given
by United States certified or registered mail, by telecopy or by other
telecommunication device capable of creating a written record of such
notice and its receipt. Notices hereunder shall be addressed to:
HK Systems, Inc.
2855 South James Drive
New Berlin, Wisconsin 53151
Attention: John C. Hines
Telephone: (414) 860-6650
Telecopy: (414) 860-7010
With a copy to:
Messrs. Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Edward J. Hammond, Esq.
Telephone: (414) 297-5619
Telecopy: (414) 297-4900
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section and a confirmation of such telecopy has
been received by the sender, (ii) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the
answerback is received by sender, (iii) if given by mail, five (5) days
after such communication is deposited in the mail, certified or registered
with return receipt requested, addressed as aforesaid or (iv) if given by
any other means, when delivered at the addresses specified in this
Section; provided that any notice given pursuant to Section 1 or Section 2
hereof shall be effective only upon receipt.
.c2.Section 11.9. Headings;. Section headings used in this
Agreement are for convenience of reference only and are not a part of this
Agreement for any other purpose.
.c2.Section 11.10. Severability of Provisions.; Any provision of
this Agreement which is unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such unenforceability
without invalidating the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
All rights, remedies and powers provided in this Agreement and the Notes
may be exercised only to the extent that the exercise thereof does not
violate any applicable mandatory provisions of law, and all the provisions
of this Agreement and the Notes are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this
Agreement or the Notes invalid or unenforceable.
.c2.Section 11.11. Counterparts.; This Agreement may be executed
in any number of counterparts, and by different parties hereto on separate
counterpart signature pages, and all such counterparts taken together
shall be deemed to constitute one and the same instrument.
.c2.Section 11.12. Binding Nature, Governing Law, Etc;. This
Agreement shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of the Agent and the Lenders and
the benefit of their successors and assigns, including any subsequent
holder of an interest in the Notes. This Agreement and the rights and
duties of the parties hereto shall be governed by, and construed in
accordance with, the internal laws of the State of Illinois without regard
to principles of conflicts of laws. The Company may not assign its rights
hereunder without the written consent of the Lenders.
.c2.Section 11.13. Entire Understanding;. This Agreement, together
with the other Loan Documents, constitute the entire understanding of the
parties with respect to the subject matter hereof and any prior
agreements, whether written or oral, with respect thereto are superseded
hereby except for prior understandings related to fees payable to the
Agent upon the initial closing of the transactions contemplated hereby.
.c2.Section 11.14. Participations;. Any Lender may grant
participations in its extensions of credit hereunder to any other Lender
or other lending institution (a "Participant") provided that (i) no
Participant shall thereby acquire any direct rights under this Agreement,
(ii) no Lender shall agree with a Participant not to exercise any of such
Lender's rights hereunder without the consent of such Participant except
for rights which under the terms hereof may only be exercised by all
Lenders and (iii) no sale of a participation in extensions of credit shall
in any manner relieve the selling Lender of its obligations hereunder.
.c2.Section 11.15. Assignment Agreements;. Each Lender may, from
time to time upon at least five (5) Business Days' prior written notice to
the Agent and the Company, assign to other commercial lenders part of its
rights and obligations under this Agreement (including without limitation
the indebtedness evidenced by the Notes then owned by such assigning
Lender, together with an equivalent proportion of its Commitments to make
Loans hereunder) pursuant to written agreements executed by such assigning
Lender, such assignee lender or lenders, the Company and the Agent, which
agreements shall specify in each instance the portion of the indebtedness
evidenced by the Notes which is to be assigned to each such assignee
lender and the portion of the Commitment of the assigning Lender to be
assumed by it (the "Assignment Agreements"); provided, however, that (i)
each such assignment shall be of a constant, and not a varying, percentage
of the assigning Lender's rights and obligations under this Agreement and
the assignment shall cover the same percentage of such Lender's
Commitment, Loans, Note and credit risk with respect to Letters of Credit;
(ii) unless the Agent otherwise consents, the aggregate amount of the
unused Commitment, Loans and credit risk with respect to Letters of Credit
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the effective date of the relevant Assignment Agreement)
shall (x) in no event be less than $5,000,000 and shall be an integral
multiple of $5,000,000 or (y) be an assignment of all of the assigning
Lender's Commitment and other interests as a Lender hereunder; (iii) the
Agent shall maintain for its own account the lesser of (x) $30,000,000 or
(y) 33-1/3% of the total Commitments as the same may from time to time be
reduced by the Company pursuant to Section 3.4 hereof; (iv) the Agent and
(except for an assignment made during the continuance of any Event of
Default described in Section 9.1(q) or 9.1(r) hereof) the Company must
each consent to each such assignment to a party which was not an original
signatory of this Agreement, which consent shall not be unreasonably
withheld; and (v) the assigning Lender must pay to the Agent a processing
and recordation fee of $2,500 and any out-of-pocket attorneys' fees and
expenses incurred by the Agent in connection with such Assignment
Agreement. Upon the execution of each Assignment Agreement by the
assigning Lender thereunder, the assignee lender thereunder, the Company
and the Agent and payment to such assigning Lender by such assignee lender
of the purchase price for the portion of the indebtedness of the Company
being acquired by it, (i) such assignee lender shall thereupon become a
"Lender" for all purposes of this Agreement with a Commitment in the
amounts set forth in such Assignment Agreement and with all the rights,
powers and obligations afforded a Lender hereunder, (ii) such assigning
Lender shall have no further liability for funding the portion of its
Commitment assumed by such other Lender and no further obligation with
respect to such portion of its Commitment (except to the extent of any
such other obligation which arises from any act or omission prior to the
effective date of such assignment) and (iii) the address for notices to
such assignee Lender shall be as specified in the Assignment Agreement
executed by it. Concurrently with the execution and delivery of such
Assignment Agreement, the Company shall execute and deliver (i) a Note to
the assignee Lender in the amount of its Commitment and a new Note to the
assigning Lender in the amount of its Commitment after giving effect to
the reduction occasioned by such assignment, all such Notes to constitute
"Notes" for all purposes of this Agreement and of the Collateral Documents
and (ii) such amendments to the Collateral Documents as may be necessary
or appropriate to assure the credit extended by the assignee Lender is
secured by the Collateral Documents.
.c2.Section 11.16. Terms of Collateral Documents not Superseded;.
Nothing contained herein shall be deemed or construed to permit any act or
omission which is prohibited by the terms of any Collateral Document, the
covenants and agreements contained herein being in addition to and not in
substitution for the covenants and agreements contained in the Collateral
Documents.
.c2.Section 11.17. Confidentiality;. The Agent and each Lender
shall hold in confidence any material nonpublic information delivered or
made available to them by the Company or any Subsidiary. The foregoing to
the contrary notwithstanding, nothing herein shall prevent any Lender from
disclosing any information delivered or made available to it by the
Company or any Subsidiary (i) to any other Lender or any Affiliate
thereof, (ii) to any other Person if reasonably incidental to the
administration of the credit contemplated hereby, (iii) upon the order of
any court or administrative agency, (iv) upon the request or demand of any
regulatory agency or authority, (v) which has been publicly disclosed
other than as a result of a disclosure by the Agent or any Lender which is
not permitted by this Agreement, (vi) in connection with any litigation to
which the Agent, any Lender, or any of their respective Affiliates may be
a party, along with the Company, any Subsidiary or any of their respective
Affiliates, (vii) to the extent reasonably required in connection with the
exercise of any right or remedy under this Agreement or the other Loan
Documents or otherwise, (viii) to such Lender's legal counsel and
financial consultants and independent auditors, and (ix) to any actual or
proposed participant or assignee of all or part of its rights under the
credit contemplated hereby provided the Company consents to such
disclosure (except that no such consent shall be required in the case of
any participation or assignment to a Lender or any Affiliate of a Lender)
and such participant or assignee agrees in writing to be bound by the duty
of confidentiality under this Section to the same extent as if it were a
Lender hereunder.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 15th day of November, 1996.
HK Systems, Inc.
By /s/ John C. Hines
Name: John C. Hines
Title: Vice President
<PAGE>
Accepted and Agreed to at Chicago, Illinois as of the day and year
last above written.
Each of the Lenders hereby agrees with each other Lender that if it
should receive or obtain any payment (whether by voluntary payment, by
realization upon collateral, by the exercise of rights of setoff or
Lender's lien, by counterclaim or cross action, or by the enforcement of
any rights under this Agreement, the Notes, the Collateral Documents or
otherwise) in respect of the obligations of the Company under this
Agreement and the other Loan Documents in a greater amount than such
Lender would have received had such payment been made to the Agent and
been distributed among the Lenders as contemplated by Section 3.5 hereof
then in that event the Lender receiving such disproportionate payment
shall purchase for cash without recourse from the other Lenders an
interest in the obligations of the Company to such Lenders arising under
this Agreement and the other Loan Documents in such amount as shall result
in a distribution of such payment as contemplated by Section 3.5 hereof.
In the event any payment made to a Lender and shared with the other
Lenders pursuant to the provisions hereof is ever recovered from such
Lender, the Lenders receiving a portion of such payment hereunder shall
restore the same to the payor Lender, but without interest.
Address:
111 West Monroe Street Harris Trust and Savings Bank
Chicago, Illinois 60690
Attention: Mr. Andrew K. Peterson
Emerging Majors By /s/ Andrew K. Peterson
Telecopy: (312)461-2591 Its Vice President
Telephone: (312)461-6537
Lending Offices:
Domestic Rate Portion: 111 West Monroe Street
Chicago, Illinois 60690
LIBOR Portions: Nassau Branch
c/o 111 West Monroe Street
Chicago, Illinois 60690
Address:
777 East Wisconsin Avenue Firstar Bank Milwaukee, N.A.
Milwaukee, Wisconsin 53202
Attention: Ms. Caroline V. Krider By /s/ Caroline V. Krider
Telecopy: (414)765-5062 Its
Telephone: (414)765-5971
Lending Offices:
Domestic Rate Portion: 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LIBOR Portions: 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Address:
50 South LaSalle Street The Northern Trust Company
Chicago, Illinois 60675
Attention: Mr. Joseph M. Kunze By /s/ Joseph M. Kunze
Telecopy: (312) 444-7028 Its
Telephone: (312) 444-3175
Lending Offices:
Domestic Rate Portion: 50 South LaSalle Street
Chicago, Illinois 60675
LIBOR Portions: 50 South LaSalle Street
Chicago, Illinois 60675
Address:
111 East Wisconsin Avenue Bank One, Milwaukee, NA
Milwaukee, Wisconsin 53201-2033
Attention: Ronald J. Carey By /s/ Ronald J. Carey
Telecopy: ______________ Its
Telephone: _____________
Lending Offices:
Domestic Rate Portion: 111 East Wisconsin Avenue
Milwaukee, Wisconsin 53201-2033
LIBOR Portions: 111 East Wisconsin Avenue
Milwaukee, Wisconsin 53201-2033
<PAGE>
Exhibit A
HK Systems, Inc.
Revolving Credit Note
$_______________ November 15, 1996
On the Termination Date, for value received, the undersigned, HK
Systems, Inc., a Wisconsin corporation (the "Company"), promises to pay to
the order of ________________ (the "Lender"), at the principal office of
Harris Trust and Savings Bank in Chicago, Illinois, the principal sum of
(i) _______________________ and no/100 Dollars ($______________), or (ii)
such lesser amount as may at the time of the maturity hereof, whether by
acceleration or otherwise, be the aggregate unpaid principal amount of all
loans owing from the Company to the Lender under the Revolving Credit
provided for in the Credit Agreement hereinafter mentioned.
This Note evidences loans constituting part of a "Domestic Rate Portion"
and "LIBOR Portions" as such terms are defined in that certain Third
Amended and Restated Credit Agreement dated as of November 15, 1996
between the Company, Harris Trust and Savings Bank, individually and as
Agent thereunder, and the other Lenders which are now or may from time to
time hereafter become parties thereto (said Credit Agreement, as the same
may be amended, modified or restated from time to time, being referred to
herein as the "Credit Agreement") made and to be made to the Company by
the Lender under the Revolving Credit provided for under the Credit
Agreement, and the Company promises to pay interest at the office
described above on each loan evidenced hereby at the rates and at the
times and in the manner specified therefor in the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part
of the Domestic Rate Portion or a LIBOR Portion and in the case of any
LIBOR Portion the interest rate and interest period applicable thereto
shall be endorsed by the holder hereof on the reverse side of this Note or
recorded on the books and records of the holder hereof (provided that such
entries shall be endorsed on the reverse side hereof prior to any
negotiation hereof). The Company agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the entries so
endorsed on the reverse side hereof or recorded on the books and records
of the holder hereof shall be prima facie evidence of the unpaid principal
balance of this Note, the status of each such loan from time to time as
part of the Domestic Rate Portion or a LIBOR Portion and in the case of
any LIBOR Portion the interest rate and interest period applicable
thereto.
This Note is issued by the Company under the terms and provisions of
the Credit Agreement and is secured, among other things, by the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to
which reference is hereby made for a statement thereof. This Note may be
declared to be, or be and become, due prior to its expressed maturity,
voluntary prepayments may be made hereon, and certain prepayments are
required to be made hereon, all in the events, on the terms and with the
effects provided in the Credit Agreement. All capitalized terms used
herein without definition shall have the same meanings herein as such
terms are defined in the Credit Agreement.
This Note is issued in substitution for and replacement of that
certain Revolving Credit Note of Old HK dated May 23, 1996 payable to the
order of the Lender in the face principal amount of $_____________.
[Delete in Bank One Note]
This Note shall be construed in accordance with, and governed by, the
internal laws of the State of Illinois without regard to principles of
conflicts of laws. The Company promises to pay all costs and expenses
(including attorneys' fees) suffered or incurred by the holder hereof in
collecting this Note or enforcing any rights in any collateral therefor.
The Company hereby waives presentment for payment and demand.
HK Systems, Inc.
By
Name:
Title:
<PAGE>
Exhibit B
Form of Opinion of Counsel
(To Be Retyped On Letterhead Of Counsel And Dated As Of Date Of Closing)
_______________, 1996
Harris Trust and Savings Bank, as Agent
for the Lenders under the Loan
Documents hereinafter identified
111 West Monroe Street
Chicago, Illinois 60603
Gentlemen:
We have served as counsel to HK Systems, Inc., a Wisconsin
corporation (the "Company") and _______________ in connection with the
extension by the Lenders of $90,000,000 in revolving credit facilities to
the Company.
As such counsel, we have supervised the taking of the corporate
proceedings necessary to authorize the execution and delivery of, and have
examined executed originals of, the instruments and documents identified
on Schedule A to this letter (collectively the "Loan Documents",
individual Loan Documents and other capitalized terms used below being
hereinafter referred to by the designations appearing on Schedule A). As
counsel to the Company and _______________, we are familiar with the
articles of incorporation, charter, by-laws and any other agreements under
which the Company and _______________ are organized. We have also
examined such other instruments and records and inquired into such other
factual matters and matters of law as we deem necessary or pertinent to
the formulation of the opinions hereinafter expressed.
Based upon the foregoing and upon our examination of the articles of
incorporation, charter and by-laws of the Company and _______________, we
are of the opinion that:
1. The Company is a corporation duly organized and validly existing and
in good standing under the laws of the State of Wisconsin with full and
adequate corporate power and authority to carry on its business as now
conducted and is duly licensed or qualified and in good standing in each
jurisdiction wherein the conduct of its business or the assets and
properties owned or leased by it require such licensing or qualification.
2. _____________ is a corporation duly organized and validly
existing and in good standing under the laws of the State of _________
with full and adequate corporate power and authority to carry on its
business as now conducted and is duly licensed or qualified and in good
standing in each jurisdiction wherein the conduct of its business or the
assets and properties owned or leased by it require such licensing or
qualification.
3. The Company has full right, power and authority to borrow
from you, to mortgage, pledge, assign and otherwise encumber its assets
and properties as collateral security for such borrowings, to execute and
deliver the Loan Documents executed by it and to observe and perform all
the matters and things therein provided for. The execution and delivery
of the Loan Documents executed by the Company does not, nor will the
observance or performance of any of the matters or things therein provided
for, contravene any provision of law or of the articles of incorporation,
charter or by-laws of the Company (there being no other agreements under
which the Company is organized) or, to the best of our knowledge after due
inquiry, of any covenant, indenture or agreement binding upon or affecting
the Company or any of its properties or assets.
4. _____________ has full right, power and authority to
guarantee all indebtedness, obligations and liabilities, whether now
existing or hereafter arising, of the Company to the Lenders, to execute
and deliver the Loan Documents executed by it and to observe and perform
all the matters and things therein provided for. The execution and
delivery of the Loan Documents executed by _____________ does not, nor
will the observance or performance of any of the matters or things therein
provided for, contravene any provision of law or of the articles of
incorporation, charter or bylaws of _____________ (there being no other
agreements under which _____________ is organized) or, to the best of our
knowledge after due inquiry, of any covenant, indenture or agreement
binding upon or affecting _____________ or any of its properties or
assets.
5. The Loan Documents executed by the Company have been duly
authorized by all necessary corporate action (no stockholder approval
being required), have been executed and delivered by the proper officers
of the Company and constitute valid and binding agreements of the Company
enforceable against it in accordance with their respective terms, except
as such terms may be limited by bankruptcy, insolvency or similar laws and
legal or equitable principles affecting or limiting the enforcement of
creditors' rights generally.
6. The Loan Documents executed by _____________ have been duly
authorized by all necessary corporate action of _____________ (no
stockholder approval being required) have been executed and delivered by
the proper officers of _____________ and constitute valid and binding
agreements of _____________ enforceable against it in accordance with
their respective terms, except as such terms may be limited by bankruptcy,
insolvency or similar laws and legal or equitable principles affecting or
limiting the enforcement of creditors' rights generally.
7. No order, authorization, consent, license or exemption of,
or filing or registration with, any court or governmental department,
agency, instrumentality or regulatory body, whether local, state or
federal, is or will be required in connection with the lawful execution
and delivery of the Loan Documents or the observance and performance by
the Company or _______________ of any of the terms thereof.
8. To the best of our knowledge after due inquiry, there is no
action, suit, proceeding or investigation at law or in equity before or by
any court or public body pending or threatened against or affecting the
Company or _______________ or any of their respective assets and
properties which, if adversely determined, could result in any material
adverse change in the properties, business, operations or financial
condition of the Company or _______________ or in the value of the
collateral security for your loans and other credit accommodations to the
Company.
The term "Lenders" as used herein shall have the same meaning herein
as such term has in the Credit Agreement.
In rendering the opinions expressed above, we have examined
originals, or copies of originals certified to our satisfaction, of such
agreements, documents, certificates and other statements of government
officials and corporate officers and such other papers and evidence as we
have deemed relevant and necessary as a basis for these opinions. We have
assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of any copies thereof submitted
to us for our examination.
Our opinions expressed above are limited to the laws of the State of
Wisconsin, the corporate laws of the States of Delaware and ______________
and the federal laws of the United States of America. In expressing our
opinion as to the validity and enforceability of those Loan Documents
governed by the laws of the State of Illinois, we have assumed that the
laws of the State of Illinois do not differ in any respect material to our
opinion from the laws of the State of Wisconsin.
Although this opinion is addressed to you, as Agent under the Loan
Documents, we acknowledge that this opinion is being given to each of the
Lenders identified in the Credit Agreement, that you may deliver a copy of
this opinion to such Lenders and that such Lenders may rely thereon.
Respectfully submitted,
<PAGE>
Schedule A
The Loan Documents
(All Loan Documents are dated as of November 15, 1996)
1. Third Amended and Restated Credit Agreement by and between
the Company, the Lenders named therein and Harris Trust and Savings Bank
as Agent (the "Agent") (the "Credit Agreement").
2. Revolving Credit Notes of the Company payable to the order
of the Lenders.
3. Security Agreement from the Company to the Agent.
4. Security Agreement Re: Intellectual Property from the
Company to the Agent.
5. Guaranty from HEI Services, Inc.
6. Guaranty from HISCO Systems of Canada Ltd. to the Agent.
7. Guaranty from HK Taylor Industries, Inc. to the Agent.
8. Amended and Restated Security Agreement from HEI Services,
Inc. to the Agent.
9. Security Agreement from HK Taylor Industries, Inc. to the
Agent.
<PAGE>
Exhibit C
Compliance Certificate
This Compliance Certificate is furnished to each of the Lenders
pursuant to that certain Third Amended and Restated Credit Agreement dated
as of November 15, 1996, by and between HK Systems, Inc. (the "Company")
and the Lenders (the "Credit Agreement"). Unless otherwise defined
herein, the terms used in this Compliance Certificate have the meanings
ascribed thereto in the Credit Agreement.
The Undersigned hereby certifies that:
1. I am the chief financial officer of the Company;
2. I have reviewed the terms of the Credit Agreement and I have
made, or have caused to be made under my supervision, a detailed review of
the transactions and conditions of the Company during the accounting
period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or the
occurrence of any event which constitutes a Default or Event of Default
during or at the end of the accounting period covered by the attached
financial statements or as of the date of this Certificate, except as set
forth below; and
4. The Attachment hereto sets forth financial data and
computations evidencing the Company's compliance with certain covenants of
the Credit Agreement, all of which data and computations are, to the best
of my knowledge, true, complete and correct and have been made in
accordance with the relevant Sections of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it
has existed and the action which the Company has taken, is taking, or
proposes to take with respect to each such condition or event:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
The foregoing certifications, together with the computations set
forth in the Attachment hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this _________
day of __________________ 19___.
This Certificate is executed and delivered solely in my capacity as
chief financial officer of the Company and I shall have no personal
liability as a result of or in connection with this Certificate.
__________________________________
<PAGE>
Attachment to Compliance Certificate
HK Systems, Inc.
Compliance Calculations for
Third Amended and Restated Credit Agreement
Dated as of November 15, 1996
Calculations as of _____________, 19___
______________________________________________________________
A. Current Ratio (Section 8.6)
1. Current assets
2. Current liabilities
3. Ratio of Line 1 to Line 2
("Current Ratio") :1
4. Current Ratio must be not less than :1
5. Company is in compliance?
(Circle yes or no) Yes/No
B. Leverage Ratio (Section 8.7)
1. Funded Debt
as defined
2. Shareholder's Equity as defined
3. Line 1 plus Line 2
("Total Capitalization")
4. Subordinated Indebtedness
5. Line 1 minus Line 4
("Senior Funded Debt")
6. Ratio of Senior Funded Debt
(Line 5) to Total Capitalization
(Line 3) ("Leverage Ratio") :1
7. As listed in Section 8.7, for the date of this Certificate,
the Leverage Ratio shall not be greater than
:1
8. Company is in compliance?
(Circle yes or no) Yes/No
C. Funded Debt Ratio (Section 8.8)
1. Senior Funded Debt (Line B5)
2. Net Income as defined
3. Amounts deducted in arriving
at Net Income in respect of
(a) Interest Expense
(b) Taxes imposed on or
measured by income or
excess profits
(c) Amortization and depreciation
4. Sum of Lines 2, 3(a), 3(b)
and 3(c) ("EBITDA")
5. Western Atlas Adjustment Amount, as defined
6. Sum of EBITDA (Line 4) plus Western
Atlas Adjustment Amount (line 5)
7. Ratio of Senior Funded Debt (Line 1) to
EBITDA plus Western Atlas Adjustment Amount
(Line 6) ("Funded Debt Ratio") :1
8. As listed in Section 8.8, for
the date of this Certificate,
the Funded Debt Ratio must
not be more than :1
9. Company is in compliance? (Circle yes or no) Yes/No
D. Interest Coverage Ratio (Section 8.9)
1. Net Income as defined __________
2. Amounts deducted in arriving
at Net Income in respect of
(a) Interest Expense
(b) Taxes imposed on or
measured by income or
excess profits
(c) Amortization
3. Sum of Lines 1, 2(a), 2(b)
and 2(c) ("EBITA")
4. Western Atlas Adjustment Amount,
as defined
5. Sum of EBITA (Line 3) plus Western
Atlas Adjustment Amount (Line 5)
6. Interest Expense as defined
7. Ratio of Line 5 to
Line 6 ("Interest Coverage Ratio") :1
8. As listed in Section 8.9, for
the date of this Certificate,
the Interest Coverage Ratio must
not be less than 2.50:1
9. Company is in compliance?
(Circle yes or no) Yes/No
E. Capital Expenditures (Section 8.10)
1. Aggregate capital expenditures for Company, ___________
Company and the Subsidiaries
2. Aggregate capital expenditures (Line 1) $__________
must not exceed
3. Company is in compliance?
(Circle yes or no) Yes/No
<PAGE>
Schedule 6.3
Subsidiaries
Name Jurisdiction of Percentage
Incorporation Ownership
HISCO Systems of Canada 100%
Canada Ltd.
HEI Services, Inc. Delaware 100%
HK Taylor Industries, Inc. North Carolina 100%
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("SECURITIES ACT"). NEITHER THIS WARRANT NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO OR IN A
TRANSACTION THAT IN THE OPINION OF COUNSEL TO THE HOLDER, WHICH OPINION
AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, IS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT.
WARRANT
FOR THE PURCHASE OF
COMMON STOCK
OF
HK SYSTEMS, INC.
Warrant Number 1
THIS CERTIFIES that, subject to the terms and conditions set
forth herein, following the Effective Date, if any, WESTERN ATLAS INC., a
Delaware corporation, is entitled to subscribe for and purchase from HK
SYSTEMS, INC., a Wisconsin corporation formerly known as HEI Systems,
Inc., a number of shares of Common Stock equal to the Warrant Shares
Number at a price per share of Common Stock equal to the Per Share Warrant
Price; provided that the number of shares of Common Stock that may be
purchased upon the exercise of the rights represented by this Warrant
shall be adjusted from time to time as provided in Section 4 of this
Warrant. This Warrant is issued in consideration of the payment by the
Holder of One Dollar and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.
1. Definitions. When used in this Warrant, the following
terms shall have the meanings specified:
(a) "Affiliate" shall mean any Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with another Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Aggregate Purchase Price" shall mean product of the
Per Share Warrant Price and the Warrant Shares Number.
(c) "Common Stock" shall mean the class or series of
common stock of the Company sold as part of the Initial Public Offering,
if any.
(d) "Company" shall mean HK SYSTEMS, INC., a Wisconsin
corporation.
(e) "Effective Date" shall mean the date of the
consummation of the Initial Public Offering if at any future date such
event should occur. Prior to such date the Company is under no obligation
to sell Common Stock to the Holder or any other party.
(f) "Expiration Date" shall mean the earliest to occur of
the following: (i) the exercise of all of the rights represented by the
Warrant; (ii) the repurchase of the Warrant by the Company; (iii) the
termination of the Company as a legal entity, however effected, prior to
the Effective Date, including, but not limited to, (A) the merger or
consolidation of the Company with any Person, other than a merger or
consolidation that would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof) at least
75% of the combined voting power of the voting securities of the Company
or such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, (B) the sale or disposition of all or
substantially all of the Company's assets other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity at least 75% of the combined voting power of the voting securities
of which are owned by persons in substantially the same proportions as
their ownership of the Company immediately prior to such sale, or (C)
dissolution of the Company; or (iv) November 15, 2003; provided, however,
that if the Company exercises its rights pursuant to Section 10(c) in
connection with a demand registration of the Holder under Section 10(b)
and, as a result of the Company's exercise of such rights, the Holder does
not have the opportunity to exercise this Warrant and dispose of Warrant
Shares pursuant to the registration statement contemplated by Section
10(b) prior to November 15, 2003, then the November 15, 2003 date set
forth in this clause (iv) shall be extended until such time as the Company
complies with its obligations pursuant to Section 10 in connection with
the demand registration.
(g) "Holder" shall mean WESTERN ATLAS INC., a Delaware
corporation.
(h) "Initial Public Offering" shall mean the first sale to
the public or an underwriter for cash of any class or series of common
stock of the Company pursuant to a registration statement filed by the
Company with the SEC under the Securities Act in a transaction that
results in the Company becoming subject to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934.
(i) "Other Holders" shall mean (i) the holders of the
common or preferred stock of the Company as of the date hereof and/or
their transferees and (ii) employees of the Company or its subsidiaries
and/or their transferees.
(j) "Per Share Warrant Price" shall mean an amount equal
to 115% of the price to the public per share of Common Stock in the
Initial Public Offering, if any, or such greater or lesser number, as the
case may be, as may result pursuant to Section 4 of the Warrant.
(k) "Person" shall mean and include an individual,
partnership, corporation, trust, joint venture, incorporated organization
and a government or any department or agency thereof.
(l) "Registration Shares" shall mean the number of Warrant
Shares subject to the registration rights of the Warrant.
(m) "SEC" shall mean the Securities and Exchange
Commission or any successor agency thereto.
(n) "Securities Act" shall mean the Securities Act of
1933, as amended from time to time, and the rules and regulations issued
thereunder.
(o) "Warrant" shall mean this Warrant as the same shall be
amended or replaced from time to time in accordance with the terms hereof.
(p) "Warrant Shares" shall mean the shares of Common Stock
purchasable upon full exercise of the Warrant, or such greater or lesser
number, as the case may be, as may result pursuant to Section 4 of the
Warrant.
(q) "Warrant Shares Number" shall mean the number of
Warrant Shares purchasable under this Warrant which shall be a number
equal to (i) $2,000,000 divided by (ii) 115% of the price to the public
per share of Common Stock in the Initial Public Offering, if any.
2. Exercise: Issuance of Certificates; Payment for Shares.
This Warrant may be exercised by the Holder, in whole or in part, in
increments of at least 25% of the Warrant Shares Number, at any time
following the Effective Date and prior to the Expiration Date by the
surrender of this Warrant (properly endorsed if required), and payment by
the Holder of the Aggregate Purchase Price by certified check or bank
draft. Upon such surrender and payment, the Holder shall be entitled to
receive a certificate or certificates representing a number of Warrant
Shares equal to the Warrant Shares Number. The Company agrees that the
shares so purchased shall be and are deemed to be issued to the Holder as
the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Certificates for the Warrant Shares so purchased
shall be delivered to the Holder within a reasonable time, not exceeding
thirty days, after the rights represented by this Warrant shall have been
so exercised. In lieu of any fractional share of Common Stock that may be
issuable upon the exercise of this Warrant, the Aggregate Purchase Price
payable by the Holder as provided herein shall be reduced by an amount
equal to the fair value of such fractional share, determined in any
reasonable manner by mutual agreement of the Company and the Holder.
3. Affirmative Covenants. The Company covenants and agrees
that following the Effective Date the Warrant Shares will, upon issuance,
be duly authorized, validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof except
as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law. The Company further covenants and agrees that, from and
after the Effective Date and until the Expiration Date, the Company will
at all times have authorized, and reserved for the purpose of issue or
transfer upon total or partial exercise of the rights represented by this
Warrant, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant. The Company will
take all such action as may be necessary to ensure that the Warrant Shares
may be so issued without violation of any applicable law or regulation, or
of any requirements of any domestic securities exchange upon which any
class of Common Stock of the Company may be listed, except that the
Company shall be under no obligation pursuant to the Warrant to register
the Warrant Shares under the Securities Act for issuance to the Holder,
and the Company may require as a condition precedent to any issuance of
the Warrant Shares that the Holder deliver to the Company, at the Holder's
expense, an opinion of counsel to the Holder, which opinion and counsel
shall be reasonably satisfactory to the Company, stating that such
issuance is exempt from registration under the Securities Act. Upon
acceptance of said opinion and issuance of the Warrant Shares, the Company
shall have duly complied with all formalities required to permit transfer
of title to the Warrant Shares free and clear of all claims, encumbrances
and defects in title, in accordance with this Warrant.
4. Adjustment of Number of Warrant Shares.
(a) If at any time following the Effective Date and prior
to the Expiration Date the Company shall (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock; (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares; (iii) combine its outstanding shares of Common Stock into a
smaller number of Shares; or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, then, and in each such
case, the Warrant Shares Number shall be adjusted immediately upon the
occurrence of such event, retroactive to the record date, if any, for such
event. Such adjustment shall be made by multiplying the Warrant Shares
Number by a fraction, the numerator of which shall be the number of shares
of Common Stock issued and outstanding immediately after the occurrence of
such event and the denominator of which shall be the number of shares of
Common Stock issued and outstanding immediately before the occurrence of
such event. Upon the occurrence of any reclassification described in (iv)
above, the Holder shall be entitled to receive upon exercise of the
Warrant that number of shares of capital stock of the Company that the
Holder would have been entitled to receive immediately following such
occurrence had all of the rights represented by this Warrant been
exercised immediately prior thereto or any record date with respect
thereto.
(b) If at any time after the Effective Date the Company
shall fix a record date for the issuance of rights, options or warrants to
all holders of Common Stock entitling them (for a period expiring within
45 calendar days after such record date) to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at a price per
share (or having a conversion price per share, if a security convertible
into Common Stock) less than the then current per share market price of
the Common Stock (as defined in Section 4(d)) on such record date, the Per
Share Warrant Price to be in effect after such record date shall be
determined by multiplying the Per Share Warrant Price in effect
immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In
case such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the
Company. Common Stock owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such rights, options or warrants are not so
issued, the Per Share Warrant Price shall be adjusted to be the Per Share
Warrant Price which would then be in effect if such record date had not
been fixed.
(c) Notwithstanding anything to the contrary in this
Section 4, no adjustment to the Warrant Shares Number shall be required
unless such adjustment would require an increase or decrease of at least
one percent (1%) in the number of Warrant Shares issuable upon exercise of
the rights represented by this Warrant; provided, however, that any
adjustments which by reason of this Section 4(b) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4 shall be made to the
nearest 1/100th of a share.
(d) For the purpose of any computation hereunder, the
"current per share market price" of the Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of Common
Stock for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that in the
event that the current per share market price of the Common Stock is
determined during a period following the announcement by the issuer of
such Common Stock of (i) a dividend or distribution on such Common Stock
payable in Common Stock or securities convertible into Common Stock, or
(ii) any subdivision, combination or reclassification of Common Stock and
prior to the expiration of 30 Trading Days after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be appropriately adjusted to reflect the
current market price per share of Common Stock. The closing price for
each Trading Day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("Nasdaq") or such
other system then in use, or, if on any such date the Common Stock is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading or
Nasdaq, as the case may be, is open for the transaction of business or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange or Nasdaq, as the case may be, a Business Day.
5. Reorganization, Reclassification, Consolidation, Merger or
Sale. If at any time from and after the Effective Date and prior to the
Expiration Date the Company is a party to any agreement providing for (i)
any capital reorganization or reclassification of the capital stock of the
Company, (ii) any consolidation or merger of the Company with another
corporation, or (iii) the sale, disposition or other conveyance of all or
substantially all of its assets, as the case may be, in such a way that
holders of Common Stock shall be entitled to receive cash, shares of stock
or securities or assets with respect to or in exchange for Common Stock,
then, as a condition to such reorganization, reclassification,
consolidation, merger, sale, disposition or other conveyance, lawful and
adequate provisions (in form determined in good faith by the Board of
Directors of the Company) shall be made whereby the Holder shall be given
the opportunity to elect to receive such cash, shares of stock or
securities or assets as may be issued or payable with respect to or in
exchange for a number of shares of Common Stock equal to the Warrant
Shares Number immediately purchasable upon the exercise of the rights
represented by this Warrant had such reorganization, reclassification,
consolidation, merger, sale, disposition or other conveyance not taken
place. In any such case, appropriate provision shall be made with respect
to the rights and interests of the Holder such that the provisions of this
Warrant (including without limitation provisions for adjustments to the
Warrant Shares Number) shall thereafter be applicable, as nearly as may
be, in relation to any cash, shares of stock or securities or assets
thereafter deliverable to the Holder pursuant to the provisions of this
Section 5. The Company shall not effect any such consolidation, merger,
sale, disposition or other conveyance unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting
from such consolidation or merger or the Person purchasing or acquiring
such assets shall assume by written instrument (in form determined in good
faith by the Board of Directors of the Company) the obligation to deliver
to the Holder such cash, shares of stock or securities or assets in
accordance with the provisions of this Section 5. If a purchase, tender
or exchange offer is made to and accepted by the holders of more than 50%
of the outstanding shares of Common Stock, the Company shall not effect
any consolidation, merger or sale of shares of Common Stock to or with the
Person having made such offer or with any Affiliate of such Person, unless
prior to the consummation of such consolidation, merger or sale, lawful
and adequate provisions (in form determined in good faith by the Board of
Directors of Company) shall be made whereby the Holder shall be given the
opportunity to elect to receive the cash, shares of stock or securities or
assets then issuable or previously issued in accordance with such offer
with respect to or in exchange for the number of shares of Common Stock
theretofore immediately purchasable upon the exercise of the rights
represented by this Warrant. Upon the Holder's receipt of cash, shares of
stock or securities or assets in accordance with the provisions of this
Section 5, the Holder shall pay to the Company the amount of the Aggregate
Purchase Price that remains unpaid as of the date of such receipt and the
parties shall have no further rights or obligations hereunder. If the
Holder does not elect to receive such cash, shares of stock or securities
or assets, the rights and obligations of the Holder and the Company under
this Warrant shall remain in full force and effect pursuant to the terms
and conditions of this Warrant.
6. Notification of Change in Warrant Shares Number. Upon any
change in the Warrant Shares Number, then, and in each such case, the
Company shall give written notice thereof to the Holder within ten (10)
days after the date of such change, which notice shall set forth the
calculation of the Warrant Shares Number before and after such change and
the facts upon which such calculations are based. If at any time after
the Effective Date:
(a) The Board of Directors (or any committee thereof)
shall authorize or approve any capital reorganization, or reclassification
of the capital stock of the Company, or a dividend on Common Stock payable
in Common Stock, or consolidation or merger of the Company with, or sale,
disposition or other conveyance of all events or substantially all of its
assets to, any Person; or
(b) There shall be any purchase, tender or exchange offer
made to the Holders of Common Stock;
then, within ten (10) days of the date of any such occurrence, the Company
shall give the Holder written notice describing in reasonable detail such
occurrence.
7. Term of Warrant. This Warrant shall remain outstanding and
exercisable until the Expiration Date. If not previously exercised, the
rights represented by this Warrant shall thereupon terminate.
8. Issue Tax. The issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder for any issuance tax in respect thereof, provided
that the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the original Holder of this
Warrant.
9. Transferability. This Warrant and any rights of the Holder
are not transferable or otherwise assignable to any third party at any
time without the written consent of the Company; provided, however, that
the Holder may transfer this Warrant (in whole and not in part) without
consent of the Company, to any affiliate of the Holder (other than an
affiliate formed for the purpose of effecting the transfer unless the
transfer is effected as part of the transfer of significant operating or
other assets to the same affiliate) or to any successor to the Holder in
connection with any business combination involving the Holder. Any
attempted prohibited transfer of all or part of this Warrant or any rights
of the Holder hereunder without such consent releases the Company from any
and all duties and obligations contained herein.
10. Registration Rights. The Holder shall have the following
registration rights:
(a) Piggyback.
(i) If at any time after the Effective Date
the Company proposes to register any shares of Common
Stock under the Act (otherwise than in connection with
the registration of securities issuable pursuant to an
employee stock option, stock purchase or similar plan
or pursuant to a merger, exchange offer or similar
transaction effected in accordance with the terms and
conditions of this Warrant), the Company shall give
the Holder notice of such proposed registration at
least thirty (30) days prior to the filing of a
registration statement. At the written request of the
Holder delivered to the Company within fifteen (15)
days after the receipt of such notice from the
Company, which request shall state the number of
Registration Shares that the Holder wishes to sell or
distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall
use its best efforts to register under the Act such
Registration Shares, and to cause such registration to
become and remain effective as provided in this
Section 10. Shareholders owning a majority of the
shares of Common Stock requested to be registered in
connection with an underwritten secondary registration
shall have the right to select the underwriters and
managers to administer any such offering.
(ii) Subject to Section 10(a)(iv), if such a
registration is an underwritten primary registration
on behalf of the Company, and the managing underwriter
thereof advises the Company in writing that in its
opinion the number of shares requested to be included
in such registration exceeds the number which can be
sold in such offering, the Company will include in
such registration: (A) first, the shares of Common
Stock the Company proposes to sell; (B) second, the
shares of Common Stock the Other Holders propose to
sell in proportion to the number of shares each such
shareholder proposes to sell; and (C) third, the
Registration Shares.
(iii) Subject to Section 10(a)(iv),
if a registration under this Section 10(a) is an
underwritten secondary registration on behalf of
certain of the Company's shareholders, and the
managing underwriter thereof advises the Company in
writing that in its opinion the number of shares of
Common Stock requested to be included in such
registration exceeds the number which can be sold in
such offering, the Company will include in such
registration: (A) first, the shares of Common Stock
the Other Holders propose to sell in proportion to the
number of shares each such shareholder proposes to
sell; and (B) second, the shares of Common Stock the
Holder proposes to sell. In the event the Company
subsequently agrees to participate in such a secondary
registration, the shares of Common Stock the Company
proposes to sell will have priority over the shares
the Holder or the other shareholders of the Company
propose to sell in such registration.
(iv) If a registration under this Section
10(a) is an underwritten primary registration on
behalf of the Company that is not the Initial Public
Offering or the first underwritten registration of
Common Stock after the Initial Public Offering, and
the managing underwriter thereof advises the Company
in writing that in its opinion the number of shares
requested to be included in such registration exceeds
the number which can be sold in such offering, the
Company will include in such registration: (A) first,
the shares of Common Stock the Company proposes to
sell; (B) second, the shares of Common Stock the Other
Holders propose to sell and the Registration Shares
the Holder proposes to sell, all in proportion to the
number of shares each such shareholder proposes to
sell; and (C) third, any other shares of Common Stock
to be sold by any other shareholder. If a
registration under this Section 10(a) is an
underwritten secondary registration on behalf of
certain of the Company's shareholders that is not the
Initial Public Offering or the first underwritten
registration of Common Stock after the Initial Public
Offering, and the managing underwriter thereof advises
the Company in writing that in its opinion the number
of shares of Common Stock requested to be included in
such registration exceeds the number which can be sold
in such offering, the Company will include in such
registration: (A) first, the shares of Common Stock
the Other Holders propose to sell and the Registration
Shares the Holder proposes to sell, all in proportion
to the number of shares each such shareholder proposes
to sell; and (B) second, any other shares of Common
Stock to be sold by any other shareholder. In the
event the Company subsequently agrees to participate
in such a secondary registration, the shares of Common
Stock the Company proposes to sell will have priority
over the shares the Holder or the other shareholders
of the Company propose to sell in such registration.
(b) Demand. After the Effective Date and after the
earlier of November 15, 2000 or the third anniversary of the Effective
Date, the Company shall, upon written demand of the Holder, cause a
"shelf" registration statement on Form S-3 to be prepared and filed with
the SEC pursuant to Rule 415 (or any similar rule that may be adopted by
the SEC) under the Securities Act covering such number of Registration
Shares held by the Holder as shall be indicated in such written demand
provided that: (1) the Company will not be required to effect more than
one such demand registration for the Holder; (2) a demand registration
will not count as such until it has become effective (a demand
registration will, however, count as such if, after the filing of a
registration statement, the failure of such registration statement to
become effective is due solely to the Holder's actions, or, if once
effective, the effectiveness of a registration statement is withdrawn
solely because of the Holder's actions) and (3) such demand registration
may not be in connection with an underwritten public offering of any
Registration Shares. Upon receipt of such written demand, the Company
shall expeditiously effect the registration of the Registration Shares as
set forth in Section 10(e) and use its best efforts to have such
registration declared effective as soon as practicable after the filing
thereof.
(c) The obligation of the Company to cause the
Registration Shares to be registered under the Securities Act is subject
to the limitation that the Company shall be entitled to postpone for a
reasonable period of time, but not more than 120 days, the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant hereto, the effectiveness of a registration statement theretofore
filed by it or sales pursuant to an effective registration statement if,
the Company, based on advice of counsel, determines, in its reasonable
judgment exercised in good faith, that such registration and/or sale (i)
would interfere with any financing, acquisition, corporate reorganization
or other material transaction involving the Company or (ii) would require
the disclosure of material information, which disclosure could materially
and adversely affect Company, and, in either case, promptly gives written
notice of such determination. If the Company shall so postpone the filing
of a registration statement, then the Holder shall have the right to
withdraw the request for registration by giving written notice to the
Company within thirty calendar days after receipt of the notice of
postponement. After the expiration of any 120-day postponement period,
the Company will allow, during the immediately succeeding 120-day period,
the filing and effectiveness of a registration statement and sales
thereunder for a demand registration under this Section 10. Upon receipt
of any notice from the Company of the happening of any event of the kind
described in the first sentence of this Section 10(c), the Holder will
forthwith discontinue the disposition of its Registration Shares pursuant
to the registration statement until further notice from the Company.
(d) Indemnity. The Company will indemnify and hold
harmless the Holder, the officers and directors of the Holder and each
underwriter of Registration Shares sold by the Holder (and any person who
controls an underwriter within the meaning of Section 15 of the Act)
against all claims, losses, damages, liabilities, actions and expenses
resulting from any untrue statement or alleged untrue statement of a
material fact contained in a prospectus or in any related registration
statement, notification or the like or from any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
the same may have been based on information furnished in writing to the
Company by the Holder or such underwriter expressly authorized for use
therein and used in accordance with such authorization. The Company
agrees to reimburse each indemnified Person for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such loss, claim, damage, liability, action or expense. The Holder, by
acceptance of the registration provisions provided herein, agrees to: (a)
furnish to the Company such information concerning the Holder and the
proposed sale or distribution of Registration Shares as shall, in the
opinion of counsel for the Company, be necessary in connection with any
such registration or qualification; and (b) indemnify and hold harmless
the Company, its officers and directors and each of its underwriters (and
any person who controls an underwriter within the meaning of Section 10 of
the Act) against all claims, losses, damages, liabilities, actions and
expenses resulting from any untrue statement or alleged untrue statement
of a material fact furnished in writing to the Company by the Holder
pursuant to this Section 10(d), expressly authorized for use in connection
with such registration or qualification and used in accordance with such
authorization and from any omission therefrom or alleged omission
therefrom of a material fact needed to be furnished or necessary to make
the information furnished not misleading.
(e) Registration Covenants of the Company. In the event
that any Registration Shares are to be registered or qualified pursuant to
this Section 10, the Company covenants and agrees that the Company will
use reasonable efforts to effect the registration and/or qualification and
cooperate in the sale of the Registration Shares to be registered and
will:
(i) furnish to the Holder copies of any
registration statement with respect to the Registration
Shares (as well as any necessary amendments or supplements
thereto) and any prospectus forming a part thereof prior to
filing with the SEC;
(ii) notify the Holder, promptly after the
Company shall receive notice thereof, of the time when said
registration statement becomes effective or when any
amendment or supplement to any prospectus forming a part of
said registration statement has been filed;
(iii) notify the Holder promptly of any
request by the SEC for the amending or supplementing of
such registration statement or prospectus or for additional
information;
(iv) advise the Holder after the Company shall
receive notice or obtain knowledge thereof of the issuance
of any order by the SEC suspending the effectiveness of any
such registration statement or amendment thereto or of the
initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal
promptly if such stop order should be issued;
(v) prepare and file with the SEC such
amendments and supplements to such registration statement
and the prospectus forming a part thereof as may be
necessary to keep such registration statement effective for
the lesser of: (i) a period of time necessary to permit
the Holder pursuant to such registration statement to
dispose of all of such Registration Shares; (ii) 90 days;
or (iii) the maximum period of time permitted by law to
keep effective a registration statement;
(vi) furnish to the Holder such number of copies
of such registration statement, each amendment and
supplement thereto, the prospectus included in such
registration statement (including each preliminary
prospectus) and such other documents as the Holder may
reasonably request in order to facilitate the disposition
of the Registration Shares;
(vii) use its best efforts to register or
qualify such Registration Shares under such securities or
blue sky laws of such jurisdictions as determined by the
underwriter after consultation with the Company and the
Holder and do any and all other acts and things which may
be necessary or advisable to enable the Holder to
consummate the disposition in such jurisdictions of the
Registration Shares;
(viii) notify the Holder at any time when a
prospectus relating thereto is required to be delivered
under the Act of the happening of any event as a result of
which such registration statement contains an untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and, at the request of
the Holder, prepare a supplement or amendment to such
registration statement so that such registration statement
will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(ix) cause all Registration Shares to be listed
on each securities exchange on which similar securities
issued by the Company are then listed;
(x) provide a transfer agent and (if required) a
registrar for all such Registration Shares not later than
the effective date of such registration statement;
(xi) enter into such customary agreements
(including an underwriting agreement in customary form) and
take all such other actions as the Holder or the
underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of the Registration
Shares;
(xii) make available for inspection by the
Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney,
accountant or other agent retained by the Holder or such
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to
supply all information reasonably requested by the Holder,
any such underwriter, attorney, accountant or agent in
connection with such registration statement;
(xiii) use its best efforts to cause the
Registration Shares covered by such registration statement
to be registered with or approved by such other
governmental agencies or authorities as may be necessary to
enable the Holder to consummate the disposition of such
Registration Shares; and
(xiv) obtain, in addition to such consents as
may be necessary, a comfort letter from the Company's
independent public accountants in customary form and
covering such matters of the type customarily covered by
comfort letters as the Holder may reasonably request.
(f) Registration Covenants of Holder. It shall be a
condition precedent to any obligation of the Company to register any
Registration Shares pursuant to this Section 10 that the Holder shall have
(i) furnished to the Company such information regarding the intended
disposition of the Registration Shares and other information concerning
the Holder as the Company shall reasonably request and as shall be
required in connection with any registration statement to be filed by the
Company; (ii) agreed to abide by such additional or customary terms
affecting any proposed offering of Common Stock as reasonably may be
requested by the managing underwriter of such offering, including a
requirement, if applicable, to withhold from the public market, for a
period of at least 270 days after any such offering, any shares of Common
Stock held by the Holder; and (iii) agreed in writing in form satisfactory
to the Company to pay all underwriting discounts and commissions
applicable to the Registration Shares.
(g) Expenses. The Company shall pay all of the expenses
in connection with any registration pursuant to this Section 10,
including, without limitation, costs of complying with federal and state
securities laws and regulations, attorneys' and accounting fees of the
Company, printing expenses and federal and state filing fees (except for
transfer taxes and underwriting commissions and discounts), but the
Company shall not be obligated to pay fees and disbursements of any
counsel for the Holder.
11. Descriptive Headings. The descriptive headings of the
several sections of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
12. Notices. Any notice or other communication pursuant to
this Warrant shall be in writing and shall be deemed sufficiently given
upon receipt, if personally delivered or telefaxed (with receipt
acknowledged), or if mailed, upon deposit with the United States Postal
Service by first class, certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
(a) If to the Company, to HK Systems, Inc., 2855 South
James Drive, New Berlin, Wisconsin 53151, Attention: Corporate Secretary,
or such other address as the Company has designated in writing to the
Holder.
(b) If to the Holder, to Western Atlas Inc., 360 North
Crescent Drive, Beverly Hills, CA 90210, Attention: General Counsel, or
such other address as the Holder has designated in writing to the Company.
13. Replacement of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant, and upon receipt of written indemnification satisfactory
to the Company and reimbursement of the Company's expenses, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor
and denomination.
14. Governing Law. This Warrant shall be construed and
interpreted in accordance with the internal laws of the State of
Wisconsin.
15. Further Assurances. The Company agrees that it will
execute and record such documents as the Holder shall request to secure
for the Holder any of the rights represented by this Warrant.
16. Amendment and Modifications. This Warrant may be amended,
modified or supplemented only by written agreement of the Company and the
Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officers under its corporate seal and this
Warrant to be dated as of the 15th day of November, 1996.
HK SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude
President
[Corporate Seal]
Attest: /s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr.
Secretary
Exhibit 5.1
F O L E Y & L A R D N E R
A T T O R N E Y S A T L A W
CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C.
SACRAMENTO WEST PALM BEACH
WRITER'S DIRECT LINE
February __, 1998
HK Systems, Inc.
2855 S. James Drive
New Berlin, Wisconsin 53151
Gentlemen:
We have acted as special counsel for HK Systems, Inc., a
Wisconsin corporation (the "Company"), with respect to the preparation of
the Company's Registration Statement on Form S-1 (the "Registration
Statement"), including the prospectus constituting a part thereof (the
"Prospectus"), to be filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the proposed sale by the Company and certain
shareholders of the Company (the "Selling Shareholders") of such number of
shares (the "Shares") of the Company's Common Stock, $.01 par value (the
"Common Stock"), having a value upon filing of the Registration Statement
of up to $115,000,000 in the manner set forth in the Registration
Statement and Prospectus.
In connection with our representation, we have examined (i) the
Registration Statement, including the Prospectus; (ii) the Company's
Amended and Restated Articles of Incorporation and the Company's By-laws,
as proposed to be amended upon the consummation of the offering and sale
of the Shares; (iii) the resolutions of the Board of Directors of the
Company relating to the offering and sale of the Shares; and (iv) such
other proceedings, documents and records we deemed necessary to enable us
to render this opinion.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Company is a corporation validly existing under the
laws of the State of Wisconsin.
2. The Shares that are to be offered and sold by the Company,
when the price thereof has been determined by action of the Company's
Board of Directors and when issued and paid for in the manner contemplated
in the Registration Statement and Prospectus, will be validly issued,
fully paid and nonassessable (except as provided in Section 180.0622(2)(b)
of the Wisconsin Business Corporation Law).
3. The Shares that are to be offered and sold by the Selling
Shareholders when issued pursuant to the Conversion (as defined in the
Registration Statement) will be, and when sold in the manner contemplated
in the Registration Statement and Prospectus will continue to be, validly
issued, fully paid and nonassessable (except as provided in
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law).
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the references to our firm therein. In
giving our consent, we do not admit that we are "experts" within the
meaning of Section 11 of the Securities Act or within the category of
persons whose consent is required by Section 7 of the Securities Act.
Very truly yours,
FOLEY & LARDNER
FIRST AMENDMENT TO
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS FIRST AMENDMENT, dated as of October 31, 1996 (the "First
Amendment"), TO THE EMPLOYMENT AND NONCOMPETITION AGREEMENT dated as of
October 28, 1993 (the "Original Agreement"), by and among HK SYSTEMS, INC.
(formerly known as HARNISCHFEGER ENGINEERS, INC.) (the "Company"), HEI
SYSTEMS, INC. ("Systems") and JOHN W. SPLUDE (the "Employee").
WHEREAS, the Company, Systems and the Employee are parties to the
Original Agreement; and
WHEREAS, the parties wish to set forth in this First Amendment
certain agreements that they have reached.
IN CONSIDERATION herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
AMENDMENTS
1.1 Amendments. The parties hereby agree that the Original
Agreement be and it hereby is amended as follows:
(a) Section 14 of the Original Agreement is deleted in its entirety
and replaced with the following new Section 14:
14. Puts of and Calls on Stock.
a. Puts.
(1) Purchase of Stock at EmploYee's Death. Upon the death
of the Employee, the Representative may require Systems
to purchase all but not less than all of the Stock
owned by the Employee at the time of the Employee's
death, and any Transferee may require Systems to
purchase all but not less than all of the Stock owned
by it at the time of the Employee's death, in
accordance with the provisions of this Section 14 of
this Agreement. This option may be exercised by notice
to Systems given within six (6) months after the date
of death of the Employee. Upon the giving of such
notice, the Person who gave such notice shall be
obligated to sell and Systems shall be obligated to
purchase the Stock at Fair Market Value per share.
Systems shall pay to such Person by cash an amount
equal to the lesser of the Purchase Price or One
Million Five Hundred Thousand Dollars ($1,500,000) of
Life Insurance Proceeds at the closing of any such
purchase. Any remaining balance shall be payable by
Systems giving such Person a promissory note payable in
equal monthly installments over the course of 36 months
at an interest rate equal to the publicly announced
prime rate of interest of M&l Marshall & Ilsley Bank,
changing on each day such prime rate changes. In the
event that more than one Person gives Systems such a
notice, the cash paid to each Person at the closing of
any such purchase shall be an amount equal to the
lesser of (i) the Purchase Price or (ii) One Million
Five Hundred Thousand Dollars ($1,500,000) of Life
Insurance Proceeds multiplied by a fraction, the
numerator of which is the number of shares of Stock
owned by such Person and the denominator of which is
the number of shares of Stock owned by all Persons who
have given notice to Systems under this Section
14(a)(1) of this Agreement.
(2) Purchase of Stock Upon Termination of Employment
Without Cause or for Disability. Upon the termination
of the employment of the Employee by the Company
without Cause or for Disability, the Employee may
require Systems to purchase all but not less than all
of the Stock owned by the Employee at the time of such
termination, and any Transferee may require Systems to
purchase all but not less than all of the Stock owned
by it at the time of such termination, in accordance
with the provisions of this Section 14 of this
Agreement. This option may be exercised by notice to
Systems given within six (6) months after the
termination. Upon the giving of such notice, Systems
shall be obligated to purchase and the Person who gave
such notice shall be obligated to sell the Stock at
Fair Market Value per share. Systems shall pay the
amount due by giving such Person a promissory note
payable in equal monthly installments over the course
of 36 months at an interest rate equal to the publicly
announced prime rate of interest of M&I Marshall &
Ilsley Bank, changing on each day such prime rate
changes.
b. Systems' Calls.
(1) Purchase of Stock Upon Employee's Death Upon
Termination Without Cause or for Disability. Upon the
Employee's death, or termination of the Employee's
employment by the Company without Cause, or for
Disability, Systems may require the Employee and any
Transferees to sell all but not less than all of the
Stock owned by the Employee and any such Transferees in
accordance with the provisions of this Section 14 of
this Agreement. Systems may exercise such option by
notice to the Employee and any such Transferees given
within six (6) months after the Employee's death or
termination. Upon the giving of such notice, Systems
shall be obligated to purchase and the Employee and any
such Transferees shall be obligated to sell the Stock
at Fair Market Value per share.
(2) Purchase of Stock Upon Employee's Resignation or
Termination with Cause. Upon Employee's resignation of
his employment with the Company for any reason,
including Good Reason, or upon termination by the
Company of the Employee's employment for Cause, Systems
may require the Employee and any Transferees to sell
all but not less than all of the Stock owned by the
Employee and any such Transferees in accordance with
the provisions of this Section 14 of this Agreement.
Systems may exercise such option by notice to the
Employee and any such Transferees given within six (6)
months after the termination or resignation. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee and any such Transferees
shall be obligated to sell the Stock at the greater of
its Book Value or the actual purchase price paid by the
Employee for such Stock.
c. Determination of Fair Market Value. In the event that a
notice which requires Systems to purchase the Stock is given
pursuant to Section 14(a)(1), Section 14(a)(2), Section
14(b)(1) or Section 14(b)(2) of this Agreement, Systems and
the Employee (or the Representative, if applicable) shall
attempt to reach agreement on the Fair Market Value. If
Systems and the Employee (or the Representative, if
applicable) cannot agree on the Fair Market Value within
sixty (60) calendar days after the date the relevant notice
was given, then Systems or the Employee (or the
Representative, if applicable) may notify the other that an
Appraiser shall be selected and the Fair Market Value shall
be determined by the Appraiser. If Systems and the Employee
(or the Representative, if applicable) agree on the Fair
Market Value, each Transferee may either (i) sell its Stock
at the Fair Market Value agreed upon by Systems and the
Employee (or the Representative, if applicable) or (ii)
within sixty (60) calendar days after the date the relevant
notice was given notify Systems that an Appraiser shall be
selected and the Fair Market Value shall be determined by the
Appraiser.
d. Closing of Sale.
(1) The Employee or the Representative, if applicable,
and/or any Transferee shall sell the relevant Stock at
a closing to be held at the principal place of business
of Systems on a date which is ninety (90) calendar days
after the date any notice exercising an option
described in this Section 14 is given; provided,
however, that a closing pursuant to a sale under
Section 14(a)(1) of this Agreement need not be held
prior to the time that all Persons who may give notice
to Systems pursuant to such subsection have given such
notice and/or have given notice to Systems that they do
not intend to exercise the option described in such
subsection. At such Closing: (A) Systems shall
deliver to the Employee (or the Representative or
Transferee, if applicable) a bank cashier's or
certified check, or Systems' promissory note (or both,
if applicable), in the full amount of the purchase
price; and (B) the Employee (or the Representative or
Transferee, if applicable) shall deliver to Systems
certificates representing the relevant Stock duly
endorsed in blank.
(2) Notwithstanding anything to the contrary in this
Section 14 of this Agreement, Systems shall not be
required to purchase Stock while, and to the extent,
such purchase would result in a violation of applicable
law or of any contract to which Systems or the Company
is a party (including, without limitation, a violation
of any covenant with may be contained in any loan
agreement in effect from time to time); provided,
however, that Systems and the Company will use
reasonable efforts to cure or avoid such violation in
order to permit such repurchase.
(b) The following new Section 1(v) is added to the Original
Agreement:
v. Transferee. "Transferee" shall mean a person to whom a
"Permitted Transfer" of Stock has been made pursuant to
the First Amended and Restated Shareholders Agreement
dated as of October 28, 1993 as amended and restated on
February 13, 1995, and amended as of the date hereof,
among the Employee, Systems and certain others.
ARTICLE II
MISCELLANEOUS
2.1 Continuance of Agreement. Except as specifically amended by
this First Amendment, the Original Agreement shall remain in full force
and effect.
2.2 Governing Law. This First Amendment shall be governed by the
internal laws of the State of Wisconsin.
2.3 Counterparts; Headings. This First Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same agreement.
The article and section headings in this First Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
IN WITNESS THEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
HK SYSTEMS, INC.
By: /s/ John C. Hines
John C. Hines, Vice President
Attest:
/s/ John C. Kuhnmuench
John C. Kuhnmuench, Secretary
HEI SYSTEMS, INC.
By: /s/ John C. Hines
John C. Hines, Vice President
Attest:
/s/ John R. Kuhnmuench
John R. Kuhnmuench, Secretary
/s/ John W. Splude (SEAL)
John W. Splude
<PAGE>
HARNISCHFEGER ENGINEERS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this 28th day of October, 1993, by and among HARNISCHFEGER ENGINEERS,
INC., HEI SYSTEMS, INC. and JOHN W. SPLUDE.
RECITALS:
WHEREAS, the Company desires to continue to employ the Employee and
to set forth the terms and conditions of the Employee's employment and the
Employee desires to continue to be employed by the Company on the terms
and conditions set forth in this Agreement; and
WHEREAS, during the course of employment, the Employee has learned
and will learn the identities of the Company's customers, their purchasing
needs and habits and the names of the personnel charged with purchasing
responsibilities and the Company's methods of doing business; and
WHEREAS, the Company's list of customers has been compiled by the
Company and the Company's methods of doing business have been developed by
the Company at considerable expense over a number of years; and
WHEREAS, but for his employment at the Company, Employee would not
be able to easily duplicate the Company's customer list or be thoroughly
familiar with its methods of doing business; and
WHEREAS, the Company's customer list and methods of doing business
are of considerable economic value to the Company; and
WHEREAS, Systems owns all of the issued and outstanding shares of
capital stock of the Company and the Employee owns certain shares of the
issued and outstanding shares of capital stock of Systems;
WHEREAS, THE EMPLOYEES HAS REVIEWED THE MATTERS RECITED IN THE SIX
PARAGRAPHS ABOVE AND CONFIRMS THAT HE AGREES WITH THOSE RECITALS.
NOW, THEREFORE
In consideration of the Recitals and of the mutual promises and
covenants set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:
1. Definitions. When used in this Agreement, the following terms
shall have the meanings specified:
a. Agreement. "Agreement" shall mean this Employment and
Noncompetition Agreement, as the same shall be amended from time
to time in accordance with the terms hereof.
b. Appraiser. "Appraiser" shall mean a Person of recognized
standing whose usual and regular business is the determination
of the fair market value of businesses which shall be: (1)
jointly selected by Systems and the Employee (or the
Representative, if applicable); or (2) if Systems and the
Employee (or the Representative, if applicable) cannot agree on
the identity of the Appraiser within ten (10) calendar days
after the giving of a notice from any Person requiring the
selection of an Appraiser under this Agreement, then the
identity of the Appraiser shall be selected by the Chief Judge
of the United States District Court for the Eastern District of
Wisconsin.
c. Average Compensation. "Average Compensation" shall mean an
amount equal to the sum of: (1) the then current base salary of
the Employee; plus (2) the aggregate amount of bonuses paid to
the Employee by the Company during the three full fiscal years
of the Company immediately prior to the date of termination
divided by three.
d. Book Value. "Book Value" shall mean an amount equal to: (1)
all consolidated assets of Systems and the Company (including
goodwill, patents, trademarks, trade names, copyrights and other
intangible assets) determined in accordance with generally
accepted accounting principles; minus (2) all consolidated
liabilities of Systems and the Company determined in accordance
with generally accepted accounting principles; minus, without
duplication (3) the amount of the liquidation value plus all
cumulative and unpaid dividends payable by Systems for all
shares of Preferred Stock of Systems issued and outstanding on
the date of such calculation; minus, without duplication (4) the
amount of the liquidation value plus all cumulative and unpaid
dividends payable by the Company for all shares of Preferred
Stock of the Company issued and outstanding on the date of
calculation.
e. Cause. The following actions on the part of the Employee shall
be considered as "Cause":
(1) Personal dishonesty, willful misconduct, breach of
fiduciary duty involving personal profit, willful
violation of any law, rule, or regulation (other than
traffic violations or similar offenses), or habitual use
of alcohol or drugs: (A) which materially impairs the
Employee's ability to carry out his duties; and (B) as to
which the Board of Directors of the Company makes a good
faith determination that such conduct has occurred and
that such conduct meets the standard set forth in Section
1(e)(1)(A) of this Agreement;
(2) Rendering any assistance to any Person in that Person's
competitive efforts with the Company;
(3) Use of the Company's proprietary information or customer
lists for the Employee's own benefit or in a way adverse
to the Company's interests; or
(4) A good faith determination by the Company, after a notice
to the Employee and an opportunity to meet with the Board
of Directors of the Company concerning such matter, that
the Employee has breached any material provision of this
Agreement.
f. Company. "Company" shall mean Harnischfeger Engineers, Inc., a
Delaware corporation.
g. Competitive Product. "Competitive Product" shall mean a product
or service, made or provided by a Competitor, which is the same
as or is directly competitive with one with respect to which the
Employee acquired confidential information relating to the
Company, or its business, products or services by reason of the
Employee's work with the Company.
h. Competitor. "Competitor" shall mean any Person engaged in, or
about to become engaged in, the production or sale, or both, of
any product or service in any part of the United States of
America which is directly competitive with one with respect to
which the Employee acquired confidential information relating to
the Company, or its business, products or services by reason of
the Employee's work with the Company.
i. Creations. "Creations", shall mean all manuscripts, programs,
writings, pictorial materials, and other creations created by
the Employee, either individually or jointly, during the
Employee's employment by the Company, and which relate to the
business of the Company.
j. Disability. "Disability" shall mean that the Employee has been
declared mentally incompetent by a Wisconsin court or shall have
been disabled for a consecutive period of 120 days so that the
Employee is unable to perform the Employee's duties as an
employee of the Company under this Agreement. Any dispute as to
the existence of a Disability or its duration shall be submitted
to a licensed physician agreed upon by the Employee and the
Company or, failing such agreement, to one appointed by the
President of the Medical Society of Wisconsin at the request of
either the Employee or the Company. The Employee shall
cooperate in such determination and the determination of such
physician shall be binding and conclusive upon the parties.
k. Employee. "Employee" shall mean John W. Splude.
l. Fair Market Value. "Fair Market Value" shall mean the aggregate
fair market value of the Stock at the date of appraisal
calculated: (1) without any discount of any kind, whether for
lack of marketability, minority holdings, the size of Systems or
any other factor; and (2) as if such value were calculated for
sale of Systems as a whole to a Person who is not an affiliate
of Systems or the Company.
m. Good Reason. "Good Reason" shall mean that the Company has
breached any provision of this Agreement.
n. Inventions. "Inventions" shall mean all inventions,
discoveries, developments, improvements, works, ideas, and other
contributions, whether or not patented or patentable or
otherwise protectable in law, which are conceived, made,
developed or acquired by the Employee, either individually or
jointly, during the employment of the Employee by the Company
and which relate in any manner to the Employee's work, the
research or business of the Company, or fields to which the
business of the Company may reasonably extend.
o. Investors. "Investors" shall mean the owners of shares of the
Class B Cumulative Preferred Stock of Systems.
p. Life Insurance Proceeds. "Life Insurance Proceeds" shall mean
the net amount of cash proceeds actually received by Systems or
the Company as a result of the Employee's death, which are: (1)
not pledged by Systems or the Company to secure any indebtedness
of Systems or the Company; and (2) not required to be paid by
Systems or the Company to other Persons by any contract entered
into by Systems or the Company prior to the Employee's death.
q. Person. "Person" shall mean and include an individual,
partnership, corporation, trust, incorporated organization and a
government or any department or agency thereof.
r. Representative. "Representative" shall mean, after the
Employee's death, the duly appointed and qualified executor or
personal representative of the estate of the Employee.
s. Restricted Area. "Restricted Area" shall mean anywhere within a
twenty-five (25) mile radius of any location in any U.S. city in
which the Company had, at any time while the Employee was
employed by the Company, a place of business or customers.
t. Stock. "Stock" shall mean all shares of Common Stock of Systems
owned by the Employee at the execution of this Agreement or
acquired hereafter.
u. Systems. "Systems" shall mean HEI Systems, Inc., a Wisconsin
corporation and owner of all of the outstanding shares of Common
Stock of the Company.
2. Employment. The Company hereby agrees to continue the
employment of the Employee and the Employee hereby accepts continued
employment with the Company in accordance with the terms and conditions
set forth in this Agreement. Except for illness, vacation periods and
reasonable leaves of absence approved by the Board of Directors of the
Company, the Employee agrees to devote the Employee's full time, skill,
knowledge, and attention to the business of the Company and the
performance of the Employee duties under this Agreement. During the term
of employment, it shall not be a violation of this Agreement for the
Employee to do one or more of the following, so long as such activities do
not interfere with the performance of the Employee's responsibilities as
an employee of the Company in accordance with this Agreement: (a) serve
on corporate, civic, trade or charitable boards or committees; (b) deliver
lectures or fulfill speaking engagements; and (c) manage personal
investments.
3. Term. This Agreement shall commence on the date first above
written and continue indefinitely until effective notice of termination is
given by the Employee or the Company to the other. THE EMPLOYEE'S
EMPLOYMENT WITH THE COMPANY IS ON AN AT-WILL BASIS. Either the Employee
or the Company may terminate the Employee's employment with the Company at
any time and for any reason or no reason at all, subject only to the
parties' obligations as described in Section 8 of this Agreement.
4. Duties. The Employee shall be employed as President and Chief
Executive Officer of the Company or in such other executive position with
the Company as may be mutually agreed to between the Company and the
Employee. The Employee shall perform such services and duties as are
usually and customarily required of a Person holding such position with a
business corporation. The services to be performed by the Employee shall
be principally rendered in or about Milwaukee, Wisconsin or such other
place at which the Company makes its corporate headquarters, together with
such business travel as may be necessary for the Employee to
satisfactorily perform the duties required under this Agreement.
5. Compensation. The Company shall pay to the Employee a base
annual salary of $225,000, which salary shall be reviewed annually by the
Board of Directors of the Company for possible adjustment and shall be
paid in approximately equal installments at the usual and customary times
established by the Company. The annual base salary may not be reduced
unless the reduction is: (a) part of a general reduction for all
employees of the Company who own Stock of Systems or the Company or have
been granted options to purchase Stock of Systems or the Company; and (b)
proportionately consistent with such other reductions. The Company shall
deduct from all payments made to the Employee under any federal, state or
local withholding or other taxes or charges which the Company is required
to deduct under applicable law. The Company shall have the right to rely
upon a written opinion of counsel if any questions arise as to any
deductions.
6. Additional Benefits. The Employee shall be entitled to the
following additional benefits:
a. Vacation/Holidays. The Employee shall be entitled to paid
vacations and holidays as provided to other senior executive
employees of the Company.
b. Expense Reimbursement. The Company shall pay, upon submission
of appropriate vouchers and supporting documentation, all
expenses of the Employee incurred in connection with the
rendering of services to the Company as an employee pursuant to
this Agreement in accordance with the Company's usual and
ordinary practices, provided that such expenses are reasonable
and necessary business expenses of the Company.
c. Automobile. The Company shall provide the Employee with the use
of a Company-provided vehicle in accordance with Company policy.
d. Bonus Program. The Employee will be eligible to participate in
an executive bonus program to be established by the Board of
Directors of the Company, with the input of the Employee,
pursuant to which the Employee may earn up to 50% of the
Employee's base salary in any year. The bonus program will
include a combination of annual performance benchmarks and long-
term benchmarks for both the Employee and the Company.
e. Country Club Membership. The Company will provide the Employee
with one membership in a country club at the Company's expense.
f. Miscellaneous. The Employee shall be entitled to other fringe
benefits generally provided to senior management of the Company,
including health insurance, disability insurance, term life
insurance, pension and profit sharing and other programs
established by the Board of Directors of the Company.
7. Life Insurance. The Company will purchase life insurance on the
Employee's life, payable to the Company or Systems in an amount equal to
at least Three Million Dollars ($3,000,000) in excess of the amount
required by the Company's or Systems' lenders.
8. Termination.
a. Termination Without Cause or for Good Reason. As stated in
Section 3 of this Agreement, the Employee's employment may be
terminated by the Company or by the Employee at any time and for
any reason or for no reason at all. However, if the Employee's
employment with the Company is terminated by the Company without
Cause, or by the Employee for Good Reason, or as the result of
the Employee's Disability, the Employee shall receive the
Average Compensation for the two year period after such
termination, plus continuation in the health, disability and
term life insurance programs of the Company during such two year
period at the Company's expense. The severance pay shall be
paid to the Employee at the same times as the Company generally
pays management employees. If the Employee's employment is
terminated as the result of Disability, any severance payments
shall be reduced by any gross insurance proceeds actually
received by the Employee from the Company sponsored disability
insurance. The severance payments shall not be reduced by any
other compensation received by the Employee during the severance
period unless such compensation is received from Competitors.
The Employee shall have no obligation to seek other employment
or otherwise mitigate damages hereunder.
b. Termination for Cause or Without Good Reason. In the event that
the Employee's employment with the Company is terminated by the
Company for Cause or by the Employee without Good Reason, the
Employee shall be paid compensation only through the date of
such termination and all other financial obligations of the
Company to the Employee under this Agreement and all benefits
under this Agreement shall cease as of the date of such
termination.
c. Return of the Company's Materials. Upon termination for any
reason, the Employee shall immediately return to the Company all
files, credit cards, keys, computers, instruments, equipment,
vehicles, and other materials owned or provided by the Company.
9. Confidential Information. The Employee acknowledges that
through the services to be performed for the Company, the Employee will
obtain confidential information regarding the Company's business affairs,
including such matters as computer programs, research, customer lists,
customer development, planning, purchasing, finance, marketing, customer
relations, and other information of a similar nature not available to the
public. This information may be oral or written and may be that which the
Employee originates as well as that which otherwise comes into the
possession or knowledge of the Employee. The Employee agrees to treat all
matters relating to the business activities of the Company as confidential
and not to divulge or disclose any information gained in connection with
the employment of the Employee by the Company to any other Person except
upon the written request or instruction of the Company or in the normal
course of the duties as an employee of the Company. The Employee agrees
not to use or disclose, for purposes of marketing or otherwise, any of the
customer information the Employee receives while working at the Company
(including, but not limited to, customers' identity, financial status and
holdings), either on behalf of the Employee or as a representative, agent,
employee, officer, director, trustee, stockholder, or creditor of, or
partner, joint venturer, or investor with or in any Competitor, except for
any information which is or becomes generally available to the public, or
otherwise comes into possession of the Competitor, other than as a result
of disclosure by the Employee. This Section 9 is intended to protect
confidential information and customer relationships, both during and after
the period of the Employee's employment with the Company, and not to limit
the Employee's right to seek and obtain employment in competition with the
Company after termination of the Employee's employment with the Company,
which is covered by Section 13 of this Agreement.
10. Relationship with Others. The parties agree that the
profitability and goodwill of the Company depend on continued amicable
relations with its suppliers and customers, and the Employee: (a) except
on behalf of the Company, will not approach for any reason, nor solicit
any business of any kind from, any former, present or future customer of
the Company; or (b) cause, request or advise any suppliers or customers of
the Company to curtail or cancel their business with the Company. Nothing
in Section 10(a) shall, after termination of the Employee's employment
with the Company for any reason, prevent the employment of the Employee by
a customer or supplier of the Company unless such employment violates
Section 13(a) of this Agreement. This provision shall apply to any
customers or suppliers of the Company during the three (3) year period
prior to the termination of the Employee's employment or to Persons with
an active proposal from the Company on the date of the termination of the
Employee's employment. This provision shall apply for five (5) years
after termination of the Employee's employment with the Company if the
termination is for Cause and for one (1) year if the termination is for
any other reason.
11. Inventions and Creations.
a. Inventions. The Employee agrees that all Inventions shall
belong to the Company. The Employee agrees to and does hereby
assign and transfer to the Company the entire right, title, and
interest of the Employee in and to all Inventions. The Employee
further agrees to promptly and fully disclose all Inventions to
the Company, in writing if requested by the Company, and to
execute and deliver any and all lawful applications,
assignments, and other documents which the Company requests for
protecting the Inventions in the United States or in any other
country. The Company shall have the full and sole power to
prosecute such applications and to take all other actions
concerning the Inventions, and the Employee agrees to cooperate
fully, at the expense of the Company, in the preparation and
prosecution of all such applications and in any legal actions
and proceedings concerning the Inventions.
b. Creations. The Employee agrees to and does hereby assign,
convey, and transfer to the Company all Creations. The Company
shall have the full right to seek and procure copyrights on the
Creations, and the Employee shall cooperate fully, at the
expense of the Company, in securing copyrights and in any legal
actions and proceedings concerning the Creations.
c. Presumption of Company Ownership. Without diminishing any
rights granted to the Company in Sections 11(a) and 11(b), if an
Invention is described in a patent application or is disclosed
to third parties by the Employee within two (2) years after
leaving the employ of the Company, or if a Creation is published
or is disclosed to third parties by the Employee within two (2)
years after leaving the employ of the Company, the Employee
agrees that it is to be rebuttably presumed that the Invention
or the Creation was conceived, made, developed, acquired, or
created by the Employee during the period of employment of the
Employee by the Company, and the Invention or Creation will
belong the Company.
12. Noncompetition While Employed By The Company. The Employee
agrees not to compete with the Company in any territory in which the
Company sells its products or provides its services, either on behalf of
the Employee, or as a representative, agent, employee, officer, director,
trustee, stockholder, or creditor of, or partner, joint venturer, or
investor with or in, any other Person, during his employment with the
Company.
13. Noncompetition After Termination of Employment.
a. Scope of Noncompetition. The Employee agrees that for two (2)
years after the termination of the Employee's employment with
the Company, regardless of the reason for such termination, the
Employee will not:
(1) Render services, either directly or indirectly, to any
Competitor in connection with the development,
manufacture, sale, merchandising or promotion of any
Competitive Product; or
(2) Engage, either directly or indirectly, within the
Restricted Area, for the Employee or as an investor, in
the development, manufacture, purchase or sale of any
Competitive Product.
b. Exceptions to Scope of Noncompetition.
(1) Nothing in Section 13(a) of this Agreement shall prohibit
the Employee from owning or acquiring securities of
Systems, the Company or of any corporation or other
business enterprise that may be engaged in activities
described in Section 13(a), provided that: (A) the
Employee is not an officer, director or employee of, or
consultant to, such corporation or business enterprise;
(B) such securities are held by the Employee for
investment purposes and represent less than five percent
(5%) of the total equity interests of such corporation or
business enterprise; and (C) such securities are listed on
a national securities exchange or are regularly quoted in
the over the counter market by one or more members of the
National Association of Securities Dealers.
(2) It shall not be deemed a violation of Section 13(a) if the
Employee accepts employment with a business entity which
is diversified and made up of separate divisions and
which, as to parts of its business, is not a Competitor,
provided the Company shall be furnished prior to such
employment definite written assurances satisfactory to it,
separately from the Employee and such business entity,
that the Employee will not be expected, required or
permitted to and in fact does not render services directly
or indirectly to a division or a part of such business
entity which division or part is a Competitor.
c. Notification to the Company. During the period of time that the
Employee is subject to the provisions of Section 13(a) of this
Agreement, the Employee shall notify the Board of Directors of
the Company of any occupation or employment which the Employee
proposes to take up after termination of employment with the
Company and shall furnish to the Company such written or oral
information as it may reasonably request concerning such
proposed occupation or employment. Upon request of the
Employee, the Company agrees to notify the Employee promptly,
and in any event within thirty (30) days after receipt of the
requested information, whether or not the Company considers such
occupation, based on the information so furnished or derived
from its independent investigation, to come within the
provisions of Section 13(a) and, if the Company considers such
occupation to come within the provisions of Section 13(a),
whether the Company will waive any of the provisions thereof.
14. Puts of and Calls on Employee's Stock.
a. Employee's Puts.
(1) Purchase of Employee's Stock at Death. Upon the death of
the Employee, the Representative may require Systems to
purchase the Stock owned by the Employee at the time of
death in accordance with the provisions of this Section 14
of this Agreement. The Representative may exercise such
option by notice to Systems given within six (6) months
after the date of death of the Employee. Upon the giving
of such notice, the Representative shall be obligated to
sell and Systems shall be obligated to purchase the Stock
at Fair Market Value per share. Systems shall pay to the
Representative by cash an amount equal to the lesser of
the Purchase Price or One Million Five Hundred Thousand
Dollars ($1,500,000) of Life Insurance Proceeds at the
closing of any such purchase. Any remaining balance shall
be payable by Systems giving the Representative a
promissory note payable in equal monthly installments over
the course of 36 months at an interest rate equal to the
publicly announced prime rate of interest of M&I Marshall
& Ilsley Bank, changing on each day such prime rate
changes.
(2) Purchase of Employee's Stock Upon Termination Without
Cause or for Disability. Upon the termination of the
employment of the Employee by the Company without Cause or
for Disability, the Employee may require Systems to
purchase all but not less than all of the Stock owned by
the Employee in accordance with the provisions of this
Section 14 of this Agreement. The Employee may exercise
such option by notice to Systems given within six (6)
months after the termination. Upon the giving of such
notice, Systems shall be obligated to purchase and the
Employee shall be obligated to sell the Stock at Fair
Market Value per share. Systems shall pay the amount due
by giving the Employee a promissory note payable in equal
monthly installments over the course of 36 months at an
interest rate equal to the publicly announced prime rate
of interest of M&I Marshall & Ilsley Bank, changing on
each day such prime rate changes.
b. Systems' Calls.
(1) Purchase of Employee's Stock Upon Death. Upon Termination
Without Cause or for Disability. Upon the Employee's
death, or termination of the Employee's employment by the
Company without Cause, or for Disability, Systems may
require the Employee to sell all but not less than all of
the Stock owned by the Employee in accordance with the
provisions of this Section 14 of this Agreement. Systems
may exercise such option by notice to the Employee given
within six (6) months after the termination. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee shall be obligated to sell the
Stock at Fair Market Value per share.
(2) Purchase of Employee's Stock Upon Resignation or
Termination with Cause. Upon Employee's resignation of
his employment with the Company for any reason, including
Good Reason, or upon termination by the Company of the
Employee's employment for Cause, Systems may require the
Employee to sell all but not less than all of the Stock
owned by the Employee in accordance with the provisions of
this Section 14 of this Agreement. Systems may exercise
such option by notice to the Employee given within six (6)
months after the termination or resignation. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee shall be obligated to sell the
Stock at the greater of its Book Value or the actual
purchase price paid by the Employee for such Stock.
c. Determination of Fair Market Value. In the event that a notice
which requires Systems to purchase the Stock is given pursuant
to Section 14(a)(1), Section 14(a)(2), Section 14(b)(1) or
Section 14(b)(2) of this Agreement, Systems and the Employee (or
the Representative, if applicable) shall attempt to reach
agreement on the Fair Market Value. If Systems and the Employee
(or the Representative, if applicable) cannot agree on the Fair
Market Value within sixty (60) calendar days after the date the
relevant notice was given, then Systems or the Employee (or the
Representative, if applicable) may notify the other that an
Appraiser shall be selected and the Fair Market Value shall be
determined by the Appraiser.
d. Closing of Sale.
(1) The Employee or the Representative, if applicable, shall
sell the relevant Stock at a closing to be held at the
principal place of business of Systems on a date which is
ninety (90) calendar days after the date any notice
exercising an option described in this Section 14 is
given. At such Closing: (A) Systems shall deliver to the
Employee (or the Representative, if applicable) a bank
cashier's or certified check, or Systems' promissory note
(or both, if applicable) in the full amount of the
purchase price; and (B) the Employee or the
Representative, if applicable, shall deliver to Systems
certificates representing the relevant Stock duly endorsed
in blank.
(2) Notwithstanding anything to the contrary in this Section
14 of this Agreement, Systems shall not be required to
purchase Stock while, and to the extent, such purchase
would result in a violation of applicable law or of any
contract to which Systems or the Company is a party
(including, without limitation, a violation of any
covenant which may be contained in any loan agreement in
effect from time to time); provided, however, that Systems
and the Company will use reasonable efforts to cure or
avoid such violation in order to permit such repurchase.
15. Remedies. In addition to other remedies provided by law or
equity, upon a breach by the Employee of any of the covenants contained
herein, Systems and the Company shall be entitled to have a court of
competent jurisdiction enter an injunction against the Employee
prohibiting any further breach of the covenants contained herein. The
parties further agree that the services to be performed by the Employee
hereunder are of a unique, special, and extraordinary character.
Therefore, in the event of any controversy concerning rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a
decree of specific performance or, if Systems or the Company elects, by
obtaining damages or such other relief as Systems or the Company may elect
to pursue. Such remedies, however, shall be cumulative and nonexclusive
and shall be in addition to any other remedies which Systems or the
Company may have.
16. Assignment. This Agreement and the respective rights, duties,
and obligations of the Employee hereunder may not be assigned or delegated
by the Employee.
17. Notice. Any notice (including notice of change of address)
permitted or required to be given pursuant to the provisions of this
Agreement shall be in writing and sent by registered or certified mail,
return receipt requested, or by hand delivery to the parties at the
following addresses:
If to Systems or Harnischfeger Engineers, Inc.
the Company: Attention: President
13400 Bishops Lane
Brookfield, WI 53005
with a copy to: Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, WI 53202
If to the Employee: John W. Splude
Personal & Confidential
c/o Harnischfeger Engineers, Inc.
13400 Bishops Lane
Brookfield, WI 53005
Notice properly given by mail shall be deemed effective one (1)business
day after mailing.
18. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between Systems, the Company and the Employee
concerning the Employee's employment by the Company, and supersedes the
letter agreement dated August 31, 1993 between Systems and the Employee
and any and all other previous agreements or understandings, whether
written or oral, among Systems, the Employee and the Company concerning
such employment. This Agreement may not be modified orally.
19. Waiver. The waiver by any party of the breach of any covenant
or provision in this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
20. Invalidity of any Provision. The provisions of this Agreement
are severable, it being the intention of the parties that should any
provision hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
provisions hereof, but the same shall remain in full force and effect as
if such invalid or unenforceable provision were omitted.
21. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Wisconsin.
22. Headings. Headings in this Agreement are for informational
purposes only and shall not be used to construe the intent of this
Agreement.
23. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same agreement.
24. Expenses. If any legal proceeding is necessary by the Employee,
Systems or the Company to enforce or interpret the terms of this Agreement
or to recover damages for the breach of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys fees and necessary
costs and expenses incurred in such litigation from the losing party in
addition to any other relief to which the prevailing party may otherwise
be entitled.
25. Reasonableness of Restrictions. THE EMPLOYEE HAS READ THIS
AGREEMENT AND AGREES THAT THE CONSIDERATION PROVIDED BY THE COMPANY IS
FAIR AND REASONABLE AND FURTHER AGREES THAT GIVEN THE IMPORTANCE TO THE
COMPANY OF THE CUSTOMER LIST AND THE COMPANY'S PARTICULAR METHODS OF DOING
BUSINESS, THE POST-EMPLOYMENT RESTRICTIONS ON THE EMPLOYEE'S ACTIVITIES
ARE LIKEWISE FAIR AND REASONABLE.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
and Noncompetition Agreement as of the date first above written.
HARNISCHFEGER ENGINEERS, INC.
By: /s/ Gordon W. Jones
Gordon W. Jones, Vice President
HEI SYSTEMS, INC.
By: /s/ John T. Byrnes
John T. Byrnes, Vice President
(SEAL)
FIRST AMENDMENT TO
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS FIRST AMENDMENT, dated as of October 31, 1996 (the "First
Amendment"), TO THE EMPLOYMENT AND NONCOMPETITION AGREEMENT dated as of
October 28, 1993 (the "Original Agreement"), by and among HK SYSTEMS, INC.
(formerly known as HARNISCHFEGER ENGINEERS, INC.) (the "Company"), HEI
SYSTEMS, INC. ("Systems") and ______________ (the "Employee").
WHEREAS, the Company, Systems and the Employee are parties to the
Original Agreement; and
WHEREAS, the parties wish to set forth in this First Amendment
certain agreements that they have reached.
IN CONSIDERATION herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
AMENDMENTS
1.1 Amendments. The parties hereby agree that the Original
Agreement be and it hereby is amended as follows:
(a) Section 14 of the Original Agreement is deleted in its entirety
and replaced with the following new Section 14:
14. Puts of and Calls on Stock.
a. Puts.
(1) Purchase of Stock at EmploYee's Death. Upon the death
of the Employee, the Representative may require Systems
to purchase all but not less than all of the Stock
owned by the Employee at the time of the Employee's
death, and any Transferee may require Systems to
purchase all but not less than all of the Stock owned
by it at the time of the Employee's death, in
accordance with the provisions of this Section 14 of
this Agreement. This option may be exercised by notice
to Systems given within six (6) months after the date
of death of the Employee. Upon the giving of such
notice, the Person who gave such notice shall be
obligated to sell and Systems shall be obligated to
purchase the Stock at Fair Market Value per share.
Systems shall pay to such Person by cash an amount
equal to the lesser of the Purchase Price or the Life
Insurance Proceeds at the closing of any such purchase.
Any remaining balance shall be payable by Systems
giving such Person a promissory note payable in equal
monthly installments over the course of 36 months at an
interest rate equal to the publicly announced prime
rate of interest of M&l Marshall & Ilsley Bank,
changing on each day such prime rate changes. In the
event that more than one Person gives Systems such a
notice, the cash paid to each Person at the closing of
any such purchase shall be an amount equal to the
lesser of (i) the Purchase Price or (ii) the Life
Insurance Proceeds multiplied by a fraction, the
numerator of which is the number of shares of Stock
owned by such Person and the denominator of which is
the number of shares of Stock owned by all Persons who
have given notice to Systems under this Section
14(a)(1) of this Agreement.
(2) Purchase of Stock Upon Termination of Employment
Without Cause or for Disability. Upon the termination
of the employment of the Employee by the Company
without Cause or for Disability, the Employee may
require Systems to purchase all but not less than all
of the Stock owned by the Employee at the time of such
termination, and any Transferee may require Systems to
purchase all but not less than all of the Stock owned
by it at the time of such termination, in accordance
with the provisions of this Section 14 of this
Agreement. This option may be exercised by notice to
Systems given within six (6) months after the
termination. Upon the giving of such notice, Systems
shall be obligated to purchase and the Person who gave
such notice shall be obligated to sell the Stock at
Fair Market Value per share. Systems shall pay the
amount due by giving such Person a promissory note
payable in equal monthly installments over the course
of 36 months at an interest rate equal to the publicly
announced prime rate of interest of M&I Marshall &
Ilsley Bank, changing on each day such prime rate
changes.
b. Systems' Calls.
(1) Purchase of Stock Upon Employee's Death Upon
Termination Without Cause or for Disability. Upon the
Employee's death, or termination of the Employee's
employment by the Company without Cause, or for
Disability, Systems may require the Employee and any
Transferees to sell all but not less than all of the
Stock owned by the Employee and any such Transferees in
accordance with the provisions of this Section 14 of
this Agreement. Systems may exercise such option by
notice to the Employee and any such Transferees given
within six (6) months after the Employee's death or
termination. Upon the giving of such notice, Systems
shall be obligated to purchase and the Employee and any
such Transferees shall be obligated to sell the Stock
at Fair Market Value per share.
(2) Purchase of Stock Upon Employee's Resignation or
Termination with Cause. Upon Employee's resignation of
his employment with the Company for any reason,
including Good Reason, or upon termination by the
Company of the Employee's employment for Cause, Systems
may require the Employee and any Transferees to sell
all but not less than all of the Stock owned by the
Employee and any such Transferees in accordance with
the provisions of this Section 14 of this Agreement.
Systems may exercise such option by notice to the
Employee and any such Transferees given within six (6)
months after the termination or resignation. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee and any such Transferees
shall be obligated to sell the Stock at the greater of
its Book Value or the actual purchase price paid by the
Employee for such Stock.
c. Purchase of Employee's and Transferee's Stock. The Employee
or any Transferee may, if the Employee terminates his
employment with the Company for reason on or after November
1, 1998, request the Board of Directors of Systems to
consider a purchase of the Stock owned by the Employee or
such Transferee at Fair Market Value per share. The Board of
Directors of Systems shall reasonably consider such request
taking into account the reasons for the request, the personal
health and financial situation of the Employee at that time
and the financial condition of Systems at that time. If the
Board of Directors of Systems agrees to such request by the
Employee or any Transferee, the noncompetition provisions
contained in Section 13(a) of this Agreement shall be
extended to five (5) years from and after the date of
termination of employment. The Board of Directors of Systems
can only grant such request upon an 80% vote of the entire
Board of Directors of Systems.
d. Determination of Fair Market Value. In the event that a
notice which requires Systems to purchase the Stock is given
pursuant to Section 14(a)(1), Section 14(a)(2), Section
14(b)(1) or Section 14(b)(2) of this Agreement, Systems and
the Employee (or the Representative, if applicable) shall
attempt to reach agreement on the Fair Market Value. If
Systems and the Employee (or the Representative, if
applicable) cannot agree on the Fair Market Value within
sixty (60) calendar days after the date the relevant notice
was given, then Systems or the Employee (or the
Representative, if applicable) may notify the other that an
Appraiser shall be selected and the Fair Market Value shall
be determined by the Appraiser. If Systems and the Employee
(or the Representative, if applicable) agree on the Fair
Market Value, each Transferee may either (i) sell its Stock
at the Fair Market Value agreed upon by Systems and the
Employee (or the Representative, if applicable) or (ii)
within sixty (60) calendar days after the date the relevant
notice was given notify Systems that an Appraiser shall be
selected and the Fair Market Value shall be determined by the
Appraiser.
e. Closing of Sale.
(1) The Employee or the Representative, if applicable,
and/or any Transferee shall sell the relevant Stock at
a closing to be held at the principal place of business
of Systems on a date which is ninety (90) calendar days
after the date any notice exercising an option
described in this Section 14 is given; provided,
however, that a closing pursuant to a sale under
Section 14(a)(1) of this Agreement need not be held
prior to the time that all Persons who may give notice
to Systems pursuant to such subsection have given such
notice and/or have given notice to Systems that they do
not intend to exercise the option described in such
subsection. At such Closing: (A) Systems shall
deliver to the Employee (or the Representative or
Transferee, if applicable) a bank cashier's or
certified check, or Systems' promissory note (or both,
if applicable), in the full amount of the purchase
price; and (B) the Employee (or the Representative or
Transferee, if applicable) shall deliver to Systems
certificates representing the relevant Stock duly
endorsed in blank.
(2) Notwithstanding anything to the contrary in this
Section 14 of this Agreement, Systems shall not be
required to purchase Stock while, and to the extent,
such purchase would result in a violation of applicable
law or of any contract to which Systems or the Company
is a party (including, without limitation, a violation
of any covenant with may be contained in any loan
agreement in effect from time to time); provided,
however, that Systems and the Company will use
reasonable efforts to cure or avoid such violation in
order to permit such repurchase.
(b) The following new Section 1(u) is added to the Original
Agreement:
u. Transferee. "Transferee" shall mean a person to whom a
"Permitted Transfer" of Stock has been made pursuant to
the First Amended and Restated Shareholders Agreement
dated as of October 28, 1993 as amended and restated on
February 13, 1995, and amended as of the date hereof,
among the Employee, Systems and certain others.
ARTICLE II
MISCELLANEOUS
2.1 Continuance of Agreement. Except as specifically amended by
this First Amendment, the Original Agreement shall remain in full force
and effect.
2.2 Governing Law. This First Amendment shall be governed by the
internal laws of the State of Wisconsin.
2.3 Counterparts; Headings. This First Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same agreement.
The article and section headings in this First Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
IN WITNESS THEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
HK SYSTEMS, INC.
By:
John C. Hines, Vice President
Attest:
John C. Kuhnmuench, Secretary
HEI SYSTEMS, INC.
By:
John C. Hines, Vice President
Attest:
John R. Kuhnmuench, Secretary
_________________________(SEAL)
<PAGE>
HARNISCHFEGER ENGINEERS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this 28th day of October, 1993, by and among HARNISCHFEGER ENGINEERS,
INC., HEI SYSTEMS, INC. and _______________.
RECITALS:
WHEREAS, the Company desires to continue to employ the Employee and
to set forth the terms and conditions of the Employee's employment and the
Employee desires to continue to be employed by the Company on the terms
and conditions set forth in this Agreement; and
WHEREAS, during the course of employment, the Employee has learned
and will learn the identities of the Company's customers, their purchasing
needs and habits and the names of the personnel charged with purchasing
responsibilities and the Company's methods of doing business; and
WHEREAS, the Company's list of customers has been compiled by the
Company and the Company's methods of doing business have been developed by
the Company at considerable expense over a number of years; and
WHEREAS, but for his employment at the Company, Employee would not be
able to easily duplicate the Company's customer list or be thoroughly
familiar with its methods of doing business; and
WHEREAS, the Company's customer list and methods of doing business
are of considerable economic value to the Company; and
WHEREAS, Systems owns all of the issued and outstanding shares of
capital stock of the Company and the Employee owns certain shares of the
issued and outstanding shares of capital stock of Systems;
WHEREAS, THE EMPLOYEE HAS REVIEWED THE MATTERS RECITED IN THE SIX
PARAGRAPHS ABOVE AND CONFIRMS THAT HE AGREES WITH THOSE RECITALS.
NOW, THEREFORE
In consideration of the Recitals and of the mutual promises and
covenants set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the meanings specified:
a. Agreement. "Agreement" shall mean this Employment and
Noncompetition Agreement, as the same shall be amended from time
to time in accordance with the terms hereof.
b. Appraiser. "Appraiser" shall mean a Person of recognized
standing whose usual and regular business is the determination
of the fair market value of businesses which shall be: (1)
jointly selected by Systems and the Employee (or the
Representative, if applicable); or (2) if Systems and the
Employee (or the Representative, if applicable) cannot agree on
the identity of the Appraiser within ten (10) calendar days
after the giving of a notice from any Person requiring the
selection of an Appraiser under this Agreement, then the
identity of the Appraiser shall be selected by the Chief Judge
of the United States District Court for the Eastern District of
Wisconsin.
c. Book Value. "Book Value" shall mean an amount equal to: (1)
all consolidated assets of Systems and the Company (including
goodwill, patents, trademarks, trade names, copyrights and other
intangible assets) determined in accordance with generally
accepted accounting principles; minus (2) all consolidated
liabilities of Systems and the Company determined in accordance
with generally accepted accounting principles; minus, without
duplication (3) the amount of the liquidation value plus all
cumulative and unpaid dividends payable by Systems for all
shares of Preferred Stock of Systems issued and outstanding on
the date of such calculation; minus, without duplication (4) the
amount of the liquidation value plus all cumulative and unpaid
dividends payable by the Company for all shares of Preferred
Stock of the Company issued and outstanding on the date of
calculation.
d. Cause. The following actions on the part of the Employee shall
be considered as "Cause":
(1) Personal dishonesty, willful misconduct, breach of
fiduciary duty involving personal profit, willful violation
of any law, rule, or regulation (other than traffic
violations or similar offenses), or habitual use of alcohol
or drugs: (A) which materially impairs the Employee's
ability to carry out his duties; and (B) as to which the
Board of Directors of the Company makes a good faith
determination that such conduct has occurred and that such
conduct meets the standard set forth in Section 1(d)(1)(A)
of this Agreement;
(2) Rendering any assistance to any Person in that Person's
competitive efforts with the Company;
(3) Use of the Company's proprietary information or customer
lists for the Employee's own benefit or in a way adverse to
the Company's interests; or
(4) A good faith determination by the Company, after a notice
to the Employee and an opportunity to meet with the Board
of Directors of the Company concerning such matter, that
the Employee has breached any material provision of this
Agreement.
e. Company. "Company" shall mean Harnischfeger Engineers, Inc., a
Delaware corporation.
f. Competitive Product. "Competitive Product" shall mean a product
or service, made or provided by a Competitor, which is the same
as or is directly competitive with one with respect to which the
Employee acquired confidential information relating to the
Company, or its business, products or services by reason of the
Employee's work with the Company.
g. Competitor. "Competitor" shall mean any Person engaged in, or
about to become engaged in, the production or sale, or both, of
any product or service in any part of the United States of
America which is directly competitive with one with respect to
which the Employee acquired confidential information relating to
the Company, or its business, products or services by reason of
the Employee's work with the Company.
h. Creations. "Creations" shall mean all manuscripts, programs,
writings, pictorial materials, and other creations created by
the Employee, either individually or jointly, during the
Employee's employment by the Company, and which relate to the
business of the Company.
i. Disability. "Disability" shall mean that the Employee has been
declared mentally incompetent by a Wisconsin court or shall have
been disabled for a consecutive period of 120 days so that the
Employee is unable to perform the Employee's duties as an
employee of the Company under this Agreement. Any dispute as to
the existence of a Disability or its duration shall be submitted
to a licensed physician agreed upon by the Employee and the
Company or, failing such agreement, to one appointed by the
President of the Medical Society of Wisconsin at the request of
either the Employee or the Company. The Employee shall
cooperate in such determination and the determination of such
physician shall be binding and conclusive upon the parties.
j. Employee. "Employee" shall mean ______________.
k. Fair Market Value. "Fair Market Value" shall mean the aggregate
fair market value of the Stock at the date of appraisal
calculated: (1) without any discount of any kind, whether for
lack of marketability, minority holdings, the size of Systems or
any other factor; and (2) as if such value were calculated for
sale of Systems as a whole to a Person who is not an affiliate
of Systems or the Company.
l. Good Reason. "Good Reason" shall mean that the Company has
breached any provision of this Agreement.
m. Inventions. "Inventions" shall mean all inventions,
discoveries, developments, improvements, works, ideas, and other
contributions, whether or not patented or patentable or
otherwise protectable in law, which are conceived, made,
developed or acquired by the Employee, either individually or
jointly, during the employment of the Employee by the Company
and which relate in any manner to the Employee's work, the
research or business of the Company, or fields to which the
business of the Company may reasonably extend.
n. Investors. "Investors" shall mean the owners of shares of the
Class B Cumulative Preferred Stock of Systems.
o. Life Insurance Proceeds. "Life Insurance Proceeds" shall mean
the net amount of cash proceeds actually received by Systems or
the Company as a result of the Employee's death, which are: (1)
not pledged by Systems or the Company to secure any indebtedness
of Systems or the Company; and (2) not required to be paid by
Systems or the Company to other Persons by any contract entered
into by Systems or the Company prior to the Employee's death.
p. Person. "Person" shall mean and include an individual,
partnership, corporation, trust, incorporated organization and a
government or any department or agency thereof.
q. Representative. "Representative" shall mean, after the
Employee's death, the duly appointed and qualified executor or
personal representative of the estate of the Employee.
r. Restricted Area. "Restricted Area" shall mean anywhere within a
twenty-five (25) mile radius of any location in any U.S. city in
which the Company had, at any time while the Employee was
employed by the Company, a place of business or customers.
s. Stock. "Stock" shall mean all shares of Common Stock of Systems
owned by the Employee at the execution of this Agreement or
acquired hereafter.
t. Systems. "Systems" shall mean HEI Systems, Inc., a Wisconsin
corporation.
2. Employment. The Company hereby agrees to continue the employment of
the Employee and the Employee hereby accepts continued employment
with the Company in accordance with the terms and conditions set
forth in this Agreement. Except for illness, vacation periods and
reasonable leaves of absence approved by the Board of Directors of
the Company, the Employee agrees to devote the Employee's full time,
skill, knowledge, and attention to the business of the Company and
the performance of the duties of the Employee under this Agreement.
During the term of employment, it shall not be a violation of this
Agreement for the Employee to do one or more of the following, so
long as such activities do not interfere with the performance of the
Employee's responsibilities as an employee of the Company in
accordance with this Agreement: (a) serve on corporate, civic, trade
or charitable boards or committees; (b) deliver lectures or fulfill
speaking engagements; and (c) manage personal investments.
3. Term. This Agreement shall commence on the date first above written
and continue indefinitely until effective notice of termination is
given by the Employee or the Company to the other. THE EMPLOYEE'S
EMPLOYMENT WITH THE COMPANY IS ON AN AT-WILL BASIS. Either the
Employee or the Company may terminate the Employee's employment with
the Company at any time and for any reason or no reason at all,
subject only to the parties' obligations as described in Section 8 of
this Agreement.
4. Duties. The Employee shall be employed as a Senior Vice President of
the Company or in such other executive position with the Company as
may be mutually agreed to between the Company and the Employee. The
Employee shall perform such services and duties as are usually and
customarily required of a Person holding such position with a
business corporation. The services to be performed by the Employee
shall be principally rendered in or about Milwaukee, Wisconsin or
such other place at which the Company makes its corporate
headquarters, together with such business travel as may be necessary
for the Employee to satisfactorily perform the duties required under
this Agreement.
5. Compensation. The Company shall pay to the Employee a base annual
salary of $140,000, which salary shall be reviewed annually by the
Board of Directors of the Company for possible adjustment and shall
be paid in approximately equal installments at the usual and
customary times established by the Company. The Company shall deduct
from all payments made to the Employee under this Agreement any
federal, state or local withholding or other taxes or charges which
the Company is required to deduct under applicable law. The Company
shall have the right to rely upon a written opinion of counsel if any
questions arise as to any deductions.
6. Additional Benefits. The Employee shall be entitled to the following
additional benefits:
a. Vacation/Holidays. The Employee shall be entitled to paid
vacations and holidays as provided to other senior executive
employees of the Company.
b. Expense Reimbursement. The Company shall pay, upon submission
of appropriate vouchers and supporting documentation, all
expenses of the Employee incurred in connection with the
rendering of services to the Company as an employee pursuant to
this Agreement in accordance with the Company's usual and
ordinary practices, provided that such expenses are reasonable
and necessary business expenses of the Company.
c. Automobile. The Company shall provide the Employee with the use
of a Company-provided vehicle in accordance with Company policy.
d. Bonus Program. The Employee will be eligible to participate in
an executive bonus program to be established by the Board of
Directors of the Company, pursuant to which the Employee may
earn up to 40% of the Employee's base salary in any year. The
bonus program will include a combination of annual performance
benchmarks and long-term benchmarks for both the Employee and
the Company.
e. Miscellaneous. The Employee shall be entitled to other fringe
benefits generally provided to senior management of the Company,
including health insurance, disability insurance, term life
insurance, pension and profit-sharing and other programs
established by the Board of Directors of the Company.
7. Life Insurance. The Company will purchase life insurance on the
Employee's life, payable to the Company or Systems in an amount equal
to at least Four Hundred Thousand Dollars ($400,000) in excess of the
amount required by the Company's or Systems' lenders.
8. Termination.
a. Termination Without Cause or for Good Reason. As stated in
Section 3 of this Agreement, the Employee's employment may be
terminated by the Company or by the Employee at any time and for
any reason or for no reason at all. However, if the Employee's
employment with the Company is terminated by the Company without
Cause, or by the Employee for Good Reason, or as the result of
the Employee's Disability, the Employee shall receive the
Employee's then current base salary for a one (1) year period
after such termination, plus the continuation in the health,
disability and term life insurance programs of the Company
during such one year period at the Company's expense. The
severance pay shall be paid to the Employee at the same times as
the Company generally pays management employees. If the
Employee's employment is terminated as the result of Disability,
any severance payments shall be reduced by any gross insurance
proceeds actually received by the Employee from the Company
sponsored disability insurance. The severance payments shall
not be reduced by any other compensation received by the
Employee during the severance period unless such compensation is
received from Competitors. The Employee shall have no
obligation to seek other employment or otherwise mitigate
damages hereunder.
b. Termination for Cause or Without Good Reason. In the event that
the Employee's employment with the Company is terminated by the
Company for Cause or by the Employee without Good Reason, the
Employee shall be paid compensation only through the date of
such termination and all other financial obligations of the
Company to the Employee under this Agreement and all benefits
under this Agreement shall cease as of the date of such
termination.
c. Return of the Company's Materials. Upon termination for any
reason, the Employee shall immediately return to the Company all
files, credit cards, keys, computers, instruments, equipment,
vehicles, and other materials owned or provided by the Company.
9. Confidential Information. The Employee acknowledges that through the
services to be performed for the Company, the Employee will obtain
confidential information regarding the Company's business affairs,
including such matters as computer programs, research, customer
lists, customer development, planning, purchasing, finance,
marketing, customer relations, and other information of a similar
nature not available to the public. This information may be oral or
written and may be that which the Employee originates as well as that
which otherwise comes into the possession or knowledge of the
Employee. The Employee agrees to treat all matters relating to the
business activities of the Company as confidential and not to divulge
or disclose any information gained in connection with the employment
of the Employee by the Company to any other Person except upon the
written request or instruction of the Company or in the normal course
of the duties of the Employee as an employee of the Company. The
Employee agrees not to use or disclose, for purposes of marketing or
otherwise, any of the customer information the Employee receives
while working at the Company (including, but not limited to,
customers' identity, financial status and holdings), either on behalf
of the Employee or as a representative, agent, employee, officer,
director, trustee, stockholder, or creditor of, or partner, joint
venturer, or investor with or in any Competitor, except for any
information which is or becomes generally available to the public, or
otherwise comes into possession of the Competitor, other than as a
result of disclosure by the Employee. This Section 9 is intended to
protect confidential information and customer relationships, both
during and after the period of the Employee's employment with the
Company, and not to limit the Employee's right to seek and obtain
employment in competition with the Company after termination of the
Employee's employment with the Company, which is covered by Section
13 of this Agreement.
10. Relationship with Others. The parties agree that the profitability
and goodwill of the Company depend on continued amicable relations
with its suppliers and customers, and the Employee: (a) except on
behalf of the Company, will not approach for any reason, nor solicit
any business of any kind from, any former, present or future customer
of the Company; or (b) cause, request or advise any suppliers or
customers of the Company to curtail or cancel their business with the
Company. Nothing in Section 10(a) shall, after termination of the
Employee's employment with the Company for any reason, prevent the
employment of the Employee by a customer or supplier of the Company
unless such employment violates Section 13(a) of this Agreement.
This provision shall apply to any customers or suppliers of the
Company during the three (3) year period prior to the termination of
the Employee's employment or to Persons with an active proposal from
the Company on the date of the termination of the Employee's
employment. This provision shall apply for three (3) years after
termination of the Employee's employment with the Company if the
termination is for Cause and for one (1) year if the termination is
for any other reason.
11. Inventions and Creations.
a. Inventions. The Employee agrees that all Inventions shall
belong to the Company. The Employee agrees to and does hereby
assign and transfer to the Company the entire right, title, and
interest of the Employee in and to all Inventions. The Employee
further agrees to promptly and fully disclose all Inventions to
the Company, in writing if requested by the Company, and to
execute and deliver any and all lawful applications,
assignments, and other documents which the Company requests for
protecting the Inventions in the United States or in any other
country. The Company shall have the full and sole power to
prosecute such applications and to take all other actions
concerning the Inventions, and the Employee agrees to cooperate
fully, at the expense of the Company, in the preparation and
prosecution of all such applications and in any legal actions
and proceedings concerning the Inventions.
b. Creations. The Employee agrees to and does hereby assign,
convey, and transfer to the Company all Creations. The Company
shall have the full right to seek and procure copyrights on the
Creations, and the Employee shall cooperate fully, at the
expense of the Company, in securing copyrights and in any legal
actions and proceedings concerning the Creations.
c. Presumption of Company Ownership. Without diminishing any
rights granted to the Company in Sections 11(a) and 11(b), if an
Invention is described in a patent application or is disclosed
to third parties by the Employee within two (2) years after
leaving the employ of the Company, or if a Creation is published
or is disclosed to third parties by the Employee within two (2)
years after leaving the employ of the Company, the Employee
agrees that it is to be rebuttably presumed that the Invention
or the Creation was conceived, made, developed, acquired, or
created by the Employee during the period of employment of the
Employee by the Company, and the Invention or Creation will
belong the Company.
12. Noncompetition While Employed By The Company. The Employee agrees
not to compete with the Company in any territory in which the Company
sells its products or provides its services, either on behalf of the
Employee, or as a representative, agent, employee, officer, director,
trustee, stockholder, or creditor of, or partner, joint venturer, or
investor with or in, any other Person, during his employment with the
Company.
13. Noncompetition After Termination of Employment.
a. Scope of Noncompetition. The Employee agrees that for one (1)
year after the termination of the Employee's employment with the
Company, regardless of the reason for such termination, the
Employee will not:
(1) Render services, either directly or indirectly, to any
Competitor in connection with the development, manufacture,
sale, merchandising or promotion of any Competitive
Product; or
(2) Engage, either directly or indirectly, within the
Restricted Area, for the Employee or as an investor, in the
development, manufacture, purchase or sale of any
Competitive Product.
b. Exceptions to Scope of Noncompetition.
(1) Nothing in Section 13(a) of this Agreement shall prohibit
the Employee from owning or acquiring securities of
Systems, the Company or of any corporation or other
business enterprise that may be engaged in activities
described in Section 13(a), provided that: (A) the
Employee is not an officer, director or employee of, or
consultant to, such corporation or business enterprise; (B)
such securities are held by the Employee for investment
purposes and represent less than five percent (5%) of the
total equity interests of such corporation or business
enterprise; and (C) such securities are listed on a
national securities exchange or are regularly quoted in the
over the counter market by one or more members of the
National Association of Securities Dealers.
(2) It shall not be deemed a violation of Section 13(a) if the
Employee accepts employment with a business entity which is
diversified and made up of separate divisions and which, as
to parts of its business, is not a Competitor, provided the
Company shall be furnished prior to such employment
definite written assurances satisfactory to it, separately
from the Employee and such business entity, that the
Employee will not be expected, required or permitted to and
in fact does not render services directly or indirectly to
a division or a part of such business entity which division
or part is a Competitor.
c. Notification to the Company. During the period of time that the
Employee is subject to the provisions of Section 13(a) of this
Agreement, the Employee shall notify the Board of Directors of
the Company of any occupation or employment which the Employee
proposes to take up after termination of employment with the
Company and shall furnish to the Company such written or oral
information as it may reasonably request concerning such
proposed occupation or employment. Upon request of the
Employee, the Company agrees to notify the Employee promptly,
and in any event within thirty (30) days after receipt of the
requested information, whether or not the Company considers such
occupation, based on the information so furnished or derived
from its independent investigation, to come within the
provisions of Section 13(a) and, if the Company considers such
occupation to come within the provisions of Section 13(a),
whether the Company will waive any of the provisions thereof.
14. Puts of and Calls on Employee's Stock.
a. Employee's Puts.
(1) Purchase of Employee's Stock at Death. Upon the death of
the Employee, the Representative may require Systems to
purchase the Stock owned by the Employee at the time of
death in accordance with the provisions of this Section 14
of this Agreement. The Representative may exercise such
option by notice to Systems given within six (6) months
after the date of death of the Employee. Upon the giving
of such notice, the Representative shall be obligated to
sell and Systems shall be obligated to purchase the Stock
at Fair Market Value per share. Systems shall pay to the
Representative by cash an amount equal to the lesser of the
Purchase Price or the Life Insurance Proceeds at the
closing of any such purchase. Any remaining balance shall
be payable by Systems giving the Representative a
promissory note payable in equal monthly installments over
the course of 36 months at an interest rate equal to the
publicly announced prime rate of interest of M&I Marshall &
Ilsley Bank, changing on each day such prime rate changes.
(2) Purchase of Employee's Stock Upon Termination Without Cause
or for Disability. Upon the termination of the employment
of the Employee by the Company without Cause or for
Disability, the Employee may require Systems to purchase
all but not less than all of the Stock owned by the
Employee in accordance with the provisions of this Section
14 of this Agreement. The Employee may exercise such
option by notice to Systems given within six (6) months
after the termination. Upon the giving of such notice,
Systems shall be obligated to purchase and the Employee
shall be obligated to sell the Stock at Fair Market Value
per share. Systems shall pay the amount due by giving the
Employee a promissory note payable in equal monthly
installments over the course of 36 months at an interest
rate equal to the publicly announced prime rate of interest
of M&I Marshall & Ilsley Bank, changing on each day such
prime rate changes.
b. Systems' Calls.
(1) Purchase of Employee's Stock Upon Death, Upon Termination
Without Cause or for Disability. Upon the Employee's
death, or termination of the Employee's employment by the
Company without Cause, or for Disability, Systems may
require the Employee to sell all but not less than all of
the Stock owned by the Employee in accordance with the
provisions of this Section 14 of this Agreement. Systems
may exercise such option by notice to the Employee given
within six (6) months after the termination. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee shall be obligated to sell the
Stock at Fair Market Value per share.
(2) Purchase of Employee's Stock Upon Resignation or
Termination with Cause. Upon Employee's resignation of his
employment with the Company for any reason, including Good
Reason, or upon termination by the Company of the
Employee's employment for Cause, Systems may require the
Employee to sell all but not less than all of the Stock
owned by the Employee in accordance with the provisions of
this Section 14 of this Agreement. Systems may exercise
such option by notice to the Employee given within six (6)
months after the termination or resignation. Upon the
giving of such notice, Systems shall be obligated to
purchase and the Employee shall be obligated to sell the
Stock at the greater of its Book Value or the actual
purchase price paid by the Employee for such Stock.
c. Purchase of Employee's Stock. The Employee may, if the Employee
terminates his employment with the Company for any reason on or
after November 1, 1998, request the Board of Directors of
Systems to consider a purchase of the Stock owned by the
Employee at Fair Market Value per share. The Board of Directors
of Systems shall reasonably consider such request, taking into
account the Employee's reasons for the request, the personal
health and financial situation of the Employee at that time and
the financial condition of Systems at that time. If the Board
of Directors of Systems agrees to such request, the
noncompetition provisions contained in Section 13(a) of this
Agreement shall be extended to five (5) years from and after the
date of termination of employment. The Board of Directors of
Systems can only grant such request upon an 80% vote of the
entire Board of Directors of Systems.
d. Determination of Fair Market Value. In the event that a notice
which requires Systems to purchase the Stock is given pursuant
to Section 14(a)(1), Section 14(a)(2), Section 14(b)(1), Section
14(b)(2) or Section 14(c) of this Agreement, Systems and the
Employee (or the Representative, if applicable) shall attempt to
reach agreement on the Fair Market Value. If Systems and the
Employee (or the Representative, if applicable) cannot agree on
the Fair Market Value within sixty (60) calendar days after the
date the relevant notice was given, then Systems or the Employee
(or the Representative, if applicable) may notify the other that
an Appraiser shall be selected and the Fair Market Value shall
be determined by the Appraiser.
e. Closing of Sale.
(1) The Employee or the Representative, if applicable, shall
sell the relevant Stock at a closing to be held at the
principal place of business of Systems on a date which is
ninety (90) calendar days after the date any notice
exercising an option described in this Section 14 is given.
At such Closing: (A) Systems shall deliver to the Employee
(or the Representative, if applicable) a bank cashier's or
certified check, and Systems' promissory note, in the full
amount of the purchase price; and (ii) the Employee or the
Representative, if applicable, shall deliver to Systems
certificates representing the relevant Stock duly endorsed
in blank.
(2) Notwithstanding anything to the contrary in this Section 14
of this Agreement, Systems shall not be required to
purchase Stock while, and to the extent, such purchase
would result in a violation of applicable law or of any
contract to which Systems or the Company is a party
(including, without limitation, a violation of any covenant
which may be contained in any loan agreement in effect from
time to time); provided, however, that Systems or the
Company will use reasonable efforts to cure or avoid such
violation in order to permit such repurchase.
15. Remedies. In addition to other remedies provided by law or equity,
upon a breach by the Employee of any of the covenants contained
herein, Systems and the Company shall be entitled to have a court of
competent jurisdiction enter an injunction against the Employee
prohibiting any further breach of the covenants contained herein.
The parties further agree that the services to be performed by the
Employee hereunder are of a unique, special, and extraordinary
character. Therefore, in the event of any controversy concerning
rights or obligations under this Agreement, such rights or
obligations shall be enforceable in a court of competent jurisdiction
at law or equity by a decree of specific performance or, if Systems
or the Company elects, by obtaining damages or such other relief as
Systems or the Company may elect to pursue. Such remedies, however,
shall be cumulative and nonexclusive and shall be in addition to any
other remedies which Systems or the Company may have.
16. Assignment. This Agreement and the respective rights, duties, and
obligations of the Employee hereunder may not be assigned or
delegated by the Employee.
17. Notice. Any notice (including notice of change of address) permitted
or required to be given pursuant to the provisions of this Agreement
shall be in writing and sent by registered or certified mail, return
receipt requested, or by hand delivery to the parties at the
following addresses:
If to Systems or Harnischfeger Engineers, Inc.
the Company: Attention: President
13400 Bishops Lane
Brookfield WI 53005
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, WI 53202
If to the Employee: __________________________
__________________________
__________________________
Notice properly given by mail shall be deemed effective one (1)
business day after mailing.
18. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between Systems, the Company and the Employee
concerning the Employee's employment by the Company, and supersedes
the letter agreement dated August 31, 1993 between Systems and the
Employee and any and all other previous agreements or understandings,
whether written or oral, among Systems, the Employee and the Company
concerning such employment. This Agreement may not be modified
orally.
19. Waiver. The waiver by any party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
20. Invalidity of any Provision. The provisions of this Agreement are
severable, it being the intention of the parties that should any
provision hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
provisions hereof, but the same shall remain in full force and effect
as if such invalid or unenforceable provision were omitted.
21. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin.
22. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
23. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same agreement.
24. Expenses. If any legal proceeding is necessary by the Employee,
Systems or the Company to enforce or interpret the terms of this
Agreement or to recover damages for the breach of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys
fees and necessary costs and expenses incurred in such litigation
from the losing party in addition to any other relief to which the
prevailing party may otherwise be entitled.
25. Reasonableness of Restrictions. THE EMPLOYEE HAS READ THIS AGREEMENT
AND AGREES THAT THE CONSIDERATION PROVIDED BY THE COMPANY IS FAIR AND
REASONABLE AND FURTHER AGREES THAT GIVEN THE IMPORTANCE TO THE
COMPANY OF THE CUSTOMER LIST AND THE COMPANY'S PARTICULAR METHODS OF
DOING BUSINESS, THE POST-EMPLOYMENT RESTRICTIONS ON THE EMPLOYEE'S
ACTIVITIES ARE LIKEWISE FAIR AND REASONABLE.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
and Noncompetition Agreement as of the date first above written.
HARNISCHFEGER ENGINEERS, INC.
By:________________________________
John W. Splude, President
HEI SYSTEMS, INC.
By:________________________________
John W. Splude, President
______________________________(SEAL)
____________________
EXHIBIT 10.3
HK SYSTEMS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this ___ day of ____________, 19__, by and among HK SYSTEMS, INC. (the
"Company") and _____________________.
R E C I T A L S:
WHEREAS, the Company desires to continue to employ the Employee and
to set forth the terms and conditions of the Employee's employment and the
Employee desires to continue to be employed by the Company on the terms
and conditions set forth in this Agreement; and
WHEREAS, during the course of employment, the Employee has learned
and will learn the identities of the Company's customers, their purchasing
needs and habits and the names of the personnel charged with purchasing
responsibilities and the Company's methods of doing business; and
WHEREAS, the Company's list of customers has been compiled by the
Company and the Company's methods of doing business have been developed by
the Company at considerable expense over a number of years; and
WHEREAS, but for his employment at the Company, Employee would not be
able to easily duplicate the Company's customer list or be thoroughly
familiar with its methods of doing business; and
WHEREAS, the Company's customer list and methods of doing business
are of considerable economic value to the Company; and
WHEREAS, THE EMPLOYEE HAS REVIEWED THE MATTERS RECITED IN THE FIVE
PARAGRAPHS ABOVE AND CONFIRMS THAT HE AGREES WITH THOSE RECITALS.
NOW, THEREFORE,
In consideration of the Recitals and of the mutual promises and
covenants set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the meanings specified:
a. Agreement. "Agreement" shall mean this Employment and
Noncompetition Agreement, as the same shall be amended from time
to time in accordance with the terms hereof.
b. Cause. The following actions on the part of the Employee shall
be considered as "Cause":
(1) Personal dishonesty, willful misconduct, breach of
fiduciary duty involving personal profit, willful violation
of any law, rule, or regulation (other than traffic
violations or similar offenses), or habitual use of alcohol
or drugs: (A) which materially impairs the Employee's
ability to carry out his duties; and (B) as to which the
Company makes a good faith determination that such conduct
has occurred and that such conduct meets the standard set
forth in Section 1(d)(1)(A) of this Agreement;
(2) Rendering any assistance to any Person in that Person's
competitive efforts with the Company;
(3) Use of the Company's proprietary information or customer
lists for the Employee's own benefit or in a way adverse to
the Company's interests; or
(4) A good faith determination by the Company, after a notice
to the Employee and an opportunity to meet with the Company
concerning such matter, that the Employee has breached any
material provision of this Agreement.
c. Company. "Company" shall mean HK Systems, Inc., a Wisconsin
corporation.
d. Competitive Product. "Competitive Product" shall mean a product
or service, made or provided by a Competitor, which is the same
as or is directly competitive with one with respect to which the
Employee acquired confidential information relating to the
Company, or its business, products or services by reason of the
Employee's work with the Company.
e. Competitor. "Competitor" shall mean any Person engaged in, or
about to become engaged in, the production or sale, or both, of
any product or service in any part of the United States of
America which is directly competitive with one with respect to
which the Employee acquired confidential information relating to
the Company, or its business, products or services by reason of
the Employee's work with the Company.
f. Creations. "Creations" shall mean all manuscripts, programs,
writings, pictorial materials, and other creations created by
the Employee, either individually or jointly, during the
Employee's employment by the Company, and which relate to the
business of the Company.
g. Disability. "Disability" shall mean that the Employee has been
declared mentally incompetent by a Wisconsin court or shall have
been disabled for a consecutive period of 120 days so that the
Employee is unable to perform the Employee's duties as an
employee of the Company under this Agreement. Any dispute as to
the existence of a Disability or its duration shall be submitted
to a licensed physician agreed upon by the Employee and the
Company or, failing such agreement, to one appointed by the
President of the Medical Society of Wisconsin at the request of
either the Employee or the Company. The Employee shall
cooperate in such determination and the determination of such
physician shall be binding and conclusive upon the parties.
h. Employee. "Employee" shall mean _________________.
i. Good Reason. "Good Reason" shall mean that the Company has
breached any provision of this Agreement.
j. Inventions. "Inventions" shall mean all inventions,
discoveries, developments, improvements, works, ideas, and other
contributions, whether or not patented or patentable or
otherwise protectable in law, which are conceived, made,
developed or acquired by the Employee, either individually or
jointly, during the employment of the Employee by the Company
and which relate in any manner to the Employee's work, the
research or business of the Company, or fields to which the
business of the Company may reasonably extend.
k. Person. "Person" shall mean and include an individual,
partnership, corporation, trust, incorporated organization and a
government or any department or agency thereof.
l. Representative. "Representative" shall mean, after the
Employee's death, the duly appointed and qualified executor or
personal representative of the estate of the Employee.
m. Restricted Area. "Restricted Area" shall mean anywhere within a
twenty-five (25) miles radius of any location in any U.S. city
in which the Company had, at any time while the Employee was
employed by the Company, a place of business or customers.
2. Employment. The Company hereby agrees to continue the employment of
the Employee and the Employee hereby accepts continued employment
with the Company in accordance with the terms and conditions set
forth in this Agreement. Except for illness, vacation periods and
reasonable leaves of absence approved by the Board of Directors of
the Company, the Employee agrees to devote the Employee's full-time,
skill, knowledge, and attention to the business of the Company and
the performance of the duties of the Employee under this Agreement.
During the term of employment, it shall not be a violation of this
Agreement for the Employee to do one or more of the following, so
long as such activities do not interfere with the performance of the
Employee's responsibilities as an employee of the Company in
accordance with this Agreement: (a) serve on corporate, civic, trade
or charitable boards or committees; (b) deliver lectures or fulfill
speaking engagements; and (c) manage personal investments.
3. Term. This Agreement shall commence on the date first above written
and continue indefinitely until effective notice of termination is
given by the Employee or the Company to the other. THE EMPLOYEE'S
EMPLOYMENT WITH THE COMPANY IS ON AN AT-WILL BASIS. Either the
Employee or the Company may terminate the Employee's employment with
the Company at any time and for any reason or no reason at all,
subject only to the parties' obligations as described in Section 8 of
this Agreement.
4. Duties. The Employee shall be employed as the __________________, of
the Company or in such other executive position with the Company as
may be mutually agreed to between the Company and the Employee. The
Employee shall perform such services and duties as are usually and
customarily required of a Person holding such position with a
business corporation. The services to be performed by the Employee
shall be principally rendered in or about New Berlin, Wisconsin, or
such other place at which the Company makes its corporate
headquarters, together with such business travel as may be necessary
for the Employee to satisfactorily perform the duties required under
this Agreement.
5. Compensation. The Company shall pay to the Employee, a base annual
salary of $___________, which salary shall be reviewed annually by
the Board of Directors of the Company for possible adjustment and
shall be paid in approximately equal installments at the usual and
customary times established by the Company. The Company shall deduct
from all payments made to the Employee under this Agreement any
federal, state or local withholding or other taxes or charges which
the Company is required to deduct under applicable law. The Company
shall have the right to rely upon a written opinion of counsel if any
questions arise as to any deductions.
6. Additional Benefits. The Employee shall be entitled to the following
additional benefits:
a. Vacations/Holidays. The Employee shall be entitled to paid
vacations and holidays as provided to other senior executive
employees of the Company.
b. Expense Reimbursement. The Company shall pay, upon submission
of appropriate vouchers and supporting documentation, all
expenses of the Employee incurred in connection with the
rendering of services to the Company.
c. Bonus Program. The Employee will be eligible to participate in
an executive bonus program to be established by the Board of
Directors of the Company, pursuant to which the Employee may
earn up to 40% of the Employee's base salary in any year. The
bonus program will include a combination of annual performance
benchmarks and long-term benchmarks for both the Employee and
the Company.
d. Company Automobile
e. Miscellaneous. The Employee shall be entitled to other fringe
benefits generally provided to senior management of the Company,
including health insurance, disability insurance, term life
insurance, pension and profit sharing and other programs
established by the the Company.
7. Termination.
a. Termination Without Cause or for Good Reason. As stated in
Section 3 of this Agreement, the Employee's employment may be
terminated by the Company or by the Employee at any time and for
any reason or for no reason at all. However, if the Employee's
employment with the Company is terminated by the Company without
Cause, or by the Employee for Good Reason, or as the result of
the Employee's Disability, the Employee shall receive the
Employee's then current base salary for a one (1) year period
after such termination, plus the continuation in the health,
disability and term life insurance programs of the Company
during such one year period at the Company's expense. The
severance pay shall be paid to the Employee at the same times as
the Company generally pays management employees. If the
Employee's employment is terminated as the result of Disability,
any severance payments shall be reduced by any gross insurance
proceeds actually received by the Employee from the Company
sponsored disability insurance. The severance payments shall
not be reduced by any other compensation received by the
Employee during the severance period unless such compensation is
received from Competitors. The Employee shall have no
obligation to seek other employment or otherwise mitigate
damages hereunder.
b. Termination for Cause or Without Good Reason. In the event that
the Employee's employment with the Company is terminated by the
Company for Cause or by the Employee without Good Reason, the
Employee shall be paid compensation only through the date of
such termination and all other financial obligations of the
Company to the Employee under this Agreement and all benefits
under this Agreement shall cease as of the date of such
termination.
c. Return of the Company's Materials. Upon termination for any
reason, the Employee shall immediately return to the Company all
files, credit cards, keys, computers, instruments, equipment,
vehicles, and other materials owned or provided by the Company.
8. Confidential Information. The Employee acknowledges that through the
services to be performed for the Company, the Employee will obtain
confidential information regarding the Company's business affairs,
including such matters as computer programs, research, customer
lists, customer development, planning, purchasing, finance,
marketing, customer relations, and other information of a similar
nature not available to the public. This information may be oral or
written and may be that which the Employee originates as well as that
which otherwise comes into the possession or knowledge of the
Employee. The Employee agrees to treat all matters relating to the
business activities of the Company as confidential and not to divulge
or disclose any information gained in connection with the employment
of the Employee by the Company to any other Person except upon the
written request or instruction of the Company or in the normal course
of the duties of the Employee as an employee of the Company. The
Employee agrees not to use or disclose, for purposes of marketing or
otherwise, any of the customer information the Employee receives
while working at the Company (including, but not limited to,
customers' identity, financial status and holdings), either on behalf
of the Employee or as a representative, agent, employee, officer,
director, trustee, stockholder, or creditor of, or partner, joint
venturer, or investor with or in any Competitor, except for any
information which is or becomes generally available to the public, or
otherwise comes into possession of the Competitor, other than as a
result of disclosure by the Employee. This Section 8 is intended to
protect confidential information and customer relationships, both
during and after the period of the Employee's employment with the
Company, and not to limit the Employee's right to seek and obtain
employment in competition with the Company after termination of the
Employee's employment with the Company, which is covered by Section
12 of this Agreement.
9. Relationship with Others. The parties agree that the profitability
and goodwill of the Company depend on continued amicable relations
with its suppliers and customers, and the Employee: (a) except on
behalf of the Company, will not approach for any reason, nor solicit
any business of any kind from, any former, present or future customer
of the Company; or (b) cause, request or advise any suppliers or
customers of the Company to curtail or cancel their business with the
Company. Nothing in Section 9(a) shall, after termination of the
Employee's employment with the Company for any reason, prevent the
employment of the Employee by a customer or supplier of the Company
unless such employment violates Section 12(a) of this Agreement.
This provision shall apply to any customers or suppliers of the
Company during the three (3) year period prior to the termination of
the Employee's employment or to Persons with an active proposal from
the Company on the date of the termination of the Employee's
employment. This provision shall apply for five (5) years after
termination of the Employee's employment with the company if the
termination is for Cause and for one (1) year if the termination is
for any other reason.
10. Inventions and Creations.
a. Inventions. The Employee agrees that all Inventions shall
belong to the Company. The Employee agrees to and does hereby
assign and transfer to the Company the entire right, title, and
interest of the Employee in and to all Inventions. The Employee
further agrees to promptly and fully disclose all Inventions to
the Company, in writing if requested by the Company, and to
execute and deliver any and all lawful applications,
assignments, and other documents which the Company requests for
protecting the Inventions in the United States or in any other
country. The Company shall have the full and sole power to
prosecute such applications and to take all other actions
concerning the Inventions, and the Employee agrees to cooperate
fully, at the expense of the Company, in the preparation and
prosecution of all such applications and in any legal actions
and proceedings concerning the Inventions.
b Creations. The Employee agrees to and does hereby assign,
convey, and transfer to the Company all Creations. The Company
shall have the full right to seek and procure copyrights on the
Creations, and the Employee shall cooperate fully, at the
expense of the Company, in securing copyrights and in any legal
actions and proceedings concerning the Creations.
c. Presumptions of Company Ownership. Without diminishing any
rights granted to the Company in Sections 10(a) and 10(b), if
any Invention is described in a patent application or is
disclosed to third parties by the Employee within two (2) years
after leaving the employ of the Company, or if a Creation is
published or is disclosed to third parties by the Employee
within two (2) years after leaving the employ of the Company,
the Employee agrees that it is to be rebuttably presumed that
the Invention or the Creation was conceived, made, developed,
acquired, or created by the Employee during the period of
employment of the Employee by the Company, and the Invention or
Creation will belong to the Company.
11. Noncompetition While Employed by the Company. The Employee agrees
not to compete with the Company in any territory in which the Company
sells its products or provides its services, either on behalf of the
Employee, or as a representative, agent, employee, officer, director,
trustee, stockholder, or creditor of, or partner, joint venturer, or
investor with or in, any other Person, during his employment with the
Company.
12. Noncompetition After Termination of Employment.
a. Scope of Noncompetition. The Employee agrees that for one (1)
year after the termination of the Employee's employment with the
Company, regardless of the reason for such termination, the
Employee will not:
(1) Render services, either directly or indirectly, to any
Competitor in connection with the development, manufacture,
sale, merchandising or promotion of any Competitive
Product; or
(2) Engage, either directly or indirectly, within the
Restricted Area, for the Employee or as an investor, in the
development, manufacture, purchase or sale of any
Competitive Product.
b. Exceptions to Scope of Noncompetition.
(1) Nothing in Section 12(a) of this Agreement shall prohibit
the Employee from owning or acquiring securities of the
Company or of any corporation or other business enterprise
that may be engaged in activities described in Section
12(a), provided that: (A) the Employee is not an officer,
director or employee of, or consultant to, such corporation
or business enterprise; (B) such securities are held by the
Employee for investment purposes and represent less than
five percent (5%) of the total equity interests of such
corporation or business enterprise; and (C) such securities
are listed on a national securities exchange or are
regularly quoted in the over-the-counter market by one or
more members of the National Association of Securities
Dealers.
(2) It shall not be deemed a violation of Section 12(a) if the
Employee accepts employment with a business entity which is
diversified and made up of separate divisions and which, as
to parts of its business, is not a Competitor, provided the
Company shall be furnished prior to such employment
definite written assurances satisfactory to it, separately
from the Employee and such business entity, that the
Employee will not be expected, required or permitted to and
in fact does not render services directly or indirectly to
a division or a part of such business entity which division
or part is a Competitor.
c. Notification to the Company. During the period of time that the
Employee is subject to the provisions of Section 12(a) of this
Agreement, the Employee shall notify the Company of any
occupation or employment which the Employee proposes to take up
after termination of employment with the Company and shall
furnish to the Company such written or oral information as it
may reasonably request concerning such proposed occupation or
employment. Upon request of the Employee, the Company agrees to
notify the Employee promptly, and in any event within thirty
(30) days after receipt of the requested information, whether or
not the Company considers such occupation, based on the
information so furnished or derived from its independent
investigation, to come within the provisions of Section 12(a)
and, if the Company considers such occupation to come within the
provisions of Section 12(a), whether the Company will waive any
of the provisions thereof.
13. Remedies. In addition to other remedies provided by law or equity,
upon a breach by the Employee of any of the covenants contained
herein, the Company shall be entitled to have a court of competent
jurisdiction enter an injunction against the Employee prohibiting any
further breach of the covenants contained herein. The parties
further agree that the services to be performed by the Employee
hereunder are of a unique, special, and extraordinary character.
Therefore, in the event of any controversy concerning rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by
a decree of specific performance or the Company elects, by obtaining
damages or such other relief as the Company may elect to pursue.
Such remedies, however, shall be cumulative and nonexclusive and
shall be in addition to any other remedies which the Company may
have.
14. Assignment. This Agreement and the respective rights, duties, and
obligations of the Employee hereunder may not be assigned or
delegated by the Employee.
15. Notice. Any notice (including notice of change of address) permitted
or required to be given pursuant to the provisions of this Agreement
shall be in writing and sent by registered mail or certified mail,
return receipt requested, or by hand delivery to the parties at the
following address:
If to the Company: HK Systems, Inc.
Attention: John W. Splude
2855 S. James Drive
New Berlin, WI 53151
with a copy to:
John R. Kuhnmuench, Jr.
Vice President and General Counsel
2855 S. James Drive
New Berlin, WI 53151
If to the Employee: ______________________
Personal & Confidential
c/o HK Systems, Inc.
2855 South James Drive
New Berlin, WI 53151
Notice properly given by mail shall be deemed effective one (1)
business day after mailing.
16. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the Company and the Employee concerning the
Employee's employment by the Company, and supersedes any and all
other previous agreements or understandings, whether written or oral,
among the Employee and the Company concerning such employment. This
Agreement may not be modified orally.
17. Waiver. The waiver by any party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
18. Invalidity of any Provision. The provisions of this Agreement are
severable, it being the intention of the parties that should any
provision hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
provisions hereof, but the same shall remain in full force and effect
as if such invalid or unenforceable provision were omitted.
19. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin.
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement shall be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same agreement.
22. Expenses. If any legal proceeding is necessary by the Employee or
the Company to enforce or interpret the terms of this Agreement or to
recover damages for the breach of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys fees and
necessary costs and expenses incurred in such litigation from the
losing party in addition to any other relief to which the prevailing
party may otherwise be entitled.
23. Reasonableness of Restrictions. THE EMPLOYEE HAS READ THIS AGREEMENT
AND AGREES THAT THE CONSIDERATION PROVIDED BY THE COMPANY IS FAIR AND
REASONABLE AND FURTHER AGREES THAT GIVEN THE IMPORTANCE TO THE
COMPANY OF THE CUSTOMER LIST AND THE COMPANY'S PARTICULAR METHODS OF
DOING BUSINESS, THE POST-EMPLOYMENT RESTRICTIONS ON THE EMPLOYEE'S
ACTIVITIES ARE LIKEWISE FAIR AND REASONABLE.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
and Noncompetition Agreement as of the date first above written.
HK SYSTEMS, INC.
By: __________________________
John W. Splude, President
________________________________
____________________, Employee
EXHIBIT 10.5
1993 EXECUTIVE STOCK OPTION PLAN
OF
HEI SYSTEMS, INC.
1. PURPOSE OF THE PLAN
The purpose of the Plan is to promote the best interests of HEI
Systems, Inc. and its shareholders by providing key employees of HEI
Systems, Inc. and any subsidiaries with an opportunity to acquire a
proprietary interest in HEI Systems, Inc., thereby providing a stronger
incentive for them to put forth maximum effort for the continued success
and growth of HEI Systems, Inc. In addition, the opportunity to acquire a
proprietary interest in HEI Systems, Inc. will aid in attracting and
retaining key personnel.
2. DEFINITIONS
Unless the context otherwise requires, the following terms shall
have the meanings set forth below:
(a) "Board of Directors" shall mean the board of directors of
the Company.
(b) "Cause" shall mean with respect to an Employee, (i)(A) an
act of personal dishonesty or willful misconduct by such Employee, (B) a
breach by such Employee of a fiduciary duty involving personal profit, (C)
a willful violation by such Employee of any law, rule or regulation (other
than traffic violations or similar offenses) or (D) habitual use of
alcohol or drugs by such Employee which materially impairs such Employee's
ability to carry out such Employee's duties and as to which the Board of
Directors makes a good faith determination that such conduct has occurred
and that such conduct meets the standard set forth in this clause (D);
(ii) the rendering by such Employee of any assistance to any Person in
such Person's competitive efforts with the Company or any Subsidiary; or
(iii) the use by such Employee of the proprietary information of the
Company or any Subsidiary or customer lists for such Employee's own
benefit or in a way adverse to the interest of the Company or any
Subsidiary.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(d) "Commencement Date" shall mean:
(i) as to any Holder who was an Employee on November 1, 1993,
the earlier of:
(A) November 1 , 1998; or
(B) the date of a registered public offering of the
common stock of the Company; or
(C) the date of a Sale of the Company;
and,
(ii) as to any Holder who was not an Employee on November l,
1993, the earlier of:
(A) the date that is five (5) years after the date of
the Option Agreement with that Holder; or
(B) the date of a registered public offering of the
common stock of the Company; or
(C) the date of a Sale of the Company.
Provided, however, that in no event shall the "Commencement Date" as to a
Holder be a date that is less than six months after the date of the Option
Agreement with that Holder.
(e) "Company" shall mean HEI Systems, Inc., a Wisconsin
corporation.
(f) "Delivered Stock" shall mean Shares beneficially owned by a
Holder, the Holder's spouse, or both of them, for a period of six (6)
months or more prior to the exercise of an Option.
(g) "Employees" shall mean those individuals who are full-time
management employees of the Company or its Subsidiaries, from among whom
the Board of Directors may select the Holders of Options.
(h) "Holder" shall mean an Employee or non-Employee member of
the Board of Directors to whom an Option has been granted.
(i) "Incentive Stock Option" shall mean an option to purchase
Shares which complies with the provisions of Section 422 of the Code.
(j) "Market Price" shall mean, as of any date, with respect to
any Share, the fair market value thereof as the Board of Directors may
determine in conformity with pertinent law and regulations of the Treasury
Department. If the Shares are traded on any registered national
securities exchange, or quoted in the NASDAQ National Market System,
Market Price shall mean the closing price (or the median of the bid and
asked price if there is no closing price) as of any date; provided,
however, that if the Shares are not traded on any such date, the Market
Price shall be the relevant price for the next preceding business day on
which trading occurred.
(k) "Nonstatutory Stock Option" shall mean an option to
purchase Shares as described in Paragraph 8 of the Plan and which does not
comply with the provisions of Section 422 of the Code.
(l) "Option" shall mean an Incentive Stock Option or
Nonstatutory Stock Option granted under the Plan.
(m) "Option Agreement" shall mean the written agreement between
the Company and a Holder whereby an Option is granted to such Holder, and
which evidences the various terms upon which such Option may be exercised,
in the form attached hereto and as revised from time to time by the Board
of Directors.
(n) "Person" shall mean and include any individual,
partnership, corporation, limited liability company, trust, estate,
incorporated organization or a government or any department or agency
thereof.
(o) "Plan" shall mean the 1993 Executive Stock Option Plan of
the Company, as amended from time to time.
(p) "Sale of the Company" shall mean the sale, in one
integrated transaction, of eighty percent (80%) or more of the Fully
Diluted Common Stock of the Company to an unrelated third party. For
purposes of the preceding sentence, "Fully Diluted Common Stock" shall
mean all shares of the Company's Class A Common Stock, Class B Common
Stock and Class C Common Stock then issued and outstanding together with
all shares of the Company's Class A Common Stock, Class B Common Stock and
Class C Common Stock issuable upon exercise or conversion of all options
(including the Options), warrants or convertible securities (including the
Company's Class B Preferred Stock) as if such options, warrants and
convertible securities had been exercised or converted at the then
applicable exercise price or conversion rate.
(q) "Share" or "Shares" shall mean the $0.01 par value Class A
Common Stock of the Company.
(r) "Subsidiary" shall mean a subsidiary corporation of the
Company as defined in Section 424(f) of the Code.
3. SHARES RESERVED UNDER PLAN.
The aggregate number of Shares which may be issued or sold under
the Plan shall not exceed 1,148,733 Shares, which may be treasury Shares
or authorized but unissued Shares, or a combination of the two, subject to
adjustment as provided in Paragraph 13 hereof. Any Shares subject to an
Option which expires or terminates for any reason (whether by voluntary
surrender, lapse of time, termination of employment or otherwise) and is
unexercised as to such Shares may again be the subject of an Option under
the Plan; provided, however, that in no event shall the number of Shares
issued under this Plan and the number of Shares subject to outstanding
Options granted under this Plan at any time exceed in the aggregate more
than 17,094 Shares. The Holder of an Option shall be entitled to the
rights and privileges of ownership with respect to the Shares subject to
an Option only after actual purchase and issuance of such Shares pursuant
to the exercise of all or part of an Option.
4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors. A
majority of the members of the Board of Directors shall constitute a
quorum. The approval of such a quorum, expressed by a vote at a meeting,
or by the unanimous consent of all members in writing without a meeting,
shall constitute the action of the Board of Directors with respect to the
Plan and shall be valid and effective for all purposes of the Plan.
The Board of Directors shall have sole authority in its
discretion, but always subject to the express provisions of the Plan, to
determine the purchase price of the Shares covered by each Option, the
Employees and other Persons to whom and the time or times at which Options
shall be granted, the number of Shares to be subject to each Option, the
extent to which Options may be exercised in installments, and any other
limitations, restrictions and conditions to be imposed upon any Option
granted hereunder; to interpret the Plan; to prescribe, amend, and rescind
rules, regulations and procedures pertaining to the Plan; to determine the
terms and provisions of the respective Option Agreements; to modify,
extend or renew any Option Agreement previously awarded; and to make all
other determinations and interpretations deemed necessary or advisable for
the administration of the Plan. The Board of Directors determination of
the foregoing matters shall be conclusive and binding on the Company, all
Employees, all Holders, and all other Persons. The Board of Directors may
consult with counsel who may be counsel for the Company, and shall not
incur any liability for any action taken in good faith in reliance upon
the advice of counsel.
5. ELIGIBILITY.
Only Employees and non-Employee members of the Board of Directors
shall be eligible to receive Options under the Plan. In determining the
Persons to whom Options shall be granted and the number of Shares to be
covered by each Option, the Board of Directors may take into account the
nature of the services rendered by the respective Persons, their present
and potential contributions to the success of the Company, and other such
factors as the Board of Directors in its discretion shall deem relevant.
A Person who has been granted an Option under the Plan may be granted
additional Options under the Plan if the Board of Directors shall so
determine. No Person shall have any right whatsoever to receive a grant
of an Option hereunder unless so determined by the Board of Directors.
The Company shall effect the granting of Options under the Plan by
executing Option Agreements in such form as shall be approved by the Board
of Directors.
6. OPTIONS: GENERAL PROVISIONS.
(a) Types of Options. An Option to purchase Shares granted
pursuant to this Plan shall be specified in the Option Agreement to be
either an Incentive Stock Option (as described in Paragraph 7) or a
Nonstatutory Stock Option (as described in Paragraph 8). An Option
Agreement executed pursuant to this Plan may include both an Incentive
Stock Option and a Nonstatutory Stock Option. An Option Agreement
executed pursuant to this Plan shall in no event provide for the grant of
a tandem Option, wherein two Options are issued together and the exercise
of one affects the right to exercise the other.
(b) General Exercise Period. No Option granted under this Plan
shall provide for its exercise earlier than six (6) months from its date
of grant. In addition, the Board of Directors may, in its discretion,
require that a Holder be employed by the Company or a Subsidiary for a
designated number of years prior to the exercise by the Holder of any
Option or portion of an Option granted under this Plan. The Board of
Directors may, in its discretion, determine the periods during which
Options or portions of Options may be exercised by a Holder, subject only
to the terms of this Plan. Any of the requirements or limitations imposed
under the second and third sentences of this Section 6(b) may be
subsequently reduced or waived by the Board of Directors in its
discretion, unless such reduction or waiver is prohibited by the Code or
other applicable law.
(c) Payment of Exercise Price. The purchase or exercise price
shall be payable in cash, by check, or, with the Board of Directors'
consent, in Shares of Delivered Stock or in a combination of cash and
Delivered Stock or such other consideration consistent with the Plan's
purpose and applicable law as may be determined by the Board of Directors
from time to time, and, such price shall be paid in full at the time that
an Option is exercised. If the Holder elects (any such election being
subject to the Board of Directors consent) to pay all or a part of the
exercise price in Delivered Stock, or to satisfy the Holder's withholding
obligation with Delivered Stock, the Shares of Delivered Stock shall be
valued at their Market Price on the date delivered. In no event may the
purchase or exercise price be payable in installments.
7. INCENTIVE STOCK OPTIONS.
This Paragraph sets forth the special provisions that govern
Incentive Stock Options granted under this Plan.
(a) Maximum Calendar Year Grant to Any Employee. The aggregate
fair market value (determined at the time the Option is granted) of the
Shares with respect to which Incentive Stock Options are exercisable for
the first time during any calendar year under this Plan (and under all
other plans of the Company or any Parent or Subsidiary qualifying under
Section 422 of the Code) shall not exceed $100,000, and/or any other limit
as may be prescribed by the Code from time to time, per Employee.
(b) Option Exercise Price. The per share purchase price of the
Shares under each Incentive Stock Option granted pursuant to this Plan
(the "150 Exercise Price") shall be determined by the Board of Directors
but shall not be less than one hundred percent (100%) of the Market Price
on the date of grant of such Option.
(c) Employees Who Own 10% or More of Shares. Employees who
own, directly or indirectly, within the meaning of Code section 425(d),
more than 10% of the voting power of all classes of stock of the Company
or any Subsidiary shall not be eligible to receive an Incentive Stock
Option hereunder unless the purchase price per share under such Option is
at least 110% of the Market Value of the Shares subject to the Option and
such Option by its terms is not exercisable after the expiration of 5
years from the date such Option is granted.
(d) Grant and Exercise Period. No Incentive Stock Option shall
(i) be granted after ten (10) years from the effective date of this Plan,
or (ii) be exercisable after the expiration of ten (10) years from its
date of grant. Every Incentive Stock Option which has not been exercised
within ten years of its date of grant shall expire upon the expiration of
said ten-year period unless it shall have expired, lapsed or otherwise
terminated at an earlier date.
8. NONSTATUTORY STOCK OPTIONS.
This Paragraph sets forth the special provisions that govern
Nonstatutory Stock Options granted under this Plan.
Option Exercise Price. The per share purchase price of the Shares
under each Nonstatutory Stock Option granted pursuant to this Plan (the
"NSO Exercise Price") shall be determined by the Board of Directors in its
sole discretion, but shall not be less than eighty-five percent (85%) of
the Market Price on the date of grant of such Option.
9. TERMINATION OF EMPLOYMENT.
(a) If a Holder's employment with the Company or a Subsidiary
is terminated for any reason prior to the Commencement Date, no Option
granted to that Holder hereunder shall be exercisable and all such Options
shall expire immediately upon such termination, subject to the
obligations, if any, of the Company under Subparagraph 9(g) below. In
addition, and notwithstanding anything to the contrary contained in this
Plan, if a Holder's employment with the Company or a Subsidiary is
terminated on or after the Commencement Date for Cause, to the extent an
Option granted hereunder to such Holder was not effectively exercised
prior to such termination, it shall expire immediately upon such
termination.
(b) Subject to Subparagraph 9(a) above, any Holder whose
employment with the Company or a Subsidiary is terminated due to
retirement on such Holder's normal retirement date (as defined in the
Company Retirement Plan or any successor plan providing retirement
benefits) or due to early retirement with the consent of the Board of
Directors, shall have three (3) months from the date of such termination
of employment to exercise any Option granted hereunder as to all or part
of the Shares subject to such Option, provided, however, (i) that no
Incentive Stock Option shall be exercisable subsequent to ten (10) years
after its date of grant; and (ii) that on the date of termination of
employment the Holder had a present right to exercise such Option, further
provided, that any such Option shall be exercisable only to the extent
that it was exercisable by the Holder on the date of termination.
(c) Subject to Subparagraph 9(a) above, any Holder whose
employment with the Company or a Subsidiary is terminated due to
disability (as defined in Section 22(e) (3) of the Code) shall have one
(l) year from the date of termination of employment to exercise any Option
granted hereunder as to all or part of the Shares subject to such Option;
provided, however, (i) that no Incentive Stock Option shall be exercisable
subsequent to ten (10) years after its date of grant; and (ii) that on the
date of termination of employment the Holder had a present right to
exercise such Option, further provided, that any such Option shall be
exercisable only to the extent that it was exercisable by the disabled
Holder on the date of termination.
(d) Subject to Subparagraph 9(a) above, if a Holder dies while
in the employ of the Company or a Subsidiary, any Option theretofore
granted to such Holder shall be exercisable:
(1) For one (l) year after the Holder's death, but in no event
later than ten (10) years from its date of grant in the
case of an Incentive Stock Option;
(2) Only by the personal representative, administrator or other
representative of the estate of the deceased Holder or by
the person or persons to whom the deceased Holder's right
under the Option shall pass by will or the laws of descent
and distribution; and
(3) Only to the extent that it was exercisable by the deceased
Holder would have been entitled to exercise such Option on
the date of the Holder's death.
(e) Subject to Subparagraph 9(a) above, if a Holder's
employment is terminated for a reason other than those specified above,
the Holder shall have three (3) months from the date of termination of
employment to exercise any Option granted hereunder as to all or part of
the Shares subject to such Option, provided, however, (i) that no
Incentive Stock Option shall be exercisable subsequent to ten (10) years
after its date of grant; and (ii) that on the date of termination of
employment the Holder had a present right to exercise such Option; further
provided, that any such Option shall be exercisable only to the extent
that it was exercisable by the Holder on the date of termination.
(f) The Board of Directors may in its sole discretion increase
the periods permitted for exercise of an Option following a termination of
employment as provided in Subparagraphs 9(b), (c), (d), and (e), above if
allowable under applicable law; provided, however, in no event shall an
Incentive Stock Option be exercisable subsequent to ten (10) years after
its date of grant.
(g) If a Holder's employment with the Company or a Subsidiary
is terminated prior to the Commencement Date due to disability (as defined
in Section 22(e) (3) of the Code) or due to the Holder's death, the
Company shall purchase the Holder's Option for a cash purchase price
determined by using the following formula:
Purchase Price = (V-EP) x S
Where,
V = the Market Price per Share.
EP = the exercise price per Share set forth in the applicable
Option Agreement.
S = the number of Shares covered by the Option.
Provided, however, that in no event shall the Company be required to
repurchase any Option pursuant to this subparagraph 9(g) until the Holder
has held such Option for at least six (6) months from the date the Holder
acquired such Option.
(h) The Plan shall not confer upon any Holder or Employee any
right with respect to continuation of employment by the Company or a
Subsidiary, not shall it interfere in any way with the right of the
Company or such Subsidiary to terminate any Holder's or Employee's
employment at any time, or to take any other action affecting any Holder
or Employee.
10. TRANSFERABILITY.
Options shall not be transferable, except as provided below, and
during the lifetime of the Holder shall be exercisable only by the Holder
or, in the event of a Holder's disability, by the Holder's guardian or
legal representative. A Holder shall have the right to transfer Options
upon such Holder's death, either by the terms of such Holder's will or
under the laws of descent and distribution, subject to the limitations set
forth in Paragraph 9 above, and all such distributees shall be subject to
all terms and conditions of this Plan to the same extent as would the
Holder if still alive, except as otherwise expressly provided
herein or as determined by the Board of Directors.
11. EXERCISE.
An Option Agreement may provide for exercise of its respective
Option in such amounts and at such times as shall be specified therein;
provided, however, except as provided in Paragraph 9, above, and except as
to any Options issued to non-Employee members of the Board of Directors,
no Option may be exercised unless the Holder is then in the employ of the
Company or a Subsidiary and shall have been continuously so employed since
its date of grant. An Option shall be exercisable by a Holder's giving
written notice of exercise to the Secretary of the Company, specifying the
number of Shares to be purchased, accompanied by payment in full of the
required exercise price. The Company shall have the right to delay the
issue or delivery of any Shares under the Plan until (a) the completion of
such registration or qualification of such Shares under any federal or
state law, ruling or regulation as the Company shall determine to be
necessary or advisable, and (b) receipt from the Holder of such documents
and information as the Board of Directors may deem necessary or
appropriate in connection with such registration or qualification and
satisfactory provision for the payment of withholding taxes as described
in Paragraph 15 below. Upon exercise of an Option and satisfaction of the
conditions set forth in this Paragraph 11 and in the applicable Option
Agreement, the Company shall issue a certificate evidencing the Shares
purchased under such Option. No Holder shall be under any obligation to
exercise any Option granted hereunder.
12. SECURITIES LAWS.
Each Option Agreement shall contain such representations,
warranties and other terms and conditions as shall be necessary in the
opinion of counsel to the Company to comply with all applicable federal
and state securities laws. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Board of Directors
shall determine, in its discretion, that the listing, registration, or
qualification of securities upon any securities exchange or under any
state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the issue or purchase of
securities thereunder, such Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable
to the Board of Directors.
13. ADJUSTMENT PROVISIONS.
If the Company shall effect a subdivision or consolidation of
Shares or other capital readjustment, the payment of a stock dividend, or
other increase or reduction in the number of Shares outstanding, or shall
effect a spin-off, split-off, or other distribution of assets to
shareholders, without receiving consideration therefor in money, service
or property, the aggregate number and kind of Shares then remaining
subject to or available for Options, including Shares reserved for Options
and Shares as to which Options have been granted but which remain
unexercised, and the per share Option price therefor, shall be
proportionately and appropriately adjusted by the Company's Board of
Directors (without any change in the aggregate exercise price to be paid
therefor) upon the recommendation of the Board of Directors, subject to
the express terms and conditions of this Plan.
Subject to any required action by the Company's shareholders, if
the Company shall be a party to any merger or consolidation in which the
Company is not the surviving corporation, each outstanding Option shall
pertain to and apply to the securities which a Holder of the number of
Shares subject to the Option would have been entitled to receive pursuant
to such transaction, with any such adjustment in the exercise price as the
Board of Directors shall deem appropriate. Upon dissolution or
liquidation of the Company, a Holder shall have the right within sixty
(60) days prior to the effective date of such dissolution or liquidation,
to surrender the Holder's Option to the Company for cash, subject to the
discretion of the Board of Directors as to the exact timing of said
surrender. The amount of cash to be paid to the Holder for the Option if
it has not been exercised, or any unexercised portion thereof if the
Option has been exercised in part, shall be based on the difference
between the exercise price and the Market Price of a Share at the time of
surrender.
14. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to
be adopted by the Board of Directors or the stockholders of the Company
and no action taken by the Board of Directors shall constitute the
granting of any Option hereunder. The granting of an Option shall take
place only when a written Option Agreement shall have been duly executed
by and on behalf of the Company.
15. TAXES.
The Company shall be entitled to pay or withhold the amount of any
tax which it believes is required as a result of the grant or exercise of
any Option, and the Company may defer making delivery with respect to
Shares obtained pursuant to exercise of any Option, until arrangements
satisfactory to it have been made with respect to any such withholding
obligations. A Holder exercising a Nonstatutory Stock Option may, at his
election, subject to such rules and regulations as the Board of Directors
may adopt from time to time, satisfy his obligation for payment of
withholding taxes either by having the Company retain a number of Shares
having an aggregate Market Price on the date the Shares are withheld equal
to the amount of the withholding tax or by delivering to the Company
Shares of Delivered Stock having an aggregate Market Price on the date the
Shares are delivered equal to the amount of the withholding tax.
16. REPURCHASE OF SHARES.
The Company shall repurchase Shares obtained by an Employee
through the exercise of an Option, from the Employee (or the Employee's
estate) at a price determined by the same formula pursuant to which such
Shares were purchased by the Employee under this Plan, upon the happening
of either of the following events:
(1) The Employee ceases to be employed by the Company (or a
Subsidiary), and a written request for repurchase is received from the
Employee by the Company within 180 days after the date the Employee's
employment is terminated; or
(2) The Employee experiences severe financial hardship due to
illness or death in the immediate family, major uninsured casualty loss or
other unforeseen events, and delivers to the Company a written irrevocable
election to have the Company repurchase such Shares, including a statement
in reasonable detail as to the nature of the Employee's financial
hardship, and within 20 days after receipt of such election the Board of
Directors does not determine that no severe financial hardship exists;
Provided, however, that in no event shall the Company be required to
repurchase Shares from an Employee pursuant to this Paragraph 16 until the
Employee has held such Shares for at least six (6) months from the date
the Employee acquired such Shares.
17. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective, upon approval of the Company's
Board of Directors, as of November 1, 1993.
18. TERMINATION AND AMENDMENT.
Unless the Plan shall theretofore have been terminated as
hereinafter provided, this Plan shall terminate on October 31, 2003. The
Plan may be terminated, modified or amended by the shareholders of the
Company. The Board of Directors of the Company may also terminate or
suspend the Plan or make such modifications or amendments thereof as it
shall deem advisable, including such modifications or amendments as it
shall deem advisable in order to conform to any law or regulation
applicable thereto. No termination, modification or amendment of the Plan
may (i) without the consent of a Holder, adversely affect the rights of
such Holder under an outstanding Option then held by the Holder or (ii)
deprive any Employee of any Share which he may have acquired through or as
a result of the Plan. Upon the termination of the Plan, the Board of
Directors shall have no further authority to grant Options hereunder, but
Options outstanding on the date of any such termination shall remain in
effect until they have been exercised, or until they have expired or have
been forfeited.
19. CONSTRUCTION.
Except as otherwise required by applicable federal laws, the Plan
shall be governed by, and construed in accordance with the law of the
State of Wisconsin.
AMENDMENT TO LEASE AGREEMENT
BY AND BETWEEN
JAMES LUTERBACH, Lessor
AND
H.K. SYSTEMS, INC., Lessor
FOR
2855 South James Drive
New Berlin, Wisconsin 53151
<PAGE>
AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT to lease agreement made and entered into at New
Berlin, Wisconsin, on the 17th day of April 1996, by and between
JAMES LUTERBACH, as Lessor, and H.K. SYSTEMS, INC., as Lessee.
W I T N E S S E T H:
1. PARTIES TO AGREEMENT. The parties to this amendment to
lease agreement are:
James Luterbach (Lessor)
a resident of Arizona
2880 South 171st Street
New Berlin, WI 53151
H.K. Systems, Inc. (Lessee)
a Delaware corporation
2855 South James Drive
New Berlin, WI 53151
H.K. Systems, Inc. was formerly known as Harnischfeger
Engineers, Inc., and, other than for change in its name only, continues as
the same entity under its changed name.
2. LEASE AGREEMENT. Heretofore, and on the 16th day of
January, 1995, the parties hereto entered into a written lease agreement
for the premises at 2855 South James Drive, New Berlin, Wisconsin 53151.
3. AMENDMENT TO DESCRIPTION OF PREMISES. Paragraph 2 of the
said lease agreement is amended and restated to provide:
Lessor does hereby lease, demise and let unto Lessee, the
premises at 2855 south James Drive, New Berlin, Wisconsin 53151,
consisting of approximately seven acres of land improved with a commercial
building together with the adjacent parking lot now extended to the west
by addition of pavement to accommodate driveway access to and the
construction of 48 additional vehicle parking spaces and together with
attendant improvements in their entirety subject to the rights of tenants
hereinbelow described.
4. AMENDMENT TO TERM OF LEASE. Paragraph 3 of the said lease
agreement is amended and restated to provide:
Lessee shall have, hold and peaceably enjoy the use of the
premises for the term of sixteen (16) years commencing on the 1st day of
November, 1995, and ending on the 31st day of October, 2011.
5. AMENDMENT TO EXISTING LEASES. The second paragraph under
paragraph 10 of the said lease is amended and restated to provide.
The prior lease to SPX Corporation and the prior sublease to
Granite Finance Corporation have been timely terminated, and the said
lessee and sublessee have vacated the premises leased to them, and the
occupancy thereof timely delivered to Lessee herein.
6. AMENDMENT TO USE OF PREMISES. Paragraph 9 of the said
lease agreement is amended by adding thereto the following paragraph:
In consideration for the addition by Lessor of the 48 vehicle
parking spaces hereinabove described and the payment by Lessor to Lessee
of the sum of $10,000.00, receipt of which Lessee hereby acknowledges,
Lessee grants to Lessor for the exclusive use by Granite Finance
Corporation (Granite) of 26 vehicle parking spaces designated by Lessee in
the parking area at the northeast comer of the premises leased, access to
which is through a gate operated by coded card, a sufficient number of
which shall be furnished by Lessee to Granite. The exclusive use by
Granite of the 26 vehicle parking spaces shall be for the initial term of
the existing lease between Lessor and Granite for the premises at 2725
South Moorland Road, New Berlin, Wisconsin, expiring on March 31, 2006,
together with the two successive five year extensions thereof if the
initial term of the said lease for the said premises is extended by
Granite or its successor or successors, if any, only and none other.
7. CONFIRMATION OF LEASE. The provisions of the said lease
between the parties dated the 16th day of January, 1995, not specifically
amended herein are hereby confirmed in their entirety.
IN WITNESS WHEREOF, James Luterbach, as Lessor, by William
Luterbach, his attorney in fact, has executed these presents, and H.K.
Systems, Inc., formerly Harnischfeger Engineers, Inc., as Lessee, has
caused these presents to be executed by its duly authorized officer, and
their respective seals to be hereunto affixed, in multiple original, at
the place and on the date first above written.
LESSOR: LESSOR:
JAMES LUTERBACH (SEAL) H.K. SYSTEMS, INC. (SEAL)
By: /s/ William Luterbach By: /s/ John R. Kuhnmuench, Jr.
William Luterbach, John R. Kuhnmuench, Jr.,
his attorney in fact Vice President, Secretary and
General Counsel
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN
JAMES LUTERBACH, Lessor
AND
HARNISCHFEGER ENGINEERS, INC., Lessor
FOR
2855 South James Drive
New Berlin, Wisconsin 53151
<PAGE>
INDEX TO
LUTERBACH/HARNISCHFEGER ENGINEERS, INC.
LEASE AGREEMENT
Title Page
1. PARTIES TO AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 1
2. CONVEYANCE AND DESCRIPTION OF PREMISES . . . . . . . . . . . . . 1
3. TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. IMPROVEMENTS BEFORE COMMENCEMENT OF TERM . . . . . . . . . . . . 3
6. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . 4
7. MAINTENANCE AND REPAIR . . . . . . . . . . . . . . . . . . . . . 4
8. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. USE OF PREMISES, COMPLIANCE WITH LAW AND SIGNS . . . . . . . . . 5
10. ASSIGNMENT AND SUBLETTING; EXISTING LEASES . . . . . . . . . . . 6
11. TRADE FIXTURES AND REMODELING OF PREMISES . . . . . . . . . . . 7
12. INDEMNITY AND LIABILITY INSURANCE . . . . . . . . . . . . . . . 7
13. FIRST PARTY PERSONAL PROPERTY DAMAGE, INSURANCE, SUBROGATION AND
NONLIABILITY FOR CONSEQUENTIAL DAMAGES . . . . . . . . . . . . . 8
14. REAL ESTATE TAXES, SPECIAL ASSESSMENTS AND INSURANCE PREMIUMS . 9
15. DAMAGE OR INJURY AND CONDITION OF PREMISES . . . . . . . . . . . 10
16. OPTION TO EXTEND LEASE . . . . . . . . . . . . . . . . . . . . . 10
17. SURRENDER AT END OF TERM AND HOLDING OVER . . . . . . . . . . . 11
18. RE-ENTRY UPON DEFAULT OF LESSEE . . . . . . . . . . . . . . . . 11
19. EFFECT OF BANKRUPTCY OR INSOLVENCY; FINANCIAL STATEMENTS . . . . 13
20. LESSOR'S ENTRY FOR INSPECTION, MAINTENANCE AND REPAIR; FOR RENT
SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
21. DAMAGE OR DESTRUCTION OF PREMISES . . . . . . . . . . . . . . . 14
22. WAIVER OF BREACH NOT WAIVER OF SUBSEQUENT BREACH . . . . . . . . 15
23. WRITTEN NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 15
24. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 15
25. SUBORDINATE TO MORTGAGE AND ATTORNMENT . . . . . . . . . . . . . 15
26. COVENANTS BINDING UPON ASSIGNS . . . . . . . . . . . . . . . . . 16
27. LAW OF FORUM; PROVISIONS SEVERABLE . . . . . . . . . . . . . . . 16
28. ENTIRE AGREEMENT AND MODIFICATION . . . . . . . . . . . . . . . 16
LEASE AGREEMENT
THIS INDENTURE, made and entered into at New Berlin, Wisconsin,
on the 16th day of January, 1995, by and between JAMES LUTERBACH, as
Lessor, and HARNISCHFEGER ENGINEERS, INC. as Lessee.
W I T N E S S E T H:
1. PARTIES TO AGREEMENT. The parties to this lease agreement
are:
James Luterbach, (Lessor)
a resident of Arizona
2880 South 171st Street
New Berlin, WI 53151
Harnischfeger Engineers, Inc. (Lessee)
a Delaware corporation
13400 Bishops Lane
Brookfield, WI 53005
Luterbach, although a resident of Arizona, designates his
indicated address for the purposes of this agreement.
After the commencement of the term of this lease agreement, the
address of Lessee shall be changed to the premises leased herein at 2855
South James Drive, New Berlin, Wisconsin 53151.
2. CONVEYANCE AND DESCRIPTION OF PREMISES. Lessor does hereby
lease, demise and let unto Lessee the premises at 2855 South James Drive,
New Berlin, Wisconsin 53151, consisting of approximately seven acres of
land improved with a commercial building together with the adjacent
parKing lot and attendant improvements in their entirety subject to the
rights of tenants hereinbelow described.
3. TERM OF LEASE. Lessee shall have, hold and peaceably enjoy
the use of the premises for the term of fifteen (15) years commencing on
the 1st day of November, 1995, and ending on the 31st day of October,
2010.
4. RENT. Lessee shall have, hold and peaceably enjoy the use
of the premises for the term and shall pay therefor the base rent of
Thirteen Million Eight Hundred Ninety-four Thousand Two Hundred Dollars
($13,894,200.00), adjusted as herein provided, payable at the rate of
$77,190.00 on the first day of each calendar month commencing on the 1st
day of November, 1995, through the end of the term, in advance, together
with adjustments to base rent and the other obligations particularized
hereinbelow, and together with any sales, use, occupancy or similar taxes,
if any, attributable thereto, absolutely without any claim of setoff for
any reason whatever against Lessor, the obligation to pay rent being a
covenant independent of the other covenants herein to be performed by
Lessee. No payment by Lessee or receipt by Lessor of a lesser amount than
the monthly installments of rent herein provided shall be other than on
account of the earliest unpaid rent obligation, nor shall any endorsement
or statement on or accompanying any remittance be deemed an accord or
satisfaction, and Lessor shall accept such remittance without prejudice to
Lessor's right to recover unpaid rent or to pursue any other remedy in
this lease.
Commencing with the 1st day of November, 2000, and for each
subsequent year during the term commencing on the 1st day of November, the
base rent shall be increased by three percent (3%) over the base rent
payable for the preceding year apportioned to and payable as the monthly
installments of rent.
5. IMPROVEMENTS BEFORE COMMENCEMENT OF TERM. Prior to the
commencement of the term of this lease, Lessor, at his cost, shall
complete the leasehold improvements to the premises in accordance with the
plans and specifications to be prepared by Computerized Structural Design,
Inc. (CSD), architects and engineers, coordinated to the requirements
timely provided by Lessee to Lessor to permit commencement of construction
no later than the 1st day of June, 1995. The cost of the leasehold
improvements including charges by CSD shall be not more than $1,250,000.00
with the work of improvement performed by James Luterbach Construction
Co., Inc. who shall charge a ten percent (10%) supervision fee upon cost
of its own work and a five percent (5%) supervision fee upon charges
payable to its subcontractors, but with total fees not to exceed
$65,000.00. Should supervising governmental authority require as a
condition to the approval of the plans and specifications for the
leasehold improvements that modifications be made to the building not
reasonably contemplated in the said plans and specifications, then Lessee
shall pay the first $10,000.00 of the cost thereof and 75 percent of any
cost in excess thereof, and Lessor shall pay the remaining 25 percent of
the excess cost. The written statement by CSD that the work of leasehold
improvements has in its professional opinion been substantially completed
in accordance with its plans and specifications and in compliance with
applicable rules and regulations including the Americans With Disabilities
Act as then defined, and that an occupancy permit is issuable to Lessee
shall be conclusive upon the parties.
The work of the leasehold improvements shall be diligently
performed. In the event the work of the leasehold improvements is delayed
by causes beyond the control of Lessor so they are not substantially
completed at the commencement of the term of this lease agreement, then
the commencement of the term shall abate substantial completion thereof,
and all other dates in this lease agreement shall be extended
commensurately.
6. SECURITY DEPOSIT. Contemporaneously with the execution and
delivery of this agreement, Lessee has paid Lessor, the receipt of which
is acknowledged, the sum of $34,500.00 as security for the full and
faithful performance by Lessee of its obligations under this lease
agreement, which security deposit may be used by Lessor for his own
purposes, and which shall be returned to Lessee promptly upon the
expiration of the term of this lease agreement, provided Lessee has
faithfully performed its obligations under the terms hereof and has
surrendered the premises to Lessor, otherwise to be applied to the damages
sustained by Lessor under this lease agreement.
7. MAINTENANCE AND REPAIR. Lessor shall, as required and at
his cost, perform repairs, maintenance or replacement to the structure and
to the roof of the building of the premises, except for repairs,
maintenance or replacement to the structure or to the roof which become
necessary through the fault or neglect of Lessee, its agents, employees or
other persons, other than Lessor, in privity with Lessee, in which event
Lessee shall pay the cost thereof. Lessor shall exercise reasonable
effort to maintain the roof of the building of the premises free from
water leaks, but the parties recognize the roof of the building is flat
and will be susceptible to damage by the elements which may result in such
water leaks. In no event, however, shall Lessor be liable to Lessee for
water damage resulting from water leaks in the roof or from water seepage.
Lessee shall, at its cost, maintain the premises in good repair,
reasonable wear and tear excepted, including, but not limited to,
maintenance and repaving of the parking lot, driveway and walkways,
including snow and ice removal, landscape maintenance, maintenance, repair
and replacement as necessary of the heating, ventilating, air
conditioning, hot water and plumbing systems and window glass replacement,
excepting only the said structural and roof repairs required to be
performed by Lessor.
In the event Lessee fails to timely perform the maintenance
obligations required of it, Lessor may perform such obligations, and
Lessee shall promptly pay Lessor the costs incurred upon receipt of the
invoice therefor.
8. UTILITIES. Lessee shall, during the term of this lease,
pay for costs of gas, heat, water, sewer, electricity and all other
utilities as may be furnished to the premises including any taxes or use
assessments attributable thereto.
9. USE OF PREMISES, COMPLIANCE WITH LAW AND SIGNS. Lessee
shall use the premises for offices, storage and other uses consistent with
its business of providing professional engineering services to others, and
for no other purpose without the prior written consent of Lessor, which
shall not be unreasonably withheld, and shall comply with all requirements
of law and rules and regulations and orders of supervising governmental
authorities, and shall not, in any event, put the premises to noxious or
illegal uses, or uses that may constitute a nuisance or an irritant or
danger to adjacent properties. Lessee shall not store abandoned vehicles
or equipment exterior to the building, nor cause the premises to become
unsightly, nor paint or deface masonry or metal trim, nor erect or display
any signs visible outside of the building of the premises without the
prior written consent of Lessor which shall not be unreasonably withheld,
and Lessor may remove any unauthorized signs at the cost of Lessee.
Lessee shall pay all fees for signs imposed by supervising governmental
authority.
10. ASSIGNMENT AND SUBLETTING; EXISTING LEASES. Except as
otherwise provided herein, Lessee shall not assign this lease nor sublet
all or any portion of the premises without first obtaining the written
consent of Lessor, which shall not be unreasonably withheld. Such
assignment or subletting shall not relieve Lessee from liability for
payment of rent and the performance of all other obligations hereunder,
unless otherwise agreed in writing by both parties.
The premises are presently leased to SPX Corporation (SPX), the
successor to and the assignee of Bear Automotive Service Equipment Company
(Bear) under the terms of a lease agreement dated August 27,1986, with
amendment dated December 3,1986, for the initial term often years
commencing on April 1,1987, and ending on March 31,1997. On April
25,1994, SPX, with consent of Lessor, sublet the second floor of the
building of the premises to Granite Finance Corporation (Granite) for the
initial term of five years commencing on June 1, 1994, and ending on May
31, 1999. Lessor shall consensually terminate the lease with SPX and the
sublease with Granite 50 the premises leased to them shall be timely
available for the construction of the leasehold improvements required to
be provided by Lessor to Lessee.
Lessor shall enter into a lease for the southeasterly 9,600
square feet of the first floor of the building of the premises to ABB
Robotics, Inc. (ABB) for a term of three years commencing on the 15th day
of January, 1995, and ending on the 14th day of January, 1998, which shall
be extended for two successive one year terms unless either party shall
prior to nine months preceding the expiration of the initial term, or of
the expiration of the first extended term, gives notice to the other party
that the then extant term shall not be extended, at the rate of $7.95 per
square foot of floor space per annum, a copy of which lease agreement
shall be promptly furnished to Lessee. At the commencement of the term of
this lease agreement Lessor shall assign his interest in the lease
agreement with ABB over to Lessee who shall assume the rights and
obligations of the Lessor thereunder to the extent not required of Lessor
herein.
11. TRADE FIXTURES AND REMODELING OF PREMISES. All trade
fixtures and equipment installed by or for Lessee incident to its
business, except leasehold improvements installed by Lessor at his cost,
shall remain the property of Lessee and shall be removed by Lessee during
or at the expiration or sooner termination of the term of this lease
agreement. However, any damage caused by such removal shall be repaired
by Lessee if so required by Lessor. If Lessee shall fail to make such
removal and repair, Lessor shall make or cause the same to be made, and
Lessee shall pay Lessor the cost thereof promptly upon receipt of the
invoice therefor. No remodeling of or alteration to the premises shall be
made by Lessee without the prior written consent of Lessor which shall not
be unreasonably withheld.
Any personal property belonging to Lessee left on the leased
premises when Lessee shall surrender the premises to Lessor shall be
deemed abandoned and may be disposed of in the discretion of Lessor, and
Lessee shall reimburse Lessor for the cost of such disposal promptly upon
receipt of the invoice therefor.
12. INDEMNITY AND LIABILITY INSURANCE. In consideration for
commensurate reduction in rent, Lessee shall indemnify, hold harmless, and
defend Lessor from and against any and all claims, demands, damages,
suits, actions, judgments, decrees, orders and expenses including attorney
fees in favor of anyone arising out of or on account of this lease
agreement or the use, occupancy or condition of the premises for incidents
occurring during the term of this lease agreement, or while holding over,
caused by any person whatever, whether the claim therefor is made during
or alter the expiration of the term of this lease. To additionally secure
Lessor against such claims, Lessee shall, during the term of this lease
agreement and while holding over, maintain in lull force and effect a
policy or policies of comprehensive general liability insurance against
loss, liability or claims made by any person, including Lessee and third
parties, on an occurrence basis with a combined single limit of not less
than $5,000,000.00 for any one person, or for any one occurrence, naming
Lessor as an additional insured. Lessee shall furnish Lessor with a
certificate of insurance showing such policy or policies to be in lull
force and effect during the term of this lease agreement, or while holding
over, which shall contain a provision that the said policy or policies are
not be to cancelled except upon 30 days prior written notice of
cancellation to Lessor.
13. FIRST PARTY PERSONAL PROPERTY DAMAGE, INSURANCE,
SUBROGATION AND NONLIABILITY FOR CONSEQUENTIAL DAMAGES. Neither of the
parties hereto shall be liable or responsible to the other party for
personal property damage or for consequential damages sustained, other
than for personal injury resulting therefrom, whether or not occasioned by
negligence. Each of the parties shall insure against damage by casualty
or negligence to his or its personal property and be limited to first
party recovery from his or its respective insurance carriers without
subrogating the claim of either against the other to the benefit of the
insurance carriers making payment under insurance contracts. Each party
shall name the other party as an additional insured and shall take such
other action as will effectively prevent the insured party's insurance
carrier from subrogating a claim against the other party. Each party
shall furnish the other party with a certificate of insurance showing such
policy or policies to be in lull force and effect during the term of this
lease and while holding over, which shall contain a provision that the
said policy or policies are not to be cancelled except upon 30 days prior
written notice of cancellation to the named insureds or certificate
holders.
Lessor shall not be responsible nor liable to Lessee for any
loss, damage, injury, consequential damages or for any matter whatever
that may result through the acts or omissions of Lessor or of any other
party, it being the contemplation of the parties that Lessee may, at its
election, insure against such losses or make other provision for such
loss, damage or injury.
14. REAL ESTATE TAXES, SPECIAL ASSESSMENTS AND INSURANCE
PREMIUMS. Lessee shall pay as additional rent the net annual real estate
taxes, special assessments, and premiums for fire and extended coverage
insurance and owner's, landlord's and tenant's liability insurance carried
by Lessor upon the premises. Said additional rent shall be prorated to
conform to the term of this lease agreement or while holding over.
Contemporaneously with the payment of the monthly installments of rent,
Lessee shall pay Lessor one-twelfth (1/12) of the estimated annual real
estate taxes, special assessments and premiums for said insurance to fully
fund the obligations therefor by the end of each calendar year for which
the taxes are assessed or charges incurred. Any deficiency in the amounts
funded for these purposes shall be promptly paid by Lessee upon receipt of
the invoice and supporting documents therefor, even if delivered alter the
expiration of the lease term. The monthly payments for estimated real
estate taxes, special assessments and insurance premiums shall be
$11,550.00 commencing with the first day of the term and continuing
through the 1st day of December, 1996, and thereafter determined annually
by the amount assessed or charged for the preceding calendar year.
Lessee shall have the right, at its cost, to contest or protest
the amounts assessed for real estate taxes or for special assessments, and
Lessor shall cooperate with Lessee in any procedure initiated therefor by
Lessee.
15. DAMAGE OR INJURY AND CONDITION OF PREMISES. Lessee shall
use and occupy the premises in a careful, safe and lawful manner, without
waste, and shall keep the premises and all parts thereof safe and in good
order, and will so deliver up the same at the expiration or sooner
termination of this lease, reasonable use and ordinary wear and tear
thereof and damage by unavoidable casualty to personal property against
which Lessor is obligated to insure and is or would be covered and fully
compensable to Lessor by such insurance excepted. Lessee, at its sole
cost and expense, shall make good any damage to said premises or any part
thereof caused by the act of Lessee or its agents and employees, or by
persons, other than Lessor, in privity with Lessee, and shall prior to the
expiration or sooner termination of the lease term repair any damage to
said premises which may be caused by its removal therefrom.
16. OPTION TO EXTEND LEASE. Provided Lessee shall in all
respects be current in the performance of its obligations under this lease
agreement, and not otherwise, and not while holding over, and shall desire
to extend the initial term of this lease agreement, it shall have the
option to do so for two additional five year terms which options shall be
exercised by giving written notice to Lessor of its election to extend the
initial term not less than 24 months prior to the expiration of the
initial term for the first extended term, and like notice at the like time
prior to the expiration of the first extended term in exercising the
option for the second extended term, whereupon this lease agreement shall
be extended for each such additional term of five years without the
necessity for any separate extension agreement. All of the provisions of
this lease agreement for the initial term shall continue through each
extended term except for base rent. Base rent for the first year of the
first extended term shall be increased, but not decreased, by the
proportionate increase in the Consumer Price Index-Urban (CIP-U) published
by the United States Department of Labor immediately prior to the
beginning of the first year of the extended term over that published most
recently prior to the thirteenth year of the initial term without
limitation. Thereafter the base rent for each subsequent year of each
extended term shall be increased but not decreased by the proportionate
increase in the CPI-U published immediately prior to the beginning of each
year of the extended term over that published most recently prior to the
twelfth month preceding the beginning of each such year, but in all events
each said annual proportionate increase in base rent shall not be less
than three percent (3%) nor more than ten percent (10%).
17. SURRENDER AT END OF TERM AND HOLDING OVER. Lessee
covenants that on the last day of the term of this lease agreement, or any
extension thereof, or earlier termination thereof, to peaceably and
quietly surrender and yield up to Lessor the entire premises, including
all leasehold and other improvements and additions to the freehold not
required to be removed, broom clean and in good order and condition,
reasonable wear and tear excepted. Should Lessee hold over alter the
expiration of the term of this lease; this lease shall then continue on a
month to month term only, subject to all of the conditions, provisions and
obligations of this lease insofar as the same are applicable to the month
to month term.
18. RE-ENTRY UPON DEFAULT OF LESSEE. If Lessee shall default
in the payment of rent which is not cured within 10 days alter Lessor
gives Lessee written notice of default, then Lessee shall, in addition to
the payment of rent in default, pay Lessor seven and one-half percent (7
1/2%) of the payment in default as a late payment fee. If Lessee shall
default in the payment of rent which is not cured within 30 days alter
Lessor gives Lessee written notice of default, then Lessor may at his
option declare the base rent for the balance of the term due in its
entirety, whereupon the same shall be payable forthwith reduced to its
then present value at an annual compounded interest rate often percent
(10%) without abatement by re-rental, but in all events the accelerated
base rent shall not be less in amount than twenty-four (24) months base
rent at the monthly base rent rate then in effect without reduction to
then present value, so that Lessor will be made whole for expenditures for
leasehold improvements incurred before the commencement of the term and as
agreed liquidated damages for unpaid base rent only.
In the event Lessee does not or shall neglect or fail to perform
and observe any of the covenants or conditions herein contained which on
its part are to be performed, including the independent covenant for
payment of rent, Lessor may lawfully, immediately, or at any time
hereafter, and while such neglect or default continues, and upon 30 days
prior written notice of default which remains uncorrected, except m those
cases where it is not feasible for the Lessee to correct the default
within 30 days and Lessee has commenced correction within 30 days of the
notice or demand and is diligently pursuing the correction to completion,
then without further notice or demand, enter into or upon said premises
and repossess the same as if its former estate as authorized by law, and
expel Lessee and those claiming under it, and remove its effects, forcibly
if necessary, without prejudice to any remedies which might otherwise be
used for arrears of rent or preceding breach of covenant; and such
expulsion and removal, whether by the direct act of Lessor or his assigns
according to law, or through the medium of legal proceedings for that
purpose instituted, shall not affect the liability of the Lessee or its
representatives for the past rent due or future rent to accrue under this
lease, but the same shall continue as if such removal or expulsion had not
taken place. Lessee further covenants and agrees to pay and discharge all
reasonable costs, attorneys' fees and expenses that shall be paid and
incurred by Lessor in enforcing the covenants and agreements of this
lease. The remedies of Lessor shall be cumulative.
Accelerated base rent and other obligations of Lessee to Lessor
shall bear interest on the unpaid balance thereof from time to time until
paid at the rate of ten-twelfths of one percent (10/12%) or three percent
(3%) over the rate charged by Firstar Bank, Milwaukee, Wisconsin, to its
most creditworthy borrowers, whichever is the greater, applied monthly to
the total amount of principal and accumulated interest accrued.
19. EFFECT OF BANKRUPTCY OR INSOLVENCY; FINANCIAL STATEMENTS.
The interest of Lessee under this agreement shall not be subject to
involuntary assignment, transfer or sale by operation of law or in any
manner whatsoever, and any such attempt at involuntary assignment,
transfer or sale shall be void and of no effect.
The parties acknowledge that the leasehold improvements to be
made by Lessor upon the premises are unique to the special use of Lessee.
In the event any proceedings under the Bankruptcy Act or similar laws be
commenced by or against Lessee which are not dismissed before an
adjudication in bankruptcy or the confirmation of a composition,
arrangement or plan of reorganization, or in the event Lessee is adjudged
insolvent or makes an assignment for the benefits of its creditors, or if
a receiver is appointed for Lessee in any proceedings or action, then at
the election of Lessor, the Lessor may accelerate the unpaid rent and all
obligations of Lessee to Lessor hereunder including all such obligations
of any and all persons claiming under Lessee as upon default by Lessee.
Lessee shall upon reasonable request by Lessor furnish Lessor
with its financial statements which Lessor shall keep confidential and
provide only if required to his attorneys, accountants and commercial
lenders.
20. LESSOR'S ENTRY FOR INSPECTION, MAINTENANCE AND REPAIR; FOR
RENT SIGNS. Lessor shall have the right, at reasonable times during the
business hours of Lessee, upon 24 hours advance verbal notice, except in
the case of an emergency when entry may be made at any time forcibly or by
key and alarm disarmament code provided by Lessee, to enter upon the
premises for the purposes of inspecting the same and of showing the said
premises to prospective tenants or purchasers or to maintain or to make
repairs or modifications to the improvements thereon. Lessee will permit
the usual "For Rent" or similar signs to be placed upon the premises at
any time within twenty-four (24) months prior to the expiration of the
term of this lease, or any extension thereof.
21. DAMAGE OR DESTRUCTION OF PREMISES. In the event the
premises shall be damaged or destroyed during the term of this lease
agreement by fire, other casualty or the elements, it shall be promptly
repaired by Lessor, at his expense. Lessor shall undertake the necessary
work within a reasonable period of time alter such damage or destruction
and shall pursue the same with due diligence, in a manner consistent with
sound construction methods; but Lessor shall not be liable for any delays
in or interruptions to such construction or repair occasioned by strikes,
acts of God, national emergency, governmental regulations, inability to
procure labor or materials or any other causes (whether of similar or
dissimilar nature) beyond his control. Rent shall be abated during the
period when the premises are unable to be occupied. In the case where the
premises may be partially occupied, rent shall be prorated to the
proportion of the premises which may be occupied.
22. WAIVER OF BREACH NOT WAIVER OF SUBSEQUENT BREACH. The
declination of Lessor to insist on strict performance of any of the terms
and conditions of this agreement and the obligations of Lessee hereunder
shall not be deemed a waiver of any subsequent breach or default on the
part of Lessee.
23. WRITTEN NOTICES. Unless otherwise specifically provided,
all notices by either party to the other shall be in writing and given by
receipted personal delivery or sent by certified mail with return postal
receipt to the other party at the address set forth hereinabove, or to
such other address as either party shall hereafter designate to the other
by written notice, and shall be effective upon the date of mailing.
24. ESTOPPEL CERTIFICATES. At any time, and from time to time,
Lessee agrees, upon request in writing from Lessor, to execute,
acknowledge and deliver to Lessor a statement in writing certifying that
its lease agreement is unmodified, or if modified stating the
modifications, and in lull force and effect and the date to and for which
the rent and other amounts and charges hereunder have been paid.
25. SUBORDINATE TO MORTGAGE AND ATTORNMENT. This lease
agreement shall at all times be subordinate to any mortgage or security
agreement placed by Lessor upon the premises, provided, so long as Lessee
is not in default under the terms of this lease agreement, the rights of
Lessee hereunder shall not be prejudiced nor its occupancy of the premises
be disturbed by any action taken by the mortgagee under terms of its
mortgage, and in consideration thereof, Lessee agrees to attorn to the
mortgagee or any successor in interest to Lessor as its successor Lessor,
and this lease agreement shall continue in lull force and effect between
Lessee and the successor Lessor. The parties hereto agree to execute such
documents as may be necessary to give effect to this provision.
26. COVENANTS BINDING UPON ASSIGNS. The covenants, conditions
and terms of this lease agreement shall be binding upon the respective
parties hereto and upon their successors, assigns, trustees, receivers,
heirs and personal representatives, as the case may be.
27. LAW OF FORUM; PROVISIONS SEVERABLE. This lease agreement
shall be governed by the laws of the State of Wisconsin. If any provision
of this lease agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or unenforceable under any law
applicable thereto, such provision shall be deemed deleted from this lease
agreement without impairing or prejudicing the validity, legality and
enforceability of the remaining provisions hereof.
28. ENTIRE AGREEMENT AND MODIFICATION. This instrument is the
entire lease agreement between the parties hereto, and there are no other
promises, conditions or understandings, oral or written, between the
parties. This agreement shall not be modified nor amended unless reduced
to writing and executed as this agreement is executed.
IN WITNESS WHEREOF, James Luterbach, as Lessor, has executed
these presents, and Harnischfeger Engineers, Inc. as Lessee, has caused
these presents to be executed by its duly authorized officer, and their
respective seals to be hereunto affixed, in multiple original, at the
place and on the date first above written.
LESSOR: LESSEE:
HARNISCHFEGER ENGINEERS, INC.
(SEAL)
/s/ James Luterbach (SEAL) By: /s/ John R. Kuhnmuench, Jr.
James Luterbach John R. Kuhnmuench, Jr.,
Vice President, Secretary
and General Counsel
LEASE AMENDMENT
This Lease Amendment Agreement ("Amendment 1") is made this
5th day of January, 1996 by and between Eaton Properties Corporation and
Eaton Utah Corporation, hereinafter collectively called "Landlord", and HK
Systems, Inc., formerly known as Harnischfeger Engineers, Inc. and
hereinafter called "Tenant."
WHEREAS, Tenant entered into a lease agreement dated February
13, 1995 ("Lease") with Landlord for the lease of 53,558 square feet of
rentable space ("Premises") at 515 East 100 South, Salt Lake City Utah
("Building"); and
WHEREAS, Tenant and Landlord desire to amend the Lease;
In consideration of the covenants and promises contained herein
Landlord and Tenant hereby agree:
1. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the entire seventh floor in the Building, comprised of
11,613 rentable square feet ("Expansion Space"). Tenant accepts the space
"as-is" and acknowledges that no Improvement Allowance is to be provided
by Landlord for the Expansion Space and there have been no representations
or warranties made by or on behalf of Landlord with respect to the
Expansion Space. The taking of possession of Expansion Space by Tenant
shall conclusively establish that the Expansion Space was at that time in
satisfactory condition, order and repair.
2. Tenant acknowledges that it has been in continuous
possession of the Expansion Space since February 13, 1995. Landlord
acknowledges that all Base Rent and Additional Rent due for the period
from February 13,1995 through the execution of this amendment agreement
has been received. The lease term for the Expansion Space shall be
coterminous with the Lease.
3. Except as provided herein, Rent, Additional Rent and all
other sums due Landlord from Tenant for the Expansion Space during the
lease term shall be determined in accordance with the terms and conditions
of the Lease.
4. Tenant hereby relinquishes as of January 1, 1996, all
rights to 3,342 rentable square feet of space on the second floor,
referred to as the "Executive Area" and shown in the attached floor plan.
Tenant shall surrender the Executive Area in broom clean condition. Any
hold over by Tenant in the Executive Area shall create a month-to-month
tenancy, cancelable by either party with thirty (30) days notice, under
the same terms and conditions of the Lease.
5. Exhibit A of the Lease shall be amended to read as follows:
The Premises
Floor Square Feet
Second 5,732
Third 10,629
Fourth 10,629
Fifth 11,613
Sixth 11,613
Seventh 11,613
-------
Total 61,829
6. Tenant's Share as defined in Section 5(e) of the Lease
shall be amended to be the ratio of the number sixty-one thousand eight
hundred twenty-nine (61,829) to the total number of square feet of
leasable space in the Building, which is one hundred fifty-nine thousand
eight hundred seventy-four (159,874), or thirty-eight and seven-tenths
percent (38.7%).
7. Base Rent as calculated in Section 4 of the Lease shall be
amended to be five hundred seventy-one thousand nine hundred eighteen
dollars and twenty-five cents ($571,918.25) annually, payable in equal
monthly installments of forty-seven thousand six hundred fifty-nine
dollars and eight-five cents ($47,659.85).
8. Section 7 of the lease shall be deleted in its entirety and
replaced with the following:
7. Parking.
Landlord shall, at no extra cost to Tenant,
provide Tenant with two hundred (200) parking
spaces in the garage adjoining the Building,
placed as follows:
Parking Level Number of Spaces
E 5
H 10 (High Profile)
J 10
K 44
L 47
M 45
N 39
---
Total 200
9. Tenant shall be granted the exclusive right to use the
third floor entrance for access to the building.
10. Neither of the parties hereto shall be liable or
responsible to the other party for personal property damage or for
consequential damages sustained, other than for personal injury resulting
therefrom, whether or not occasioned by negligence. Each of the parties
shall insure against damage by casualty or negligence to his or its
personal property and be limited to first party recovery from his or its
respective insurance carriers without subrogating the claim of either
against the other to the benefit of the insurance carriers making payment
under insurance contracts. Each party shall name the other party as an
additional insured and shall take such other action as will effectively
prevent the insured party's insurance carrier from subrogating a claim
against the other party.
11. Defined terms referenced herein shall have the same meaning
as defined in the Lease.
12. Except as explicitly stated above, all other terms and
conditions of the Lease remain unchanged and apply to the Expansion Space.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Amendment 1 to be signed as of the day and year first written above.
Witnesses as to Landlord: Landlord:
EATON PROPERTIES CORPORATION
By: /s/
Its:
By: /s/
Its:
EATON UTAH CORPORATION
By: /s/
Its:
By: /s/
Its:
Witnesses as to Tenant HK SYSTEMS
By: /s/ John R. Kuhnmuench, Jr.
Its: Vice President
By:
Its:
<PAGE>
LEASE
EATON TOWER
515 EAST 100 SOUTH
SALT LAKE CITY, UTAH 84102
LANDLORD:
EATON PROPERTIES CORPORATION
EATON UTAH CORPORATION
TENANT:
HARNISCHFEGER ENGINEERS, INC.
<PAGE>
TABLE OF CONTENTS
Paragraph Page
1. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Rent Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . 5
9. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10. Condition of Premises . . . . . . . . . . . . . . . . . . . . . 7
11. Building Services . . . . . . . . . . . . . . . . . . . . . . . 8
12. Assignment and Subletting . . . . . . . . . . . . . . . . . . . 9
13. Access to Premises . . . . . . . . . . . . . . . . . . . . . . . 10
14. Damage and Repairs . . . . . . . . . . . . . . . . . . . . . . . 10
15. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . 12
16. Waiver of Claims . . . . . . . . . . . . . . . . . . . . . . . . 12
17. Tenant Liability Indemnification and Insurance . . . . . . . . . 12
18. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . 13
19. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . 14
21. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . 16
22. No waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
23. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . 17
24. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 17
25. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
26. Subordination and Attornment . . . . . . . . . . . . . . . . . . 17
27. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . 18
28. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
29. Floor Load . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
30. Landlord Option . . . . . . . . . . . . . . . . . . . . . . . . 19
31. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 19
33. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
34. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35. Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
36. Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 20
37. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . 20
38. Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . 21
39. Marginal Titles . . . . . . . . . . . . . . . . . . . . . . . . 21
40. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 21
41. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . 21
42. Option on Additional Space . . . . . . . . . . . . . . . . . . . 21
43. Option to Extend . . . . . . . . . . . . . . . . . . . . . . . . 22
44. Additional Space . . . . . . . . . . . . . . . . . . . . . . . . 23
45. Lease of First Floor Space . . . . . . . . . . . . . . . . . . . 23
46. Alternative Dispute Resolution . . . . . . . . . . . . . . . . . 23
EXHIBIT "A" -- The Premises
EXHIBIT "B" -- Description of Land
EXHIBIT "C" -- Initial Tenant Improvements
EXHIBIT "D" -- Janitorial Service
EXHIBIT "E" -- Rules and Regulations
L E A S E
1. Parties.
THIS LEASE, made as of the 13th day of February, 1995, between
EATON PROPERTIES CORPORATION, an Ohio corporation, and EATON UTAH
CORPORATION, an Ohio corporation, hereinafter collectively called
"Landlord," and HARNISCHFEGER ENGINEERS, INC., a Delaware corporation,
hereinafter called "Tenant."
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, the space described or otherwise identified in Exhibit "A"
attached hereto (hereinafter called "Premises") in the fourteen story
office tower (the "Building") known as the Eaton Tower on land located at
the address of 515 East 100 South, Salt Lake City, Utah. Tenant shall
further have the right during the entire term hereof at no charge to
Tenant, except for charges for the common area of the first floor which
will be allocated over floors 2 through 9 of the Building, to locate one
of its employees (along with a desk, telephone and related equipment) in
the lobby of the first floor of the Building for reception purposes.
3. Term.
The term of this Lease shall commence on the date hereof (the
"Commencement Date") and continue through 11:59 p.m. on the last day of
the month of the tenth anniversary of the Commencement Date, unless sooner
terminated or extended as hereinafter provided.
4. Rent.
Subject to the terms and conditions hereof, Tenant covenants and
agrees to pay to Landlord Base Rent (herein so called) at the annual rate
of Four Hundred Ninety-Five Thousand Four Hundred Eleven and 48/100
Dollars ($495,411.48), which is the product of Nine and 25/100 Dollars
($9.25), and the number of square feet of rentable area contained in the
Premises. Base Rent shall be payable in equal monthly installments of
Forty-One Thousand Two Hundred Eighty-Four and 29/100 Dollars ($41,284.29)
each.
All Base Rent with respect to any portion of the Premises shall
be payable in lawful money of the United States of America with the
monthly installments due on the first business day of each calendar month
in advance at the office of the Landlord, or to such other recipient or at
such place as Landlord shall designate by written notice to Tenant,
without prior demand therefor and without any deduction or set-off
whatsoever. Tenant hereby covenants and agrees to pay the Base Rent
hereby reserved as and when due, together with all other sums of money,
rental adjustments, charges and other amounts required to be paid by
Tenant to Landlord to another person under this Lease ("Additional Rent").
Such Base Rent and Additional Rent are hereinafter collectively referred
to as "Rent." This covenant to pay Rent shall be independent of any other
covenant set forth in this Lease.
In the event Tenant fails to pay Rent within ten (10) days after
such is due and payable, such amount with interest thereon from the date
due at a rate equal to the then current annual prime rate plus two percent
(2%) charged by Zion Bank, Salt Lake City, Utah, to its most creditworthy
customers (provided such rate does not exceed any limitations imposed by
law, in which event the interest rate shall be that which is the highest
rate permitted by law), shall be included as Additional Rent payable by
Tenant on demand by Landlord; provided, however, that Landlord's receipt
of any such Additional Rent shall not be a waiver of Tenant's default, nor
shall such receipt affect any other remedy of Landlord hereunder.
5. Definitions.
As used in this Lease, the following terms shall have the
following respective meanings:
(a) "Impositions" shall mean and include:
(i) all personal property taxes on tangible personal
property owned by Landlord and used in the operation of the
Building;
(ii) real estate taxes and assessments, general or
special, imposed on the Building and the Land provided that any
special assessments shall be paid by Landlord in installments
over the longest term available and Tenant shall only be
responsible for its share of any installments coming due during
the Lease term;
(iii) any tax or excise in addition thereto or
substitution thereof imposed by reason of ownership, leasing,
operation or occupancy of the Building, or the Land, and
incurred by Landlord, and any tax against Landlord on rent from
the Building, excluding income and excess profits taxes,
franchise, capital stock and license, inspection and permit
fees; and
(iv) any water service assessments and/or sewer rents
which may be assessed, levied, confirmed or imposed on or in
respect of the Building or the Land;
(b) "Land" shall mean the entire parcel of land on which
the Building shall be located as described in Exhibit "B" hereto.
(c) "Legal Holidays" shall mean New Year's Day, Memorial
Day, Independence Day, Founder's Day (Utah), Labor Day, Thanksgiving Day
and Christmas Day. Landlord shall give Tenant ninety (90) days prior
notice of any change in such list.
(d) "Operating Expenses" shall mean all expenses paid or
incurred by Landlord or on Landlord' s behalf as reasonably determined by
Landlord to be necessary or appropriate for the efficient operation,
maintenance and repair of the Building, the land upon which it is
situated, and the parking facility situated on the land. Such "Operating
Expenses" shall include all expenses paid or incurred by Landlord for
heating, cooling, electricity, water, gas, sewers, refuse collection;
taxes and property damage insurance; the cost of supplies, janitorial and
cleaning services; landscaping maintenance, window washing, management
services (provided however, no such management service fees shall exceed
four percent (4%) of the annual Base Rent and Additional Rent payable
hereunder); the cost of compensation of all persons who perform duties in
connection with such operating costs; and any other expenses or charge
which, in accordance with generally accepted accounting and management
principles, would be considered an expense of maintaining, operating or
repairing the Building, parking structure, and the land upon which they
are situated. "Operating Expenses" shall not include expenditures paid by
Tenant directly to third parties, or to which Landlord is otherwise
reimbursed by any third party or by any insurance proceeds.
(i) Operating Expenses shall not include any expenses
incurred by Landlord for the following; professional fees,
repairs or other work occasioned by fire, windstorm, or
casualty; leasing or procuring new tenants, renovating vacant
space or renovating space for new tenants; depreciation of the
Building and parking structure; interest, amortization or
principal payments on any debt or mortgage; income, gross
receipts, franchise, capital stock taxes payable by Landlord or
other taxed based upon Landlord's income, or cost incurred by
Landlord for tenants alterations.
(ii) capital costs, including but not limited to
capital improvements, capital repairs, capital equipment, and
capital tools which, in accordance with generally accepted
accounting and management principles would be considered a
capital cost, shall not be considered a part of the "Operating
Expenses." Capital improvements which result in annual savings
of operating expenses in excess of the annual amortization
charge, shall be included at the cost of such improvements
amortized over the useful life of the improvements. Without
limiting the foregoing, any costs of repairing the underground
storage tanks under the Building or the real estate on which the
Building is located shall be considered capital costs hereunder.
(e) "Tenant's Share" shall be that percentage which is
equal to the ratio of the number of fifty-three thousand five hundred
fifty-eight (53,558) to the total number of square feet of leasable space
in the Building, which is one hundred fifty-nine thousand eight hundred
seventy-four (159,874); provided, however, that Tenant's Share at the time
of commencement of this Lease is approximately thirty-three and one-half
percent (33.5%).
6. Rent Adjustments.
(a) It is the intention of the parties hereto that
Impositions and Operating Expenses shall be paid by the tenants of the
Building, as Additional Rent, with each tenant paying its pro rata share
of such expenses (said amount being referred to herein as Tenant's
"Expense Contribution"). On or before January 1st of each year Landlord
shall estimate the total Impositions and Operating Expenses expected to be
incurred during the calendar year beginning on such January 1st. The
amount of the estimated Impositions and Operating Expenses shall be
multiplied by Tenant's Share (as defined in Subparagraph 5(e) above), and
subject to receipt of the statements required below, Tenant shall pay one-
twelfth (1/12th) of said amount as Additional Rent, with the Base Rent.
(b) At the end of each calendar year the actual cost of
Impositions and Operating Expenses shall be reasonably determined by
Landlord, and Tenant's Share of such costs shall be compared to the
amounts paid by Tenant. If the amount paid during the year by Tenant for
Impositions and Operating Expenses exceeds Tenant's Share of the actual
cost of Impositions and Operating Expenses, the amount of such excess
shall be refunded to Tenant, or, at Tenant's option, applied to the
payment of Rent next becoming due. If the amount paid during the year by
Tenant for Impositions and Operating Expenses is less than Tenant's Share
of the actual cost of Impositions and Operating Expenses, Landlord shall
present to Tenant an invoice in the amount of Tenant's underpayment, which
amount shall be due and payable within thirty (30) days of the invoice
date. Landlord and Tenant hereby agree that the Tenant's Expense
Contribution (on an annualized basis) attributable to the calendar year
1995 is approximately Five and 93/100 Dollars ($5.93) per square foot (the
"Floor Amount") of rentable area in the Premises.
(c) with respect to any payment made by Tenant as
Additional Rent hereunder, Tenant shall be entitled to review, within
ninety (90) days following the end of each calendar year, or with respect
to the year in which this Lease terminates or expires, within ninety (90)
days following such termination or expiration, such accounting records or
other records of Landlord, which in the reasonable judgment of Tenant are
pertinent or applicable to such Additional Rent; provided, however, that
Landlord shall not be required to produce any record or records for review
by Tenant, if such production and review would, in the reasonable judgment
of Landlord cause Landlord to be in violation of any applicable laws,
regulations or agreements. In the event that Tenant shall, in good faith,
dispute any amount paid as such Additional Rent during the applicable
calendar year, Tenant shall submit to Landlord in writing the actual
amount in dispute and shall set forth in reasonable detail the reason or
reasons that such amount is being disputed by Tenant. Landlord shall have
thirty (30) days from the date that Landlord shall receive such notice to
remit the disputed amount to Tenant or to notify Tenant of its election to
select an independent certified public accountant (the "CPA") to resolve
such dispute. Tenant shall be entitled to approve the CPA selected by
Landlord, provided that such approval shall not be unreasonably withheld
or delayed. The decision of such CPA shall be binding upon Landlord and
Tenant, and no appeal may be taken from such decision. The fees of such
CPA shall be paid by the party whose position is held to be in error;
provided, however, that if several items are disputed and a part of such
items are determined in favor of one party and a part in favor of the
other party, the fees of such CPA shall be divided between the parties on
an equitable basis by the CPA making the decision. If Tenant shall fail
to object to any Additional Rent paid hereunder within one hundred eighty
(180) days following the end of the calendar year in which such Additional
Rent was paid, neither Landlord nor Tenant shall have any right to
thereafter dispute or question the amount or propriety of any item of
Additional Rent so paid in and for such calendar year. Landlord and
Tenant agree that in no event will the Additional Rent be reduced pursuant
to this Paragraph 6(c) to an amount per square foot less than the Floor
Amount.
(d) Notwithstanding the foregoing, in the event any other
tenant in the Building consumes utilities or other Building services in a
manner or to a degree which is materially in excess of that consumed by
Tenant, or otherwise causes Operating Expenses to be incurred in a manner
which is materially disproportionate to that of Tenant (based upon amount
of space occupied), then Landlord, at its expense, will cause such
services to be separately metered to the applicable tenant, or otherwise
adjust Tenant's Share of Operating Expenses to ensure equitable
responsibility therefor.
7. Parking.
Landlord shall, at no extra cost to Tenant, provide Tenant with
two hundred (200) parking spaces in the garage adjoining the Building,
randomly placed throughout the parking facility.
8. Use of Premises.
Tenant shall use and occupy the Premises for general office
purposes and uses and purposes reasonably related thereto, including,
without limitation, the preparation, serving and consumption of food and
beverages including without limitation, maintenance of facilities
therefor, to employees and their occasional guests and business invitees,
and the preparation and presentation, including maintenance of facilities
therefor, of audio and visual communication programs for its employees and
their occasional guests and business invitees, but not for any other
business or purpose. Tenant shall not use, occupy or permit the Premises
or any part thereof to be used or occupied for any business, use or
purpose reasonably deemed by Landlord to be disreputable or inconsistent
with the operation of a first-class office building complex. In its use
or occupancy of the Premises, Tenant shall comply with all laws, statutes,
ordinances and regulations of all governmental authorities, and with the
certificate of occupancy for the Building. Tenant shall not commit or
allow to be committed any waste upon the Premises, or any public or
private nuisance or other act or thing which disturbs the quiet enjoyment
of any other tenant in the Building. Tenant shall not, without the prior
written consent of Landlord, use any apparatus, machinery or device in or
about the Premises which may cause any substantial noise, vibration or
fumes. If any of Tenant's office machines and equipment disturb the quiet
enjoyment of any other tenant in the building, then Tenant shall provide
adequate insulation, or take such other action as may be necessary to
eliminate the disturbance.
9. Alterations.
(a) Upon commencement of this Lease, Tenant shall have the
right to make the alterations, additions, improvements, installations and
other changes in or to the Premises which are described on Exhibit "C"
hereto (the "Initial Tenant Improvements") without the consent of the
Landlord, subject to clauses (1) through (6) in subparagraph 9(b), below.
Except as permitted by subparagraphs 9(b) and 9(c), below, Tenant shall
make no other alterations, additions, improvements, installations or other
changes in or to the Premises without the prior written consent of
Landlord in each and every instance, which consent will not be
unreasonably withheld.
(b) Tenant, from time to time during the term of this
Lease, in accordance with subparagraph 9(c), below, may make such
alterations, additions, substitutions and improvements to the Premises as
Tenant may deem necessary or desirable to adapt the Premises or any part
thereof for its purposes, provided, however, that:
(1) such work shall not affect the exterior
appearance or structure of the Building;
(2) the strength of the Building and the mechanical,
electrical and plumbing services thereof are not adversely
affected and the outside appearance of the Building is not
changed;
(3) upon completion of the work Landlord is furnished
with "as built" drawings;
(4) such alterations, additions, substitutions and
improvements conform with the requirements of all insurance
policies of the parties hereto, and with all applicable laws,
statutes, ordinances, regulations and rules of all governmental
authorities;
(5) the work be performed so as not to interfere with
or impair the use and enjoyment of the Land and Building by
Landlord and other tenants; and
(6) Tenant shall not permit to be placed any lien on
the Premises, the Land or the Building and Tenant shall
indemnify, defend and hold Landlord harmless from liens, claims
and liabilities of every kind which may arise out of any
additions, alterations, improvements and installations made by
or at the instance of Tenant and from any costs and expenses
incurred by Landlord as a result thereof.
(c) Prior to undertaking any alteration, addition,
substitution or improvement to the Premises under Subparagraph 9(b),
above, Tenant shall notify Landlord in writing of the proposed alteration,
addition, substitution or improvement and provide copies of the proposed
plans related thereto. For purposes hereof, all such proposed
alterations, additions, substitutions or improvements shall be referred to
herein as "Proposed Tenant Improvements." In the event that within
fifteen (15) days following receipt of such notice Landlord shall notify
Tenant in writing that Landlord has determined in good faith that the
Proposed Tenant Improvements would not be in accordance with clauses (1),
(2), (4) or (5), of subparagraph 9(b), above, then Tenant shall refrain
from making the Proposed Tenant Improvements and Landlord and Tenant shall
negotiate in good faith toward a modification of the proposed Tenant
Improvements. In the event that the parties cannot resolve such dispute
within thirty (30) days, the dispute shall be submitted to alternative
dispute resolution in accordance with paragraph 46, below. In the event
that the parties are able to resolve such a dispute or the dispute is
finally determined in accordance with the alternative dispute resolution
outlining paragraph 46 hereof, then Tenant shall make the alterations,
additions, substitutions and improvements as agreed to by the parties or
determined pursuant to such alternative dispute resolution in accordance
with the plans as agreed to by the parties or determined pursuant to
alternative dispute resolution. For purposes of this Lease, any
improvements made by Tenant which comply with the provisions of this
Subparagraph 9(c) shall be referred to as "Permitted Tenant Improvements."
In addition, within fifteen (15) days following receipt of Tenant's notice
of the Proposed Tenant Improvements, Landlord shall have the right to
notify Tenant whether any of such proposed Tenant Improvements will need
to be removed by Tenant upon termination of this Lease. For purposes
hereof, any of such Proposed Tenant Improvements which become Permitted
Tenant Improvements and as to which Landlord has specified that such
improvements will need to be removed upon termination of this Lease, shall
be referred to herein as the "Removable Improvements."
(d) Except for the Initial Tenant Improvements and any
Removable Improvements, all alterations, additions, substitutions and
improvements shall become a part of the Premises and shall remain upon and
be surrendered with the Premises at the end of the term of this Lease;
provided that Tenant shall have the right, but not the obligation, to
remove any of the Initial Improvements or the Permitted Tenant
Improvements (other than the Removable Improvements) and shall have the
obligation to remove any other alterations, additions, substitutions or
improvements made by Tenant (including the Removable Improvements)
provided further that Tenant shall repair any damage occasioned by such
removal, and in default thereof Landlord may effect said repairs at
Tenant's expense.
10. Condition of Premises.
(a) Tenant acknowledges and agrees that, except as
expressly set forth in this Lease, including without limitation,
Paragraphs 11 and 14 hereof, together with any other written agreements
between Landlord and Tenant concerning the condition of the Premises,
there have been no representations or warranties made by or on behalf of
Landlord with respect to the Premises, the Building or the Land or with
respect to the suitability thereof for the conduct of Tenant's business.
The taking of possession of portions of the Premises by Tenant shall
conclusively establish that such portions of the Premises, the Land and
the Building were at that time in satisfactory condition, order and
repair.
(b) Notwithstanding the foregoing, Tenant shall receive
from Landlord an Improvement Allowance in the amount of Three Hundred
Fifty Thousand Dollars ($350,000.00) for purposes of defraying the costs
associated with any improvements, alterations, modifications or
replacements made by Tenant with respect to the Premises during the first
twenty-four (24) months of the Lease term. Tenant shall pay all invoices
for such improvements, alterations, modifications and replacements and
shall provide Landlord with a copy of each such invoice. Landlord shall
pay Tenant for the amount of each invoice within five (5) days of receipt
of each invoice until such time as the aggregate amount of such payments
by Landlord hereunder equals Three Hundred Fifty Thousand Dollars
($350,000.00).
11. Building Services.
Landlord shall perform and provide, in a manner befitting a
first-class office building, the following services and facilities:
(a) Heating and related ventilation shall be provided
Monday through Friday, from 8:00 a.m. to 8:00 p.m., and on Saturday from
8:00 a.m. to 12:00 noon (other than Legal Holidays), which Landlord
represents are the same hours that such service is provided to all other
tenants in the Building. Throughout the term of the Lease, the Premises
will be maintained with a heating and related ventilation system which
will be activated from time to time so that the temperature in the
Premises does not fall below 65 degrees F. Air conditioning and related
ventilation through the Building's air conditioning systems shall be
provided Monday through Friday, from 8:00 a.m. to 5:00 p.m., and on
Saturday from 8:00 a.m. to 12:00 noon (other than Legal Holidays). Air
conditioning service will be provided outside said hours upon the request
of Tenant and at its expense, provided the request therefor is made no
later than at least twenty-four (24) hours in advance for Saturday, Sunday
and holiday service. Tenant agrees to cooperate fully with Landlord and
to abide by all the regulations and requirements which Landlord may
reasonably prescribe for the proper functioning and protection of the
Building's HVAC systems.
(b) Maintenance service for the public toilet rooms in the
Building and all toilet rooms in the Premises.
(c) Maintenance of standard hardware installed in the
Premises by Landlord.
(d) Cleaning of outside and inside of exterior window
panes.
(e) Cleaning and maintenance of common areas in the
building, as well as all parking areas made available to Tenant under
paragraph 7.
(f) Continuous elevator service during the time periods
set forth in subparagraph II(a) hereof, and service via at least one (1)
elevator car at all other times.
(g) Janitorial service as described on Exhibit "D"
attached hereto; provided, however, no janitorial service shall be
provided Saturdays, Sundays or Legal Holidays.
(h) Hot and cold water for lavatory, drinking and
cafeteria purposes. If Tenant requires water for any additional purposes,
Tenant shall pay the cost thereof as shown on a meter which shall be
installed and maintained at Tenant's expense to measure such consumption.
(i) Electrical service, although Landlord shall not be
liable for the failure of any supply of electricity not arising from
Landlord's negligence.
Landlord reserves the right, without abatement or diminution in
Rent (except to the extent that Tenant may be deprived of the use of the
Premises due to risks included in available rental insurance), and without
any liability to Tenant as a result thereof, to suspend, delay or
discontinue furnishing any of the services to be provided by Landlord
under this Lease whenever necessary by reason of fire, storm, flood,
explosion, strike, lockout, labor dispute, casualty or accident, lack or
failure of sources of supply of labor or fuel (or inability in the
exercise of reasonable diligence to obtain any required fuel), acts of God
or the public enemy, riots, interference by civil or military authorities,
compliance with the laws of the United States of America or with the laws,
orders or regulations of any governmental authority, or by reason of any
other cause or emergency beyond Landlord's control or at the request of
Tenant.
Landlord also reserves the right temporarily to suspend, delay
or discontinue furnishing any of the services to be provided by Landlord
under this Lease, without abatement or diminution in Rent (except to the
extent that Tenant may be deprived of the use of the Premises due to risks
included in available rental insurance) and without any liability to
Tenant as a result thereof, for such inspections, cleaning, repairs,
replacements, alterations, improvements or renewals as may, in Landlord's
reasonable judgment, be desirable or necessary to be made; provided that
such services shall not, to the extent reasonably feasible, be suspended
for such purposes during Tenant's normal business hours.
12. Assignment and Subletting.
(a) Tenant shall not transfer, assign, mortgage or other
wise alienate or hypothecate its interest in this Lease, in whole or in
part, or permit the use or occupancy of the Premises by any person or
persons other than Tenant or its authorized representatives, or sublet the
Premises or any part thereof, without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably
withheld. such prohibition against assignment or subletting shall include
any assignment or subletting by operation of law.
(b) Notwithstanding the foregoing, Tenant shall have the
right, without the consent of Landlord, to assign this Lease or any
interest therein or sublet all or any portion of the Premises to any
subsidiary, affiliate or parent corporation of Tenant or any corporation
into which Tenant may merge or consolidate or to which substantially all
of Tenant's assets are sold. In the event of any such assignment of this
Lease, each such assignee of Tenant shall assume, and shall be deemed to
have assumed, this Lease and shall be and remain jointly and severally
liable with Tenant for all payments and for the due performance of all
terms, covenants and conditions herein contained which are required to be
paid and performed by Tenant. No assignment shall be binding upon
Landlord unless such assignee shall deliver to Landlord an instrument in
recordable form containing a covenant of assumption by such assignee, but
the failure or refusal of such assignee to execute the same shall not
release such assignee from its liability as set forth herein.
No assignment or subletting by Tenant permitted by the terms of
this Lease shall constitute a waiver of the full performance by Tenant of
any of its obligations required to be performed under this Lease.
(c) When applying to Landlord for its consent pursuant to
Subparagraph 12(a), Tenant shall give written notice to Landlord
identifying the intended assignee or subtenant by name and address and
specifying the terms of the intended assignment or sublease and such other
additional information as Landlord may request.
13. Access to Premises.
Landlord, its employees, agents and servants, and any mortgagee
of the Building, the land or any portion thereof shall have the right to
enter any part of the Premises, at all reasonable times, upon not less
than twenty-four (24) hours advance written notice (except in case of
emergencies) for the purposes of examining or inspecting the same, showing
the same to prospective purchasers or mortgagees, and for making such
alterations, repairs, improvements or additions to the Premises or
Building as Landlord may deem necessary or desirable; provided, that
Landlord shall avoid, to the extent reasonably feasible, entering the
Premises for said purposes during normal business hours. Prospective
tenants shall be limited to entry during the last year of the Lease term.
If representatives of Tenant shall not be present to open and permit such
entry into the Premises at any time when such entry by Landlord is
necessary or permitted hereunder, Landlord may enter the Premises by means
of a master key (or forcibly in the event of an emergency). Landlord
shall incur no liability to Tenant for such entry except for any damages
caused by Landlord's negligence, nor shall such entry constitute an
eviction of Tenant or a termination of this Lease.
14. Damage and Repairs.
Except as otherwise provided herein, Landlord shall make all
repairs and replacements necessary to maintain the plumbing, air
conditioning and electrical systems, windows, floors (excluding
carpeting), and all other items which are installed or furnished in or to
the Premises by Landlord, other than Tenant's trade fixtures and property.
Landlord shall have no obligation to make any repairs required of Landlord
hereunder until the expiration of a reasonable period of time after
written notice that such repair is needed is received from Tenant, except
that when there is a need to make emergency repairs oral notice shall be
sufficient and Landlord shall undertake such emergency repairs as
expeditiously as possible. Landlord shall, to the extent reasonably
feasible, make all repairs required to be made by Landlord during other
than normal business hours, or in such a manner as will not unreasonably
interfere with Tenant's business. Landlord shall not be liable or
responsible for any injury or inconvenience to, or interference with
Tenant's business arising from the making of any repairs, alterations,
additions or improvements in or to the Premises or Building or to any
appurtenances or equipment therein, but Landlord will prosecute the work
with due diligence and will use its best efforts to minimize any
inconvenience to Tenant.
If during the performance of such repairs, alterations,
additions or improvements thirty percent (30%) or more of any floor of the
Premises is rendered unusable for a period of fifteen (15) consecutive
days or more, Rent for the unusable portion of the Premises will be abated
for the period it cannot be used provided Landlord has in force rent
insurance covering the loss. Landlord will maintain rent insurance in
force so long as it is available.
Tenant shall take good care of the Premises and the fixtures and
appurtenances therein. Tenant shall, at its expense, repair all damage to
the Premises, Building and any fixtures and equipment therein to
Landlord's reasonable satisfaction caused directly or indirectly by
Tenant, its employees, agents, invitees, licensees, subtenants or
contractors. If Tenant fails to make such repairs, the same may be made
by Landlord and the reasonable expense thereof shall be deemed Additional
Rent due and payable by Tenant within fifteen (15) days after the sending
of a statement therefor by Landlord to Tenant.
Except for damage that Tenant is obligated to repair pursuant to
this Lease, Landlord will repair or rebuild all damage to the Building.
In the event the damage cannot be repaired within one (1) year after the
occurrence thereof, Tenant may elect to terminate this Lease by written
notice to Landlord, which notice shall specify a date of termination which
is at least sixty (60) days after the date of such notice.
In the event of damage to the Building so that the Premises or a
portion thereof is or will be unusable for Tenant's occupancy under this
Lease, Rent with respect to the portion of the Premises which is rendered
unusable for Tenant's occupancy shall be abated for the period commencing
with the date on which such damage occurred until the damage is repaired
and the affected portion is again available for Tenant's occupancy.
Anything to the contrary herein notwithstanding, Tenant shall be
responsible or repairing and replacing its furniture, furnishings, trade
fixtures and equipment. Nothing in this Paragraph 14 shall be construed
to mean that any expenses incurred by Landlord for repairs of the Premises
shall not be included within the definition of Operating Expenses set
forth in Paragraph 5(d) hereof.
15. Surrender of Premises.
Upon termination of this Lease by lapse of time or otherwise,
Tenant shall surrender the Premises to Landlord, together with all
additions, alterations, improvements and installations thereto (whether
the same shall have been made by Landlord or Tenant and without
compensation or credit to Tenant), subject, however, to Tenant's right of
removal under Paragraph 9, in broomclean condition and in at least as good
a condition as the Premises were in upon commencement of this Lease,
except for ordinary wear and tear and damage which Tenant is not obligated
to repair, failing which Landlord may restore Premises to such condition
at Tenant's expense. Upon such termination Tenant's trade fixtures,
equipment and furniture shall remain Tenant's property, and Tenant shall
remove the same prior to such termination. Tenant shall promptly repair
any damage caused by such removal and shall restore the Premises to the
condition existing prior to installation of the items so removed. Tenant
shall surrender the Premises to Landlord at the end of the term of this
Lease without notice of any kind, and, other than the notices to be given
pursuant to Subparagraph 9(c) hereof Tenant hereby waives all right to any
such notice as may be provided under any present or future law.
16. Waiver of Claims.
Landlord and Tenant each hereby waive any and all rights of
recovery against the other or against the officers, trustees, employees,
agents and representatives of the other, on account of loss or damage
occasioned to such waiving party or its property or the property of others
under its control to the extent that such loss or damage is insured
against under any fire and extended coverage insurance policy which either
may have in force at the time of such loss or damage. Landlord and Tenant
shall, upon obtaining the policies of insurance required under this Lease,
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
17. Tenant Liability Indemnification and Insurance.
(a) Tenant will indemnify and hold harmless the Landlord
for any and all claims of any kind or nature arising from Tenant's use of
the Premises during the term hereof, and Tenant hereby waives all claims
against Landlord for damage to goods, wares or merchandise or for injury
to persons in and upon the Premises from any cause whatsoever, except such
as might result from the negligence of Landlord or Landlord's
representatives, employees, agents and contractors or from failure of
Landlord to perform its obligations hereunder within a reasonable time
after notice in writing by Tenant requiring such performance by Landlord.
(b) During the term of this Lease, Tenant shall, at its
expense, secure and maintain an insurance policy or policies in form
reasonably satisfactory to Landlord providing:
(i) public liability, bodily injury and property
damage liability insurance naming Landlord as an additional
insured, insuring against liability for injury to or death of
persons and damage to or destruction of property, having limits
of liability in an amount not less than Three Million Dollars
($3,000,000.00) Combined Single Limit;
(ii) hazard (i.e., casualty or property damage)
insurance with coverage, in an amount equal to the full
replacement cost thereof, upon the fixtures, furniture,
improvements and personal property installed by or at the
expense of Tenant, insuring against the perils of fire, extended
coverage, vandalism, and malicious mischief.
None of the insurance policies obtained by Tenant pursuant
hereto shall have any coinsurance thereon or applicable thereto. Each
policy obtained pursuant to this Paragraph shall include a waiver of
subrogation clause with respect to claims against Landlord. Landlord
shall have the right to review the forms, coverages, amounts, and duration
of such insurance policies from time to time and to require, upon giving
Tenant thirty (30) days advance written notice thereof, that the forms,
coverages, amounts, or duration of such policies be changed or modified so
as to conform to the requirements established by this Paragraph 17. Such
insurance shall be carried with companies having a rating of "A" (or the
equivalent thereof) or better by Best's Key Rating Guide, unless such
rating requirement is waived by Landlord. Tenant shall deliver to
Landlord (at the option of Tenant) either the originals of the policies
evidencing such insurance coverage or certificates duly executed by the
insurer(s) evidencing such insurance coverage. In either event, the
insurer concerned shall agree that the coverage will not be cancelled or
modified unless at least thirty (30) days advance written notice of the
proposed cancellation or modification has been given to Landlord. In the
event Tenant fails to secure and maintain any of the insurance coverage as
provided in this Paragraph, Landlord may procure such insurance on
Tenant's behalf, including insurance in favor of Landlord alone. In the
event of loss, Tenant shall give immediate notice to Landlord.
(c) Landlord shall secure and, at all times during the
term of this Lease, maintain an insurance policy or policies providing
hazard (i.e., casualty or property damage) insurance with coverage upon
the Building against the perils of fire, extended coverage, and malicious
mischief, together with comprehensive liability insurance to the extent
obtained by prudent landlords in the locale of the Building. The
premiums for such insurance shall be included as a part of the Operating
Expenses of the Building, it being the intention of the parties that
Tenant shall pay Tenant's Share of the cost thereof.
18. Condemnation.
(a) In the event that all of the Building is taken for any
public or quasi-public use or purpose in eminent domain proceedings, or in
the event all of the Building is conveyed to a governmental authority or
other entity having the power of eminent domain ("Condemning Authority")
in lieu of such proceedings, this Lease shall terminate upon the date when
the possession of the Premises shall be surrendered to said Condemning
Authority. Any prepaid Rent attributable to periods after such
termination date shall be refunded to Tenant. In any such proceedings,
and to the extent permitted by law, Tenant may make claim to the
Condemning Authority, the then remaining value of its leasehold estate in
the Premises, and to the extent that the same is not payable out of any
condemnation award or payment in lieu thereof, may make claim to the
Condemning Authority for the taking of Tenant's tangible property, for
Tenant's removal and relocation costs and/or Tenant's loss of business
and/or business interruption.
(b) In the event eminent domain proceedings shall be
instituted for the purpose of taking a substantial portion of the
Building, or if the grade of any street or alley adjacent to the Land is
changed so that, as a result of either such events, substantial structural
alteration or reconstruction of a substantial portion of the Building is
necessary or desirable in Landlord's reasonable judgment, and provided
Landlord does not make such structural changes or reconstruction, Landlord
may elect to terminate this Lease by giving Tenant not less than ninety
(90) days' notice of termination prior to a termination date specified in
such notice, and any prepaid Rent attributable to periods after such
termination date specified in such notice shall be refunded to Tenant. If
Landlord does not so elect to terminate, this Lease shall be and remain in
full force and effect for the balance of its term, except that Rent shall
be proportionately abated to the extent of any portion of the Premises
taken.
(c) The provisions of the preceding paragraph
notwithstanding, in the event thirty percent (30%) or more of the Building
or thirty percent (30%) or more of the Premises is taken in any such
proceedings, Tenant may elect to terminate this Lease by giving Landlord
not less than ninety (90) days' notice of termination prior to a
termination date specified in such notice, and any prepaid Rent
attributable to periods after such termination date specified in such
notice shall be refunded to Tenant.
(d) Tenant shall not share in any condemnation award or
payment in lieu thereof for any taking specified in Subparagraph 19(b),
the same being hereby assigned to Landlord by Tenant; provided, however,
that nothing herein shall preclude Tenant from separately claiming from
the Condemning Authority and receiving, to the extent the same are not
payable out of any condemnation award or payment in lieu thereof,
compensation for the remaining value of the leasehold estate, the taking
of Tenant's tangible property for Tenant's removal and relocation costs
and/or for Tenant's loss of business and/or business interruption.
19. Estoppel Certificates.
Tenant shall, from time to time within fifteen (15) days
following written request from Landlord, execute, acknowledge and deliver
to Landlord, or to any lender, purchaser or prospective lender or
purchaser designated by Landlord, a written statement certifying to the
extent true, (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification),
(ii) the date to which the Rent has been paid, and (iii) that there are
not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed. Any such
statement may be relied upon by any prospective purchaser or mortgagee of
all or any part of the Land or Building. If Tenant fails to deliver such
statement or to object within said ten-day period to any of the foregoing,
Tenant shall be deemed to have given the same and conclusively deemed to
have certified that this Lease is in full force and effect and unmodified,
that not more than one month's Rent has been paid in advance and that
there are no uncured defaults in Landlord's performance hereunder.
20. Default, Landlord's Remedies, Waiver of Redemption.
The occurrence of any of the following shall be a default and
breach of this Lease by Tenant:
(a) If Tenant abandons the Premises or fails to pay Base
Rent or Additional Rent within ten (10) days after the same shall be due
and payable; or
(b) If Tenant fails to observe and perform any covenant or
obligation required to be observed or performed by Tenant under this Lease
(other than the payment of rent under Subparagraph 20(a), above) for a
period of thirty (30) days after receipt of written notice thereof from
Landlord; provided, however, that if the covenant or obligation to be
performed by Tenant is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be deemed to
have been cured if Tenant commences such performance within said thirty-
day period and thereafter diligently undertakes to complete the same; or
(c) If a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets in or on the Premises
or of Tenant's interest in this Lease, (and Tenant does not regain
possession within sixty (60) days after such appointment), or if Tenant
makes an assignment for the benefit of creditors; or
(d) If any petition in bankruptcy, insolvency, or for
reorganization or arrangement is filed by or against Tenant pursuant to
any statute of the United States or any state, and Tenant fails to secure
a stay or discharge thereof within sixty (60) days after filing of same.
Upon the occurrence of any such event of default as hereinabove
described, Landlord may give Tenant written notice of termination of this
Lease as of a date specified in such notice which shall be at least thirty
(30) days after such notice is given to Tenant. Unless Tenant shall cure
said default within such period, this Lease and the term thereof shall
terminate as of the date specified in said notice. Neither Tenant nor any
person claiming through or under Tenant shall thereafter be entitled to
possession, and Tenant shall thereupon quit and surrender the Premises to
Landlord, but Tenant shall remain liable to Landlord for damages as
hereinafter set forth.
If this Lease is terminated as aforesaid, Landlord may, without
further notice, resume possession of the Premises, undertake summary
proceedings, eviction or otherwise, and may dispossess Tenant, and/or any
other occupant of the Premises and may remove their effects and all other
personal property.
In the event that this Lease is terminated as a result of the
occurrence of any event of default, Tenant or its representatives shall
pay Landlord as liquidated damages, the difference between the Rent
collected on account of the lease of the Premises for each month of the
period which would otherwise have constituted the balance of the term of
this Lease, and the Rent payable under this Lease, and Tenant shall pay
Landlord's expenses for keeping the Premises in good order and for
preparing same for reletting, including broker's fees. Such liquidated
damages shall be paid by Tenant in monthly installments on the first day
of each month after such termination, reentry or dispossession, and no
action brought to collect any monthly installments shall prejudice
Landlord's right to collect any subsequent monthly installment. Landlord
may make such reasonable alterations, repairs, replacements and/or
decorations to the Premises as Landlord considers necessary or desirable
for the purpose of reletting the Premises, and the making of same shall
not release Tenant from liability hereunder, nor shall Landlord's failure
or refusal to relet or failure to collect Rent due under any reletting
affect Tenant's liability for damages.
The rights and remedies of Landlord described above in this
Paragraph 20 shall be in addition to those allowed by law or equity.
21. Security Deposit. (This paragraph deleted)
22. No waiver.
The failure or delay by either party hereto to enforce or
exercise at any time any of the provisions, rights or remedies of this
Lease shall in no way be construed to be a waiver thereof, nor in any way
to affect the validity of any part of this Lease, or the right of either
party to thereafter enforce each and every such provision, right or
remedy. No waiver of any breach of this Lease shall be held to be a
waiver of any other breach. The receipt of Rent by Landlord at a time
after Rent is due under this Lease shall not be construed as a waiver of
such default. The receipt by Landlord of less than the full Rent due
shall not be construed to be other than a payment on account of Rent then
due, and Landlord may accept such payment without prejudice to Landlord's
right to recover the balance of the Rent due or to pursue any other
remedies provided in this Lease. No act or thing done by Landlord or
Landlord's agents or employees during the term of this Lease shall be
deemed an acceptance of a surrender of the Premises, and no agreement to
accept such a surrender shall be valid unless in writing and signed by
Landlord.
Any agreement for extension of the original term of this Lease
or any additional period thereafter shall not prevent Landlord from
terminating this Lease during the term thereof for any reason specified in
this Lease. If any such right of termination is exercised by Landlord
during the original term of this Lease, then any agreement for extension
of the original term shall also be thereby cancelled. Said rights of
termination of Landlord contained herein shall continue during the
original term of this Lease and any subsequent extensions thereafter.
23. Quiet Enjoyment.
If, and so long as Tenant pays the Rent reserved herein and
observes and performs all of the covenants, conditions and obligations to
be observed and performed by Tenant hereunder, and subject to all
provisions of this Lease, Landlord will not hinder or interfere with
Tenant and Tenant shall have peaceable and quiet use and enjoyment of the
Premises for the term of this Lease.
24. Force Majeure.
In the event that either party hereto shall be delayed or
hindered in, or prevented from, the performance of any work, service or
other act required under this Lease to be performed, as a result of
strikes, lockouts, shortages of labor or material, acts of God, flooding
and other weather associated causes, governmental restrictions, enemy act,
civil commotion, fire or other casualty, or other causes or circumstances
beyond the control of the party so delayed or hindered, then performance
of such work, service or other act shall be excused for the period of such
delay and the period for the performance of such work, service or other
act shall be extended for a period equivalent to the period of such delay.
In no event shall such delay constitute a termination of the term of this
Lease. The provisions of this Paragraph 24 shall not operate to excuse
Tenant from the prompt payment of Rent.
25. Successors.
Subject to Paragraph 12 hereof, the respective rights and
obligations provided in this Lease shall inure to the benefit of and shall
be the obligations of the parties hereto, their successors and assigns;
provided, however, that Landlord, its successors and assigns, shall be
obligated to perform Landlord's agreements and covenants under this Lease
only during and in respect of their respective successive periods as
Landlord during the term of this Lease. Provided that Landlord's assignee
assumes in writing for the benefit of Tenant all of Landlord's covenants
and obligations under this Lease, then in the event of Landlord's
assignment of its interest hereunder, Landlord shall, from and after the
time of such assignment, he relieved of any and all liability or
obligation to Tenant hereunder, and all such liabilities and obligations
shall, as of the time of such assignment, automatically pass to Landlord's
assignee, subject to the assumption required above.
26. Subordination and Attornment.
(a) Tenant agrees to subordinate this Lease to any future
ground, air space or underlying lease and to all mortgages which may now
or hereafter affect such leases or the land or any part thereof and to all
renewals, modifications, consolidations replacements, and extensions
thereof; provided, however, that Tenant's rights of possession hereunder
and all of its other rights and privileges hereunder shall not be
disturbed or impaired so long as Tenant is not in default under the terms
of this Lease or such default has been cured within the time permitted for
the curing of default by the Tenant under the terms of this Lease.
(b) Upon written request of any mortgagee, or successor or
assignee of the Landlord, Tenant shall execute an instrument whereby
Tenant shall attorn to such mortgagee, successor or assignee upon all the
terms, covenants, conditions, and agreements set forth in this Lease,
provided the party requesting the same executes an instrument whereby such
party agrees not to disturb or impair Tenant's rights of possession
hereunder and all of its other rights and privileges hereunder so long as
Tenant is not in default under the terms of this Lease or such default has
been cured within the time permitted for the curing of default by the
Tenant under this Lease. The holder of every interest to which this Lease
is subordinate or the purchaser of the Land and Building or any portion
thereof in foreclosure proceedings or otherwise shall not be bound by any
payment of Rent by Tenant to Landlord for more than one month in advance.
The provisions of this Paragraph 25 shall be self-operative and
no further instrument of subordination shall be required by the holders of
any interest to which this Lease is subordinate. Each party agrees,
however, whenever requested so to do upon reasonable notice by the other
party, to execute such instruments confirming the provisions of this
Paragraph 25 as the party requesting the same may require, without expense
to Landlord, and in the event that Tenant shall fail or neglect so to
execute, acknowledge and deliver any such subordination instrument or
certificate, Landlord, in addition to any other remedies, may be the agent
or attorney-in-fact of Tenant and may execute, acknowledge and deliver the
same, and Tenant hereby irrevocably nominates, constitutes, and appoints
Landlord as Tenant's proper and legal attorney-in-fact for such purpose.
27. Holding Over.
In the event that Tenant remains in possession of the Premises
with the written consent of Landlord, after the expiration of the term of
this Lease, Tenant shall be a tenant from month to month, at a rate double
the then current Rent, and such tenancy shall otherwise be subject to all
of the covenants and agreements of this Lease. In the event that Landlord
does not so consent to Tenant's continued possession after the expiration
of the term of this Lease, or if no new agreement shall have been entered
into by the parties hereto, Tenant shall pay Landlord all reasonable
damages sustained by reason of Tenant's retention of possession after such
expiration.
28. Signs.
Tenant shall not place, install or affix, or permit the
placement, installation or fixation of any sign of any nature on the
exterior of the Premises, or in the windows or lobbies of the Building
without first obtaining the written consent of Landlord; provided that
Landlord shall remove at its expense, any sign on the exterior of the
Building or the Premises which refers to "Eaton" or "Eaton-Kenway",
including without limitation, the sign on top of the Building and Tenant
shall have the right to place any of its signs in place thereof; and
provided, further, that Tenant may, at its expense, remove any sign in the
interior of the Premises which refers to "Eaton" or "Eaton-Kenway" and
replace such sign with Tenant's sign. All Tenant signs shall be installed
and maintained by Tenant in compliance with all applicable laws, statutes,
ordinances, rules and regulations of all governmental authorities and
agencies. Tenant shall pay all expenses, and all license and permit fees
relating to the installation and maintenance of authorized signs, and
shall pay all expenses of removal and costs of repairs resulting
therefrom, except as provided in the proviso above.
29. Floor Load.
Tenant shall not place or permit to be placed upon any floor of
the Premises any item of any nature the weight of which shall exceed such
floor's rated floor load limit, which is sixty (60) pounds per square foot
live load or twenty (20) pounds per square foot partition load.
30. Landlord Option. (This paragraph deleted)
31. Governing Law.
This Lease shall be construed, governed and enforced in
accordance with the laws of the State of Utah.
32. Severability.
If any provisions of this Lease shall be held to be invalid,
void or unenforceable, the remaining provisions hereof shall in no way be
affected or impaired and such remaining provisions shall remain in full
force and effect.
33. Gender.
As used in this Lease, the word "person" shall mean and include,
where appropriate, an individual, corporation, partnership or other
entity, the plural shall be substituted for the singular, and the singular
for the plural, where appropriate; and words of any gender shall include
any other gender.
34. Notices.
All notices required or permitted hereunder shall be deemed
sufficiently given if delivered in person or sent by registered or
certified mail, postage prepaid, addressed to the Landlord or Tenant as
follows:
To Landlord: Eaton Properties Corporation and
Eaton Utah Corporation
c/o Eaton Corporation
Eaton Center
Cleveland, Ohio 44114
Attention: Real Estate Department
To Tenant: Harnischfeger Engineers, Inc.
13400 Bishops Lane
Brookfield, WI 53201-1512
Attention: Secretary and General Counsel
Either party may change its address by written notice to the other.
35. Execution.
This Lease shall become effective when it has been signed by a
duly authorized officer or representative of each of the parties and
delivered to the other party. This Lease is being executed simultaneously
in multiple counterparts. Each of such fully executed counterparts shall
be deemed an original and it shall not be necessary in making proof of
this Lease to produce or account for more than one such counterpart.
36. Modifications.
If, in connection with Landlord's obtaining financing or
refinancing for the Building, a banking, insurance or other institutional
lender shall request reasonable modifications to this Lease as a condition
to such financing or refinancing, Tenant will not unreasonably withhold,
delay or defer its consent thereto, provided that such modifications do
not increase the obligations of the Tenant hereunder, including rental
obligations and any other obligations of Tenant hereunder or materially
adversely affect Tenant's interest in this Lease or the rights, privileges
or benefits hereunder. In no event shall a requirement that the
reasonable consent of any such lender be given for any modification of
this Lease, or for any assignment or sublease be deemed to materially
adversely affect the leasehold interest hereby created.
37. Rules and Regulations.
Tenant, its servants, employees, agents, invitees, licensees,
contractors and subcontractors shall observe and strictly comply with such
reasonable rules and regulations as Landlord or its agents may, after
notice to Tenant, from time to time adopt which are not inconsistent with
any of the terms and conditions of this Lease. A copy of the present
rules and regulations are attached as Exhibit "E." Landlord shall
exercise its best efforts to include in leases of other space in the
Building a similar requirement obligating tenants to comply with the rules
and regulations adopted by Landlord. Landlord shall exercise its best
efforts to enforce said rules and regulations, to the extent applicable,
in a non-discriminatory manner and to enforce the terms, covenants or
conditions in any other lease against any other tenant; provided, however,
that Landlord shall not be liable to Tenant for violation of the same by
any other tenant, its servants, employees, agents, invitees or licensees.
38. Common Areas.
Tenant, its authorized representatives, customers, employees and
invitees shall have the non-exclusive right throughout the term of this
Lease, in common with others, to the use of certain entrances, lobbies,
elevators, ramps, drives, stairs and similar access and serviceways and
common areas adjacent to, and included within, the Building, subject to
such non-discriminatory rules and regulations as may be from time to time
adopted by the Landlord.
39. Marginal Titles.
The marginal titles, headings, and table of contents to this
Lease are inserted only as a matter of convenience and reference, and in
no way affect, define, limit or describe the scope or intent of this
Lease.
40. Entire Agreement.
This Lease, including the Exhibits hereto, contains all the
agreements, conditions, understandings, representations and warranties
made by and between the parties hereto with respect to the subject matter
hereof, and may not be modified orally of in any manner other than by an
agreement in writing signed by both parties.
41. Attorney's Fees.
Landlord and Tenant agree that should either of them default in
any of the covenants or agreements contained herein, the defaulting party
shall pay all costs and expenses, including reasonable attorney's fees,
which may arise or accrue from enforcing this Lease, or in pursuing any
remedy provided by this Lease or the laws the State of Utah whether such
remedy is pursued by filing a suit or otherwise.
42. Option on Additional Space.
During the term of this Lease, including all extensions thereof,
Tenant shall have the right of first refusal with respect to any space in
the Building on the 7th floor as it becomes available. Such right of
first refusal shall be exercisable in the following manner: No sooner
than six (6) months before such space shall become available, Landlord
shall notify Tenant of the availability of such space within the Building.
Tenant shall notify Landlord within ninety (90) days of such notice
whether Tenant elects to take such space, and if such election is
exercised, then such space shall be added to this Lease as soon as it is
delivered to Tenant at the Base Rent and Additional Rent (per leasable
foot) specified in this Lease for the remainder of the Premises, and
otherwise upon all of the terms and conditions of this Lease, including
any extension options. Tenant's election under this Paragraph 42 shall be
irrevocable. If Tenant elects not to lease such space, Landlord shall be
entitled to lease such space to any third party at a rental rate higher
than, equal to or less than the rental rate under this Lease without
offering such space to Tenant at such rental rate. If Tenant elects to
take such space, Landlord shall deliver possession of such space to Tenant
as soon as it becomes available in an "as-is" condition. All demolition,
alterations, additions, improvements and modifications to such space shall
be done by Tenant in accordance with this Lease at Tenant's sole cost and
expense.
43. Option to Extend.
(a) Tenant shall have the option to extend the term of
this Lease for three (3) additional periods of five (5) years each. The
first extension period shall begin on the day following the tenth
anniversary of the Commencement Date and the second and third option
periods shall commence on the first day following the expiration of the
previous extension period (the "Extension Commencement Dates"). Such
options shall be exercised only by Tenant giving Landlord written notice
thereof which is received by Landlord not less than six (6) full calendar
months prior to the applicable Extension Commencement Date. Time shall be
of the essence with respect to Tenant's notice of exercise as aforesaid.
In the event that the term of this Lease is, in fact, extended pursuant to
the foregoing, then such extension shall be upon all of the same terms and
provisions contained in this Lease, except that the Base Rent only shall
be adjusted as expressly set forth in this Paragraph 43.
(b) In the event Tenant exercises one or more of the
foregoing options to extend the term of this Lease, then the monthly Base
Rent payable with respect to the applicable extension period shall be
adjusted to be equal to the Fair Market Rental (as hereinafter defined)
for the Premises as of the commencement of such extension period. "Fair
Market Rental" as used hereunder shall mean the monthly fair market rent
for the Premises as agreed to by the parties, or failing such agreement
within thirty (30) days following Landlord's receipt of Tenant's notice
exercising its option to extend, determined by the Three Appraisal Method
(as hereinafter defined). The "Three Appraisal Method" for purposes of
this Lease shall mean that Landlord and Tenant shall each cause an
appraisal of the Premises to be made by an MAI appraiser. If the two
appraisers are less than ten percent (10%) apart, the Fair Market Rental
shall be the average of the two (2) appraisals. In the event the two (2)
appraisals are more than ten percent (10%) apart, then the two (2)
appraisers shall select a third MAI appraiser and the resulting Fair
Market Rental shall be the average of the third appraiser's appraisal and
the original appraisal closest to the third appraisal. Landlord and
Tenant shall each pay the cost of the appraiser selected by it and
Landlord and Tenant shall share equally the cost of the third appraiser.
Landlord and Tenant shall instruct the appraisers they appoint to complete
the appraisal process and determine the Fair Market Rental within sixty
(60) days from the date Tenant notifies Landlord of its election to
exercise the option to extend this Lease.
44. Additional Space.
(a) Tenant shall have the right to exclusively occupy the
entire seventh (7th) floor of the Building for a period of six (6) months
following the Commencement Date. Tenant shall further have the right to
exclusively occupy the entire eighth (8th) and ninth (9th) floors of the
Building for a period of three (3) months following the Commencement Date.
Said occupancy shall be permitted free of any rental or other charge under
the Lease, except for separately metered utilities.
(b) Landlord agrees that Tenant owns and shall have the
right to remove, relocate or otherwise dispose of any and all furniture,
furnishings and equipment and the raised floor in the computer room
located in the space occupied under Subparagraph 44(a), above, and any
other leasehold improvements which are included in the definition of the
Subject Assets in the Asset Purchase Agreement dated January 12, 1995,
among Tenant, Eaton-Kenway, Inc. and Eaton Corporation.
45. Lease of First Floor Space.
Landlord has agreed it shall not allow the first floor space of
the Building to be used or leased for any improper, immoral or unlawful
purpose.
46. Alternative Dispute Resolution.
In the event that any dispute shall arise among the parties,
except for any disputes which are to be resolved by the CPA, or in the
event that the CPA shall be unable or unwilling to resolve any particular
dispute which is to be resolved by it under the terms of this Lease, the
parties agree to follow the following procedure prior to pursuing other
available remedies with respect to such dispute:
(a) A meeting shall be held promptly among the parties,
attended by representatives having decision-making authority regarding the
dispute, to attempt in good faith to negotiate a resolution of the
dispute.
(b) If, within thirty (30) days after such meeting, the
parties have not succeeded in negotiating a resolution of the dispute,
they will jointly appoint a mutually acceptable neutral person not
affiliated with any of the parties (the "Neutral"), seeking assistance in
such regard from the American Arbitration Association center for Public
Resources, or other mutually agreed upon organization if they have been
unable to agree upon such appointment within forty (40) days from the
initial meeting. The fees of, and authorized costs incurred by, the
Neutral shall be shared equally by the parties.
(c) In consultation with the Neutral, the parties will
select or devise an alternative dispute resolution procedure ("ADR") by
which they will attempt to resolve the dispute, and a time and place for
the ADR to be held, with the Neutral making the decision as to the
procedure, and/or place and time if the parties have been unable to agree
on any of such matters within twenty (20) days after initial consultation
with the Neutral. In any case, the ADR shall be held not later than sixty
(60) days after selection of the Neutral.
(d) The parties agree to participate in good faith in the
APR to its conclusion. If the parties are not successful in resolving the
dispute through the APR, then any party may pursue other available
remedies upon seven (7) days' written notice to the other parties
specifying its intended course of action.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease
to be signed as of the day and year first above written.
Witnesses as to Landlord: LANDLORD:
EATON PROPERTIES CORPORATION
By: /s/ P.X. Donovan
Its: President and Treasurer
By: /s/
Its:
EATON UTAH CORPORATION
By: /s/ P.X. Donovan
Its: President and Treasurer
By: /s/
Its:
Witnesses as to Tenant: TENANT:
HARNISCHFEGER ENGINEERS, INC.
By: /s/ John W. Splude
Its: President
By: /s/ John R. Kuhnmuench, Jr.
Its: Secretary
<PAGE>
EXHIBIT A
The Premises
Floor Square Feet
Second 9,074
Third 10,629
Fourth 10,629
Fifth 11,613
Sixth 11,613
------
Total 53,558
<PAGE>
EXHIBIT B
COMMENCING at the Southwest corner of Lot 4, Block 61, Plat "B",
SALT LAKE CITY SURVEY, and running thence East 259.5 feet; thence North
330 feet; thence West 259.5 feet; thence South 330 feet to the point of
BEGINNING.
TOGETHER WITH AND SUBJECT TO a right-of-way over the following
(which said right-of-way was created by that certain Warranty Deed
recorded in Salt Lake County, Utah on October 1, 1917 as Entry No. 384546
in Book 10-G of Deeds, Page 349): BEGINNING at a point 94.5 feet East of
the Southwest corner of Lot 3 of said Block and Plat, and running thence
East 4.5 feet; thence North 330 feet; thence West 9 feet; thence South 330
feet; thence East 4.5 feet to the point of BEGINNING.
SUBJECT TO a right-of-way in favor of Salt Lake City, for the
purpose of constructing, operating, and maintaining flumes in which to
carry the waters of the Jordan and Salt Lake Canal, on, over, and through
a strip of land 16.5 feet wide described as follows (which said right-of-
way was created by that certain Indenture recorded in Salt Lake County,
Utah on April 29, 1882 in Boot T of Deeds at Page 88-89): BEGINNING at a
point 60 feet East from the Southwest corner of said Lot 4, thence North
66 degrees 30' West 61 feet; thence North 58 degrees 30' West 9.5 feet to
the West line of said Lot 4, thence North 20 feet; thence South 58 degrees
30' East 17 feet; thence South 66 degrees 30' East 99 feet to the South
line of said Lot 4; thence West 41 feet to the place of BEGINNING.
<PAGE>
EXHIBIT C
Initial Tenant Improvements
The following is a list of the Initial Tenant Improvements:
1. Removal and replacement of carpeting.
2. Demolition of existing interior walls.
3. Construction of new interior walls.
4. Modification of the mechanical and electrical systems to
facilitate the Initial Tenant Improvements.
5. Installation of new communication and computer wiring.
6. Removal of the computer room equipment and accessories from
floor 7 and the installation of those items in the Premises.
7. Repainting and decorating.
8. Removal of furniture, furnishings and equipment from floors
7 through 9 as provided in Paragraph 44(b), and installation of such items
in the Premises.
9. Removal of existing interior signs which refer to "Eaton"
or "Eaton-Kenway" and replacement of such signs with Tenant's signs.
10. Relocation of Tenant's furniture and equipment from
Tenant's offices in the Salt Lake City area to the Premises.
<PAGE>
E X H I B I T "D"
JANITORIAL SPECIFICATIONS
Attached)
<PAGE>
SCHEDULE D
JANITORIAL REQUIREMENTS
JANITORIAL SERVICES ARE TO BE INCLUDED AS PART OF THE PROPOSAL
All janitorial services shall be performed after 6:00 p.m. and
must be completed prior to 7:00 a.m. the following morning. Lessor shall
be willing to submit to the State a list of Janitorial employees with
their home addresses and telephone number for a security investigation.
The State shall have the right to ask for the dismissal of any janitorial
employee not meeting security requirements The janitorial duties shall
include, but not limited to, the following:
Daily Duties (except Saturdays, Sundays and holidays):
Empty and replace liners in all trash containers
Vacuum all carpets and reposition all furniture in proper
positions
Dust mop or vacuum hallways and entries
Sweep, dry dust mop and buff all vinyl floors
Clean and polish drinking fountains
Clean entry glass
Re-set chairs to standard position in conference rooms
Spot clean carpet and upholstery as needed
Clean all entries to drip line
Re-set chairs to standard positions in meeting rooms
Clean elevator walls
Clean elevator floors
Wipe down break room tables and chairs
Clean sinks and counter tops in break room
Clean restroom mirrors
Clean and sanitize restroom fixtures and partitions
Clean, wet mop and sanitize restroom floors
Refill restroom dispensers (tissue, soap and towels)
Shake and clean entry walk-off mats, if applicable
Remove finger and hand prints from doors, door glass and
partitions
Close and secure all windows, where applicable
Turn off all lights
Tuesday and Thursday Duties:
Hand broom corners in corridors, halls and stairwells
Spot clean office and hall walls
Clean around light switches
Clean doors and door frames
Clean conference tables
Sanitize restroom walls
Polish bright work areas often touched
Clean and polish all handrails and banisters
Broom in front of all entrances to drip line
Clean (shake) all entry walk-off mats
Keep area around trash dumpster clean
Weekly duties (Same Day Each Week):
Vacuum all upholstery (chairs and couches)
Dust furniture and fixtures
Dust and clean window sills
Dust and clean mop boards
Spot clean all carpet
Dust and spot clean levelor blinds
Dust and clean tops of partitions
Keep restroom floors sealed and polished as needed
Clean main entry glass, exterior and interior
Clean all janitorial equipment
Monthly Duties (First Working Day of Each Month):
Damp wipe all vinyl chairs and couches in offices,
conference room and halls
Dust all surface areas as necessary, clearing cobwebs, etc.
Quarterly Duties:
Dust and vacuum air diffusers and grills
Scour clean all office and hall trash containers
Strip and re-polish floors
Semi-Annual Duties:
Clean and treat all vinyl and leather chairs and couches
Vacuum draperies
Clean exterior and interior windows.
Annual Duties:
Clean all light fixtures
Remove and clean levelor blinds
Changes in the frequencies, or days of performance of any duty, shall be
made by mutual agreement with the State and shall be specified in writing.
<PAGE>
E X H I B I T "E"
RULES AND REGULATIONS
(Attached)
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
WHICH CONSTITUTE A PART OF THE LEASE
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or used
for any purpose other than ingress and egress.
2. Except as otherwise provided in the Lease, no awnings or
other projection shall be attached to the outside walls of the Building.
No curtains, blinds, shades or screens shall be attached to or hung in, or
used in connection with, any window or door of the Premises other than
Landlord's standard window coverings. All electric ceiling fixtures hung
in offices or spaces along the perimeter of the Buildings must be
fluorescent, of a quality, type, design and bulb color approved by
Landlord. Neither the interior nor exterior of any windows shall be
coated or otherwise sunscreened without the express written consent of
Landlord.
3. No sign, advertisement or notice shall be exhibited,
painted or affixed by any Tenant on any part of the Premises or the
Building without the prior written consent of the Landlord. In the event
of the violation of the foregoing by any Tenant, Landlord may remove same
without any liability, and may charge the expense incurred in such removal
to the Tenant violating this rule. Interior signs on doors and directory
tablets shall be inscribed, painted or affixed for each Tenant by the
Landlord at the expense of such Tenant, and shall be of a size, color and
style prescribed by Landlord. The directory tables will be provided
exclusively for the display of the name and location of Tenants only and
Landlord reserves the right to exclude any other names therefrom. Nothing
may be placed on the exterior of corridor walls or corridor doors other
than Landlord's standard lettering.
4. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by any Tenant,
nor shall any bottles, parcels or other articles be placed on the
windowsills.
5. The water and wash closets and other plumbing fixtures
shall not be used for any purpose other than those for which they were
constructed and no sweepings, rubbish, rags or other substances shall be
thrown therein. All damages resulting from any misuse of the fixtures
shall be borne by the Tenant, who or whose servants, employees, agents,
visitors or licensees, shall have caused the same.
6. No Tenant shall mark, paint, drill into, or in any way
deface any part of the Premises or the Building. No boring, cutting or
stringing of wires or laying of linoleum or other similar floor coverings
shall be permitted, except with the prior written consent of the Landlord
and as the Landlord may direct.
7. No bicycles, vehicles, birds or animals of any kind shall
be brought into or kept in or about the Premises, and no cooking shall be
done or permitted by any Tenant on the Premises, except that the
preparation of coffee, tea, hot chocolate and similar items for Tenants
and their employees shall be permitted provided power shall not exceed
that amount which can provided by a 30 amp circuit. No Tenant shall cause
or permit any unusual or objectionable odors to be produced or permeate
the Premises or the Building.
8. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use
of the Premises for general office purposes or Tenant's use of the
Premises as set forth in the Lease. Tenant shall not occupy or permit any
portion of its Premises to be occupied as an office for a public
stenographer or typist, or for the manufacture or sale of liquor,
narcotics, or tobacco in any form, or as a medical office, or as a barber
or manicure shop, or as an employment bureau. No Tenant shall engage or
pay any employees on the Premises except those actually working for such
Tenant on the Premises nor advertise for laborers giving an address at the
Premises. The Premises shall not be used for lodging or sleeping or for
any immoral or illegal purposes.
9. No Tenant shall make, or permit to be made, any unseeingly
or disturbing noises or disturb or interfere with occupants of the
Building, or neighboring buildings or premises, or those having business
with them, whether by the use of any musical instrument, radio,
phonograph, unusual noise, or any other way. No Tenant shall throw
anything out of doors, windows or skylights or down the passageways.
10. No Tenant nor any of Tenant's servants, employees, agents,
visitors or licensees, shall at any time bring or keep upon the Premises
any dangerous inflammable, combustible or explosive fluid, chemical or
substance.
11. No additional locks or bolts of any kind shall be placed
upon any of the doors or windows by any Tenant, nor shall any changes be
made in existing locks or the mechanism thereof. Each Tenant must, upon
the termination of its tenancy, restore to the Landlord all keys of
stores, offices, and toilet rooms, either furnished to, or otherwise
procured by such Tenant and in the event of the loss of any keys so
furnished, such Tenant shall pay to the Landlord the costs of replacing
the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
12. All removals, the carrying in or out of any safes, freight,
furniture, or bulky matter of any description or the use of the Building's
elevators therefor must take place between the hours of 9:00 - 11:00 a.m.
and 1:30 - 4:15 p.m. Monday through Friday (exclusive of holidays). The
moving of safes, other fixtures, equipment or bulky matter of any kind
must be made upon previous notice to the management of the Building and
under its supervision, and the person employed by any tenant for such work
must be acceptable to the Landlord. The Landlord reserves the right to
inspect all safes, freight or other bulky articles to be brought into the
Building and to exclude from the Building all safes, freight or bulky
articles which violate any of these Rules and Regulations or the Lease.
The Landlord reserves the right to prescribe the weight and position of
all safes, which must be placed upon supports approved by Landlord to
distribute weight. If additional expenses are incurred by Landlord by
reason of moving of tenant's safes, other fixtures, equipment or bulky
matter of any kind, such expenses shall be borne by tenant.
13. The Landlord reserves the right to exclude from the
Building on Mondays through Fridays between the hours of 6:00 p.m. and
8:00 a.m., at all hours on Saturdays, Sundays and legal holidays all
persons who have not received clearance as a result of a written request
from tenant or who do not present a pass to the Building signed by the
Landlord. The Landlord will furnish passes, or at Landlord's option
clearances, to persons for whom any tenant requests the same in writing.
Each tenant shall be responsible for all persons for whom it requests
passes or clearances and shall be liable to the Landlord for all acts of
such persons. Landlord shall in no case be liable for damages for any
error with regard to the admission to, or exclusion from, the building of
any person. In case of an invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion,
Landlord reserves the right to prevent access to the Building during the
continuance of the same by closing the doors or otherwise, for the safety
of the tenants and the protection of the Building and the property in the
Building.
14. Any persons employed by any tenant to do janitorial work,
shall, while in the Building and outside of the Premises, be subject to
and under the control and direction of the management of the Building (but
not as an agent or servant of the Landlord), and tenant shall be
responsible for all acts of such persons. No such person shall be allowed
in the Building between 6:00 p.m. and 8:00 a.m. on Mondays through
Fridays, and at all hours on Saturdays, Sundays and legal holidays.
15. All doors opening onto public corridors shall be kept
closed, except when in use for ingress and egress.
16. The requirements of tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special instructions
from Landlord, and no employee of Landlord will admit any person (tenant
or otherwise) to any office without specific instructions from Landlord.
17. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
18. All office equipment of any electrical or mechanical nature
shall be placed by tenant in the Premises in settings approved by
Landlord, to absorb or prevent any vibration, noise or annoyance.
19. No air conditioning unit or other similar apparatus shall
be installed or used by any tenant without the written consent of
Landlord.
20. There shall not be used in any space, or in the Common Area
of the Building, either by any tenant or others, any hand trucks except
those equipped with rubber tires and rubber side guards or such other
material handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles into the Building.
21. No vending or similar machines shall be installed,
maintained or operated upon the Premises without the written consent of
Landlord.
22. The scheduling of moves of tenant's furniture and equipment
into or out of the Building is subject to the reasonable discretion of
Landlord.
23. All electric wiring and electrical outlets and connections
of every kind shall be introduced and connected only by Landlord, and no
boring or cutting of wires shall be allowed except with the prior written
consent of the Landlord. The location of telephone, call boxes and other
office equipment affixed to the Premises shall be subject the prior
written of Landlord. No air conditioning unit or other similar apparatus
shall be installed or used by any tenant without prior written consent of
Landlord.
24. Landlord reserves the right to exclude or expel from the
Building and the Premises any person who, in the judgement of Landlord, is
intoxicated or under the influence of liquor or drugs, or who shall in any
manner do any act in violation of the Rules and Regulations.
25. Except as provided in the Lease, Tenant shall not place any
radio or television antenna on the roof or on any part of the inside or
the outside of the Building, other than the inside of the Premises,
without the prior written consent of the Landlord. Tenant shall not
operate or permit to be operated any musical or sound producing instrument
or devise inside or outside the Premises which may be heard outside the
Premises, or operate any electrical devise from which may emanate
electrical waves which may interfere with or impair radio or television
broadcasting or reception from or in the Building or elsewhere, without
the Landlord's prior written consent.
26. Tenant shall comply with all rules and regulations
applicable to the parking garage determined by the Landlord or its
appointed parking garage operator from time to time. Landlord reserves
the right to limit access to the parking garage based on vehicle
dimensions.
27. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus, and
electricity, gas or air outlets before tenant and its employees leave the
Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this Rule.
28. Tenant shall not place a load upon any floor of the
Premises which exceed the live load limit of 80 PSF + 20 PSF partitions as
set forth in the letter of Allen and Bailey Engineers, dated September 5,
1993, as referenced under Exhibit "E". Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord
to be necessary to properly distribute the weight. Business machines and
mechanical equipment belonging to tenant, which cause noise or vibration
that may be transmitted to the structure of the Building, or to any space
therein, to such a degree as to objectionable to Landlord; or to any
tenants in the Building, shall be placed and maintained by tenant, at
tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The person employed to move such equipment
in or out of the Building must be acceptable to Landlord. Landlord will
not be responsible for loss of, or damage to any such equipment or other
property from any cause, and all damage done to the Building by
maintaining or moving such equipment or other property shall be repaid at
the expense of tenant.
29. Tenant shall contain all its trash and garbage within its
Premises until Landlord disposes of it in the ordinary and customary
manner of trash and garbage disposal. Tenant shall not place in any trash
box or receptacle any material which cannot be disposed of in the ordinary
and customary manner of trash and garbage disposal. All garbage and
refuse disposal shall be made in accordance with directions issued from
time to time by Landlord.
30. Landlord shall not be liable to any tenant of the Building
for the non-observance or violation of these Rules and Regulations, the
attached Lease or any other lease for premises within the Building.
31. Tenant shall keep all window coverings closed when the
Building air conditioning, heating and ventilation systems are in
operation. Landlord shall not be responsible for room temperatures if
Tenant fails to comply with this Rule.
32. Tenant shall not connect any apparatus, device, conduct or
the Building chilled or hot water supply lines or to the air conditioning
system. Neither tenant nor tenant's servants, employees, agents,
visitors, licensees or contractors shall, at any time, enter the
mechanical installations or facilities of the Building or adjust, tamper
with, touch or otherwise in any manner affect said installation or
facilities.
33. Tenant's use of electric current shall never exceed the
electrical capacity of the floor or Building or cause such capacity to be
exceeded.
34. The word "tenant" as used herein shall include any sub-
tenant.
35. Normal business hours for the Building are from 7:00 a.m.
to 6:00 p.m. Monday through Friday and 7:00 a.m. to 1:00 p.m. on Saturday,
except for legal holidays.
36. Eaton Center is a non-smoking building environment. Tenant
shall not permit its employees, agents or invitees to smoke in the
Premises or the Common Areas of the Building.
EXHIBIT 10.9
LEASE
This lease ("Lease") is entered into as of November 15, 1996 between
Western Atlas Inc., a Delaware corporation ("Landlord"), with offices at
360 North Crescent Drive, Beverly Hills, CA 90210, and HK Systems, Inc., a
Wisconsin corporation ("Tenant"), with offices located at 2855 South James
Drive, New Berlin, Wisconsin 53151.
By this Lease, Landlord herewith leases to Tenant and Tenant hires
and takes from Landlord the improvements, including a building containing
approximately 157,144 square feet (the "Building") and land located at
2100 Litton Lane, Hebron, KY 41048 and further described and outlined in
yellow on Exhibit A attached hereto and made a part hereof (collectively,
the Building and land shall be referred to as the "Premises"). In
addition to the Premises Tenant is granted a twenty foot wide easement
upon the property South of and adjacent to the Southerly boundary of the
Premises for ingress and egress; and the Premises shall be subject to a
twenty foot easement North of and adjacent to the Southerly boundary of
the Premises for egress and ingress to the property South of the Premises.
SECTION 1: TERM
SECTION 1.01. The term of this Lease ("Lease Term") shall be for two
hundred forty (240) months commencing on November 15, 1996 and ending on
October 31, 2016.
SECTION 2: RENT
SECTION 2.01. During the Lease Term the fixed rent ("Fixed Rent")
for the Premises payable to Landlord shall be as follows:
Lease Annual Rent Total Monthly
Year Per Square Foot Annual Rent Installment
1 $3.25 $510,718.00 $42,560.00
2 $3.38 $531,146.75 $44,262.00
3 $3.50 $550,004.00 $45,834.00
4-20 $3.50 subject to CPI adjustments pursuant to
Section 2.04 below
Monthly rent installments shall commence on November 15, 1996, and shall
thereafter be due and payable on the first day of each month thereafter
through October 31, 2016. Fixed Rent for partial months at the beginning
or the end of the Lease Term shall be adjusted pro rata on a per diem
basis.
SECTION 2.02. Tenant shall pay and discharge as additional rent
("Additional Rent"), all other amounts, liabilities and obligations which
Tenant assumes or agrees to pay or discharge pursuant to this Lease. In
the event of any failure of Tenant to pay or discharge Additional Rent
within applicable grace periods, Landlord shall have all rights and
remedies provided herein or by law in the case of nonpayment of any Fixed
Rent.
SECTION 2.03. Tenant hereby acknowledges that late payment by Tenant
to Landlord of Fixed Rent and/or Additional Rent will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will
be extremely difficult or impractical to ascertain. Such costs include,
but are not limited to, processing and accounting charges, lost interest
and late charges which may be imposed on Landlord by the terms of any
mortgage or trust deed covering the Premises. Accordingly, if any
installment of Fixed Rent and/or Additional Rent from Tenant is received
by Landlord or Landlord's designee within five (5) days after such amount
shall be due and within applicable grace periods, Tenant shall pay to
Landlord a late charge equal to the lesser of seven percent (7%) of such
overdue amount or the maximum permitted by law. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the
costs Landlord will incur by reason of late payment by Tenant. Acceptance
of such late charge by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder.
SECTION 2.04. The rent described in Section 2.01 hereof shall be
adjusted commencing January 1, 2000 and continuing thereafter on the first
day of January of each year during the Term of this Lease or any extension
thereof rent shall be subject to increase at the same percentage of
increase in the Consumer Price Index (all items) for the immediate
preceding calendar year published by the U.S. Department of Labor, Bureau
of Labor Statistics. If the index is changed the index shall be converted
in accordance with the conversion factor published by the U.S. Department
of Labor, Bureau of Labor Statistics. If the index is discontinued during
the Term, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as
would have been obtained had the index not been discontinued. In no event
shall rent decrease.
SECTION 3: QUIET ENJOYMENT
SECTION 3.01. Landlord warrants to Tenant that it is the fee owner
of the Property containing Premises and has the authority to grant Tenant
the conditional right of quiet enjoyment in Section 3.02 hereof.
SECTION 3.02. If Tenant shall keep all the covenants and agreements
required by it to be kept by this Lease within applicable grace periods,
neither Landlord nor anyone claiming through Landlord will interfere with
the peaceful and quiet occupation and enjoyment of the Premises by Tenant.
SECTION 4: USE OF THE PREMISES
SECTION 4.01. Tenant shall use the Premises solely for any lawful
purpose.
SECTION 4.02. Tenant will not permit any unlawful occupation or
business to be conducted on the Premises, nor will Tenant permit anything
to be done on the Premises which would violate any certificate of
occupancy or violate any zoning ordinance affecting the same, cause
structural injury to the improvements on the Premises, or constitute a
public or private nuisance. Tenant shall not be responsible for any
violations occurring on or against the Premises which commenced prior to
the date of this Lease.
SECTION 5: NET LEASE
SECTION 5.01. This Lease is a net Lease, and all sums payable under
this Lease to or on behalf of Landlord shall be paid without set-off or
deduction, except as otherwise set forth in this Lease. The Fixed Rent
and Additional Rent payable hereunder shall be net to Landlord so that
this Lease shall yield to Landlord the rentals specified during the Lease
Term, and that all costs, expenses and obligations of every kind and
nature whatsoever relating to the Premises shall be paid by Tenant, except
as otherwise set forth in this Lease.
SECTION 5.02. Except as otherwise expressly provided herein, this
Lease shall not terminate, nor shall Tenant have any right to terminate
this Lease or be entitled to the abatement of any rent or any reduction
thereof. The obligations of Tenant are separate and independent covenants.
The Fixed Rent and Additional Rent hereunder shall continue to be payable
in all events and the obligations of Tenant hereunder shall continue
unaffected, unless the requirement to pay or perform the same shall be
terminated pursuant to an express provision of this Lease.
SECTION 6: PAYMENT OF TAXES, ASSESSMENTS AND OTHER CHARGES
SECTION 6.01. Tenant will pay to the persons charged with the
collection thereof prior to the date that the same are due but before any
penalty or interest is imposed thereon because of nonpayment, all taxes or
portions thereof which are imposed and accrue, all ad valorem real
property assessments (including assessments for benefits from public
improvements), levies, costs, penalties and charges, (all the foregoing
being termed "Impositions"), which, during the Term of this Lease, are
levied, assessed, or imposed and accrue upon the Premises, the use or
occupation thereof, or improvements thereon, additions or alterations
thereto, the personal property thereof, or upon the Fixed Rent, the
Additional Rent or the leasehold estate hereby created. So long as the
Premises are assessed as part of a larger tax parcel Landlord and Tenant
shall in good faith equitably apportion the total assessments of land and
improvements proportionately and Tenant's taxes shall be the Premises
proportionate share of taxes applicable to the entire tax parcel. At such
time as the Premises may become a separate tax parcel Tenant's taxes shall
be all taxes assessed upon the Premises. Landlord shall promptly forward
the applicable tax bills to Tenant upon Landlord's receipt thereof. If
during any Term of this Lease the methods of taxation shall be altered as
to cause the Impositions which are now payable by Tenant under this
Section 6.01 to be imposed on the rents received from the Premises imposed
upon Landlord, then all such Impositions shall be discharged by Tenant.
SECTION 6.02. Any Imposition which may be payable in installments
may be paid in that manner if paid by the date fixed for the payment, with
Tenant only responsible for such installments or portions of such
assessment which fall due during the Lease Term.
SECTION 6.03. If Tenant in good faith desires to contest any
Imposition, Tenant shall notify Landlord of its intention to do so and may
then defer such payment, provided that prior to the date such payment is
due and payable such security as may be requested by Landlord based on
Tenant's then current net worth shall be furnished by Tenant to ensure
such payment, and to prevent any sale or forfeiture of the Premises by
reason of such deferred payment. During any such contest Tenant will
prevent any divesting of Landlord's interest in the Premises by reason of
such contest. Tenant agrees to promptly prosecute such contest to a final
conclusion; to save Landlord harmless from and against all judgments and
costs (including all attorneys' fees and expenses) in connection
therewith; and to promptly, after the final determination of such contest,
fully discharge the amounts which are determined to be payable therein,
together with all penalties, fines, interest, costs and expenses resulting
therefrom. Landlord hereby authorizes Tenant to engage in any such contest
in the name of Landlord, and Landlord agrees to cooperate with Tenant, at
Tenant's sole cost and expense, in any such contest.
SECTION 7: LIENS AND ENCUMBRANCES
SECTION 7.01. Tenant will not create or permit to be created, and
will discharge or bond at its sole cost and expense, all liens (including
the liens of mechanics, laborers or materialmen), encumbrances and other
charges upon the Premises, or upon the rents payable hereunder, or upon
Tenant's leasehold interest in the Premises (other than permitted by
Section 7.03 hereof), except such liens, encumbrances or charges placed
upon the Premises by the act of Landlord.
SECTION 7.02. If any such lien, encumbrance or charge is filed or
asserted against the Premises, upon the Fixed Rent, or upon Tenant's
leasehold interest, Tenant shall cause the same to be discharged or bonded
within fifteen (15) days after actual notice thereof.
SECTION 7.03. The Tenant may mortgage or otherwise encumber its
estate created by this Lease but shall not encumber the rent and the
Premises and any such encumbrance shall be subordinate to any mortgage on
the property containing the Premises whether existing now or in the
future.
SECTION 7.04. Tenant may, in good faith by appropriate legal
proceedings, contest any claimed lien or encumbrance. Such contest shall
be made in the manner and subject to all the terms and conditions set
forth in Section 6 hereof.
SECTION 8: ASSIGNMENT AND SUBLETTING
SECTION 8.01. Tenant may assign this Lease to an affiliate or
subsidiary without Landlords prior consent and Tenant shall remain bound
by the terms of the Lease. Other than to an affiliate or subsidiary this
Lease may only be assigned or the Premises sublet by Tenant with
Landlord's prior written consent which shall not be unreasonably withheld.
Any assignment, subletting or transfer other than as permitted in Section
7.03 (collectively, a "Transfer") made by Tenant in violation of this
Section 8 shall be voidable at the sole option of Landlord. As a condition
of Landlord's consent to any assignment or subletting by Tenant, Tenant
shall continue to be bound by all the terms and conditions of this Lease.
SECTION 8.02. For purposes of this Lease, a Transfer shall include
any assignment by Tenant to a party other than a subsidiary or affiliate
of Tenant; any sale or transfer of most or all of the assets of Tenant at
the Premises to a party other than a subsidiary or affiliate of Tenant;
the occupancy of the Premises by any entity other than Tenant or a
subsidiary or affiliate of Tenant; and/or any other transfer, sale or
disposition by Tenant. In the event Tenant assigns this Lease or
subleases the Premises to a subsidiary or affiliate of Tenant, Tenant
shall provide written notice thereof to Landlord prior to the effective
date of such assignment or sublease and, in the case of an assignment,
Landlord, Tenant and the assignee shall execute an assignment document in
substantially the form required under Section 8.04(ii) hereof. An
affiliate of Tenant includes a successor, merger or the intra-corporate or
other restructuring of Tenant so long as either: the financial standing
and condition of the surviving entity is equal to or greater than that of
Tenant, or the predecessor Tenant is still in existence and its financial
standing and condition are not materially lessened.
SECTION 8.03. (i) In the event that, at any time or from time prior
to or during the Term, Tenant desires to Transfer this Lease in whole or
in part, whether by operation of law or otherwise, Tenant shall submit to
Landlord for its consideration (a) in writing, the name and address of the
proposed subtenant or assignee, a reasonably detailed statement of the
proposed subtenant's or assignee's business and reasonably detailed
financial references and information concerning the financial condition of
the proposed subtenant or assignee, and (b) if a subletting a description
of the area of the Premises to be sublet. Tenant agrees to pay Landlord,
as Additional Rent, all costs incurred by Landlord in connection with any
actual or proposed Transfer, including, without limitation, the reasonable
costs of making investigations as to the acceptability of a proposed
subtenant or assignee and reasonable legal costs incurred in connection
with any requested consent.
(ii) Landlord's consent to an assignment of this Lease shall be
effective upon the execution by Tenant, the assignee, and Landlord of an
assignment document in form reasonably acceptable to the Landlord in
which the assignee shall agree to assume, observe, perform, and be bound
by, all of Tenant's obligations under this Lease and Tenant shall agree to
remain primarily liable for such obligations.
Any given consent by Landlord to a subletting of all or a portion of
the Premises shall be deemed to have been given only upon the delivery by
Landlord to Tenant of a consent document prepared and executed by Landlord
expressly consenting to such subletting.
SECTION 9: INSURANCE
SECTION 9.01. All insurance provided for in this Section 9 shall be
effected by Tenant, at its sole cost and expense, under policies issued by
financial responsible insurers licensed to do business in Kentucky rated
at least B+ 10 or equivalent rating, as set forth in the most current
issue of "Best Insurance Guide."
SECTION 9.02. Tenant shall keep the Premises and the personalty,
equipment, fixtures, trade fixtures and machinery therein insured against
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke
damage, vehicle damage and such other risks as are or shall customarily be
insured against with respect to property that is similar to the Premises,
including rent loss insurance, in amounts sufficient to prevent Tenant or
Landlord from becoming a coinsurer of any loss, but in no event not less
than 100% of the full insurable value of the Premises. "Full insurable
value" means actual replacement value.
SECTION 9.03. Tenant shall maintain sprinkler leakage insurance in
amounts sufficient to prevent Landlord or Tenant from being a coinsurer of
any loss.
SECTION 9.04. Tenant shall maintain boiler and pressure vessel
(including pressure pipes) explosion insurance in an amount at least equal
to $5,000,000.00 with respect to all boilers, pressure vessels and
pressure pipes located on the Premises under a policy which shall not
contain any provision making Landlord or Tenant a coinsurer of any loss.
SECTION 9.05. Tenant shall maintain general public liability
insurance against claims for bodily injury, death or property damage
occurring on, in or about the Premises and the adjoining streets,
sidewalks and passageways, such insurance to afford protection of not less
than $2,000,000.00 with respect to bodily injury or death to any one
person, not less than $5,000,000.00 with respect to any one accident, and
not less than $5,000,000.00 with respect to property damage. Policies for
such insurance shall be for the mutual benefit of Landlord and Tenant.
SECTION 9.06. All policies of insurance required by this Section 9
shall insure Landlord and Tenant as their respective interests may appear,
and certificates of insurance shall be filed with Landlord. All policies
shall contain an undertaking that such policies shall not be canceled or
have their coverage materially altered without thirty (30) days prior
written notice to Landlord. At least thirty (30) days prior to the
expiration dates of the policies, renewal certificates of insurance from
the insurers shall be deposited with the Landlord.
SECTION 9.07. If the Premises is encumbered by a mortgage, indenture
or deed of trust ("Mortgage"), every such insurance policy (other than
liability insurance policies) shall bear a standard first mortgage
endorsement in favor of the mortgagee of Landlord's interest in the
Premises, or the trustee under a mortgage or deed of trust of such
interest (such mortgagee or trustee being referred to herein as a
"Mortgagee"), and any loss under such policy shall be made payable to the
Mortgagee. Any recoveries under any such policy shall be applied by the
Mortgagee as provided in any such mortgage. Every such policy carried by
Landlord or Tenant respecting casualty losses shall contain an agreement
by the insurer that it waives all rights of subrogation against Tenant and
Landlord, as the case may be; and that any loss thereunder shall be
payable despite any act of negligence of Tenant or Landlord. Each party
hereto waives any claim which arises in its favor against the other party
during the Lease Term for any loss or damage to any of its property which
loss or damage is covered by valid and collectible fire and extended
coverage insurance policies, to the extent that such loss or damage is
recovered under said insurance policies. Said waivers shall be in
addition to, and not in limitation or derogation of, any other waiver or
release contained in this Lease with respect to any loss or damage to
property of the parties hereto. Inasmuch as the above mutual waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to any insurance company (or any other person), each party
hereto hereby agrees immediately to give to each insurance company which
has issued to it policies of fire and extended coverage insurance written
notice of the terms of said mutual waivers, and to have said insurance
policies properly endorsed, if necessary, to prevent the invalidation of
said insurance coverage by reason of said waivers.
SECTION 9.08. Landlord shall not be required to prosecute any claim
or contest any insurance claim settlement. In such event, Tenant may
prosecute such claim or contest such settlement in the name of Landlord,
Tenant or both; and Landlord will join therein provided that Tenant shall
bear all costs, liabilities and expenses in connection with such
prosecution or contest.
SECTION 10: INDEMNIFICATION
SECTION 10.01. Tenant shall indemnify and hold Landlord harmless
from and against any and all claims arising from Tenant's use of the
Premises or from the conduct of Tenant's business or from any activity,
work or things done in or about the Premises or, suffered or permitted by
Tenant in or about the Premises or elsewhere (except if caused by
negligence or willful act of Landlord), and shall further indemnify and
hold Landlord harmless from and against any and all claims arising from
any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease, or arising from
negligence of Tenant, or any of Tenant's agents, contractors, or
employees, and from and against all costs, attorneys' fees, experts' fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding
be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
satisfactory to Landlord. Tenant, as a material part of the consideration
hereunder to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises arising from any cause
(except negligence or willful act of Landlord and other matters that are
Landlord's responsibility under this Lease), and Tenant hereby waives all
claims in respect thereof against Landlord.
SECTION 10.02. Notwithstanding anything to the contrary in this
Section 10 Tenant does not indemnify Landlord against any claim for acts,
conditions or matters occurring or arising prior to the date of this Lease
and for any acts or negligence of Landlord.
SECTION 11: LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
SECTION 11.01. If Tenant fails to pay any Imposition pursuant to
Section 6, any Additional Rent, including but not limited to the payment
of or to make any other payment or perform any act on its part to be made
or performed as provided in this Lease, Landlord may, without notice to
Tenant and without releasing Tenant from any obligation in this Lease, pay
any such Imposition, effect any such insurance coverage and pay premiums
therefor, and made any such other payment or perform any such other act of
Tenant in this Lease. In exercising such rights, Landlord may pay all
necessary and incidental costs and expenses, including attorneys' fees.
All sums paid by Landlord pursuant to this Section 11, together with
interest at the lesser of the maximum rate permitted by law or 2% over the
prime rate of Wells Fargo Bank, NA, San Francisco, California from the
date of such payment, shall be repaid by Tenant to Landlord on demand.
Landlord shall have the same rights and remedies in the event of the
nonpayment or late payment thereof by Tenant as in the case of default in
the payment of Fixed Rent. Landlord shall not commence any action under
this Section 11.01 until any applicable grace period expires unless such a
delay by Landlord will increase the risk of Landlord.
SECTION 12: REPAIR AND MAINTENANCE OF THE PREMISES
SECTION 12.01. Except as set forth in this Lease, Landlord shall not
be required to rebuild any improvements on the Premises or make any
repairs, replacements or renewals of any nature to the improvements on the
Premises, whether ordinary or extraordinary, foreseen or unforeseen, or to
make any expenditure in connection with this Lease or to maintain the
Premises in any way. Except as set forth in this Lease, Tenant assumes
the sole responsibility for the condition, operation, repair, replacement,
maintenance and management of the Premises.
SECTION 12.02. Except for matters that are Landlord's responsibility
under this Lease, Tenant will, at its sole cost and expense, take good
care of the Premises and the equipment, fixtures and machinery thereon or
used in connection therewith, and keep the same in good order and
condition except for ordinary wear and tear, and make all necessary
repairs to the Premises, interior and exterior, ordinary and
extraordinary, foreseen and unforeseen. The term "repairs" includes
replacements or renewals when necessary; pest control; replacements of the
roof and HVAC system, necessary to maintain the Premises in first class
condition, such work to be performed pursuant to plans and specifications
approved by Landlord; and removal of trash and "Hazardous Materials"
(hereafter defined), except for Hazardous Materials existing on the
Premises on the date of this Lease other than chemicals used in the normal
course of Tenant's business on and after the date of this Lease. All such
repairs made by Tenant shall be equal in quality to the original work, and
shall be accomplished in a good workmanlike manner in full compliance with
applicable building, environmental, and safety laws. "Repairs" also
includes alterations required to comply with governmental regulations and
laws, including but not limited to laws requiring special signs, safety
laws and laws requiring access for the handicapped including but not
limited to, the Americans with Disabilities Act of 1990, 42 U.S.C. Section
Section 12101-12213, excluding pre-existing violations.
SECTION 12.03. Subject to Section 13.01, all repairs and
replacements to the Premises shall become part of the realty and the
property of Landlord.
SECTION 12.04. The provisions set forth in Section 13 shall apply to
repairs, maintenance and replacements done under this Section 12.
SECTION 13: PERSONAL PROPERTY, TRADE FIXTURES, ALTERATIONS AND
ADDITIONS
SECTION 13.01. Any personal property or trade fixtures (excluding
property which is the property of Landlord pursuant to Section 12.03)
installed on the Premises by Tenant, whether or not attached to the
Premises, shall be removed by Tenant at the termination of this Lease or
at any time prior thereto, and all such property shall remain the property
of the Tenant. Tenant shall repair all damage caused by such removal and
restore the Premises to good condition, reasonable wear and tear excepted.
Any personal property and trade fixtures not removed by Tenant at the
termination of this Lease shall, at Landlord's sole option become
Landlord's property, or at Landlord's option, may be removed by Landlord
at Tenant's expense.
SECTION 13.02. Tenant shall not alter the exterior, structural,
plumbing or main electrical elements of the Premises in any manner without
the consent of Landlord, which consent shall not be unreasonably withheld
or conditioned; provided, however, Tenant may undertake nonstructural
alterations to the Premises costing less than $25,000 without Landlord's
consent. If Landlord consents to the making of any such alterations, the
same shall be made by Tenant at Tenant's sole expense by a licensed
contractor and according to plans and specifications approved by Landlord
and subject to such other conditions as Landlord shall require. Any work
at any time commenced by Tenant on the Premises shall be prosecuted
diligently to completion, shall be of good workmanship and materials and
shall comply fully with all the terms of this Lease. Upon completion of
any alterations, Tenant shall promptly provide Lessor with (i) evidence of
full payment to all laborers and materialmen contributing
to the alterations, (ii) an architect's certificate certifying the
alterations to have been completed in conformity with the plans and
specifications, (iii) a certificate of occupancy if required, and (iv) any
other documents or information reasonably requested by Landlord. Lessee
shall execute and file or record, as appropriate, a "Notice of Non-
Responsibility," or any equivalent notice permitted under applicable law
in the state where the Premises is located. Any addition to or alteration
of the Premises shall be deemed a part of the Premises and belong to
Landlord, and Tenant shall execute and deliver to Landlord such
instruments as Landlord may require to evidence the ownership by Landlord
of such addition or alteration. Landlord agrees that Tenant may enlarge
the Building in accordance with the conditions of this Section 13.
SECTION 13.03. As a condition to Landlord's consent, Tenant shall
serve or post any notices necessary to hold Landlord harmless from
liability arising out of work done on the Premises.
SECTION 13.04. All alterations and improvements constructed pursuant
to Section 12 and this Section 13 of this Lease shall become part of the
Premises and the property of Landlord; provided however that by written
notice given at the time Landlord gives its consent to the alterations
(but not thereafter), Landlord may, at its option, require Tenant to
remove such alterations and improvements and restore the Premises and
repair any damage caused by such removal or applicable part thereof to the
condition that existed before the alterations or improvements were
installed.
SECTION 13.05. Tenant may at Tenant's sole expense place signs upon
the Premises, provided Landlord has approved the location and design of
the proposed sign(s) such approval not to be unreasonably withheld. All
of Tenant's signage shall comply with all codes, ordinances and
regulations.
SECTION 14: INSPECTION OF THE PREMISES
SECTION 14.01. Landlord and its authorized representatives may enter
the Premises at reasonable times on prior notice (except in emergency)
during usual business hours to inspect, or to prevent waste to the
Premises. Landlord may enter the Premises at any time in case of an
emergency. Nothing herein shall imply a duty of Landlord to do any work
that Tenant is required to perform, and the performance thereof by
Landlord, after demand upon Tenant, shall not be a waiver of Tenant's
default. During the progress of any work on the Premises, Landlord may
keep and store thereon all necessary materials, tools and equipment.
Landlord shall not be liable for inconvenience, loss of business or other
damage to Tenant because of such work, and the obligations of Tenant under
this Lease shall not thereby be affected in any manner whatsoever.
SECTION 14.02. Landlord and its authorized representatives may enter
the Premises at reasonable times on prior notice during usual business
hours to show the same to prospective purchasers or lenders (and tenants
during the final two [2] years of the Term) as Landlord may deem necessary
or desirable. Landlord may at any time place on or about the Premises any
ordinary "for sale" signs; and Landlord may, at any time during the last
year of the Lease Term, place on or about the Premises any ordinary "for
lease" or "for sale" signs, and show the Premises to prospective tenants
or purchasers.
SECTION 15: UTILITY CHARGES
SECTION 15.01. Tenant will pay all charges for gas, fuel oil, water,
steam, electricity, trash removal, trash separation, and recycling costs),
sewerage, telephone, and other utilities used in connection with the
Premises, and will indemnify Landlord from any liability on such account.
Tenant shall, at its sole cost, procure, maintain and/or renew, as the
case may be, all licenses and other authorizations required for the lawful
installation and maintenance of wires, pipes, shafts, ducts, conduits,
tubes and other equipment and appliances for use in supplying utility
services upon the Premises, except for matters which are Landlord's
<PAGE>
responsibility in Sections 30 and 44 below.
SECTION 15.02. Certain utility services are provided from lines
located on Landlord's property beyond the premises and Tenant is given the
right of access to repair and maintain such services. Tenant shall be
responsible for the cost of any such maintenance and repair if the service
is exclusive to Tenant; and if the service is shared with the adjacent
property then Tenant shall be responsible for fifty percent (50%) (or
equitable share, if the usage of the adjacent property is not equal) of
the cost to maintain and repair the service unless the failure or damage
to such service was caused by Tenant, its employees, contractors, vendors
or visitors in which case Tenant shall be responsible for the total cost
of such repair or maintenance.
SECTION 15.03. Certain utility services shared by the Premises with
the adjacent property are provided through a meter common to both
properties. Tenant agrees that so long as it is the Tenant in the
property adjacent to the Premises that it will pay all charges as a result
of metered consumption. If Tenant ceases to be a Tenant of the adjacent
property Landlord and Tenant shall in good faith allocate the charges for
the respective utility services based on the percent of such services
agreed to have been utilized by the Premises until the same are separated
by Landlord pursuant to Sections 30 and 44 below.
SECTION 16: CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
SECTION 16.01. Any of the following occurrences is an "Event of
Default" under this Lease: (i) if Tenant (regardless of the pendency of
any bankruptcy, receivership, or other proceedings, which might have the
effect of preventing Tenant from complying with the terms of this Lease),
fails to: (a) within five (5) days after notice from Landlord make any
payment of Fixed Rent or Additional Rent on the date such payment is due
or (b) perform Tenant's other covenants within thirty (30) days after
notice of such failure (in the case of a failure to observe a nonmonetary
covenant of this Lease which cannot reasonably be cured within thirty [30]
days, if Tenant fails to proceed promptly to cure the same, it being
intended that the time to cure the same shall be extended as may
reasonably be necessary); or (ii) if Tenant shall voluntarily file a
petition in bankruptcy, or for reorganization under the United States
Bankruptcy Code; or (iii) if an involuntary petition in bankruptcy is
filed against Tenant that is not dismissed within sixty (60) days of the
date of its filing; or (iv) if a receiver of all or substantially all the
property of Tenant shall be appointed, and if such receiver is not
discharged within sixty (60) days after such appointment; or (v) if the
Premises shall have been left abandoned for thirty (30) consecutive days;
or (vi) if the leasehold interest of Tenant in the Premises is levied upon
or attached and such process is not vacated or discharged within sixty
(60) days; or (vii) a "Chronic Default" occurs, which is defined as the
occurrence of three (3) or more of any the foregoing Events of Default
within any twelve (12) month period.
SECTION 16.02. Upon an Event of Default, Landlord may give Tenant
written notice of Landlord's intention to terminate this Lease on a date
at least five (5) days after the effective date of such notice ("Notice
Date"). On the Notice Date all right, title and interest of Tenant in this
Lease shall expire unless prior to the Notice Date the defaults have been
cured or waived. On the Notice Date, Tenant shall surrender possession of
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided, and Landlord shall have the immediate right of re-entry and
possession of the Premises as if this Lease had not been made.
SECTION 16.03. Upon a termination of this Lease, as provided herein
or as permitted by law, notwithstanding any other provision of this Lease
to the contrary, Landlord will be entitled to recover from Tenant (in lieu
of all other claims for damages on account of the termination of the Term
of this Lease), as liquidated damages, but subject to Landlord's duty to
mitigate damages under law, an amount equal to the Fixed Rent and
Additional Rent hereunder for the remaining Term of this Lease discounted
to present value at the rate of 6% per annum. For purposes of this
Section 16.03, the accelerated amount of Additional Rent shall be
calculated based on the amount of Additional Rent that became due during
the twelve (12) month period preceding the month of termination increased
at the rate of four percent (4%) per annum for each remaining year (or
fraction thereof) of the Lease Term.
SECTION 16.04. As an alternative to the liquidated damages upon
termination of this Lease provided in Section 16.03, Landlord may obtain
actual damages from Tenant. Upon re-entry, Landlord shall have the right
without notice to Tenant to repair or alter the Premises in such manner as
Landlord deems advisable to put the Premises in good order and to make it
rentable. Landlord shall have the right to relet the Premises or any part
thereof, and Tenant agrees to pay to Landlord on demand all expenses
incurred by Landlord in obtaining possession, and in altering, repairing
and putting the Premises in good order and condition, and in re-letting
the same, including the fees of attorneys, architects, and other experts
hired by Landlord in this respect, and also all other associated expenses
or commissions. Tenant further agrees to pay to Landlord upon the dates
specified herein for the payment of Fixed Rent from the date of such re-
entry until the expiration date of the Term of this Lease, the Fixed Rent
and Additional Rent which would have been payable by Tenant hereunder upon
said payment dates if Landlord had not repossessed the Premises, deducting
therefrom the net amount of rents, if any, which Landlord actually
receives (after deducting from the gross receipts the expenses, costs, and
payments of Landlord which in accordance with the terms of this Lease
would have been borne by Tenant) in the meantime from any re-letting of
the Premises. The aforesaid liability of Tenant shall survive the issuance
of any action to secure possession of the Premises. Nothing herein
contained shall require Landlord to wait to begin such legal proceedings
until the date when this Lease would have expired had there been no
default by Tenant.
SECTION 16.05. No such re-entry or taking of possession of the
Premises by Landlord shall be construed as an election on Landlord's part
to terminate this Lease unless a written notice of such intention be given
to Tenant or unless such termination be decreed by a court of competent
jurisdiction. Tenant hereby consents to the exercise by Landlord of any
and all-self help remedies available at law or in equity without Landlord
resorting to any legal or judicial process, procedure or action,
notwithstanding any laws in the Commonwealth of Kentucky to the contrary.
If Landlord reenters the Premises, with or without judicial process, such
reentry shall not be deemed a trespass, and Landlord shall have no
liability to Tenant or any third party arising from such reentry.
SECTION 16.06. All rights or remedies herein conferred upon Landlord
are in addition to every other right or remedy given hereunder, or now or
hereafter existing at law or in equity or by statute. Failure of Landlord
to insist upon the strict performance of the provisions in this Lease
shall not be a waiver thereof for the future. A receipt by Landlord of
any Fixed Rent or Additional Rent with knowledge of the breach of any
provision in this Lease shall not be a waiver of such breach. No waiver
by Landlord of any provision of this Lease shall be deemed to have been
made unless expressed in writing by Landlord. In addition to the other
remedies provided in this Lease, Landlord is entitled to injunctive relief
in case of the violation, or attempted or threatened violation, of any
provision of this Lease and to any other remedy allowed to Landlord at law
or in equity.
SECTION 16.07. Tenant waives (i) any right under any present or
future law to redeem the Premises after termination of Tenant's right of
occupancy by order of any court, or after the termination of this Lease as
herein provided; and (ii) the benefits of any present or future law which
exempts property from liability for distress for rent.
SECTION 17: HAZARDOUS MATERIALS
SECTION 17.01. The term "Hazardous Materials" means any hazardous or
toxic substance, material or waste which was, is or becomes regulated, by
any local government authority, the state in which the Premises is
located, or the United States Government, but not including any such
substance, material or waste which is on the Premises on and prior to the
commencement date of this Lease (other than chemicals used in the ordinary
course of Tenant's business during the Lease Term) or any such items
placed on the Premises by Landlord, its agents and employees. The term
"Hazardous Materials" includes, without limitation, any material or
substance which is (i) asbestos; (ii) designated as a "hazardous
substances" pursuant to Section 311 of the Federal Water Pollution Control
Act (33 U.S.C. 1317); (iii) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq. ("RCRA"); (iv) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA"); or (v)
designated as a "hazardous material" pursuant to Section 1803 of the
Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq.
SECTION 17.02. The term "Other Premises" means any land,
improvements, vegetation, animal life, water or air (excluding the
Premises), whether publicly or privately owned (and including without
limitation any disposal facilities such as sewers or landfills) which have
become contaminated by Hazardous Materials placed thereon by Tenant, its
agents and employees. The term "Premises" includes, in addition to the
real property and improvements, the airspace above the Premises, all
substrata, and all groundwater located underneath the Premises.
SECTION 17.03. The term "Material Contamination" means any unlawful
contamination of the Premises or Other Premises, however caused, the
remediation of which would cost, at the time such contamination is
discovered, more than Five Thousand Dollars ($5,000.00) to complete. In
no event, shall the preceding sentence be construed as a "deductible" with
respect to Tenant's liabilities and obligations, nor be construed to limit
or reduce any liability or obligation of Tenant under the terms of this
Lease or applicable law if such Material Contamination occurs.
SECTION 17.04. Tenant shall not cause or permit any Hazardous
Materials to be brought upon, kept or used in, on or about the Premises
except such Hazardous Materials as is or will be necessary to Tenant's
business and will be transported, kept, stored, used, discharged,
generated, released and disposed of in a manner that complies with all
laws regulating any such Hazardous Materials.
SECTION 17.05. Tenant shall, promptly upon knowledge thereof, advise
Landlord in writing of (a) any Material Contamination of the Premises or
any Other Premises; (b) any unlawful transportation, storage, use,
discharge, generation, release or disposal of Hazardous Materials on,
about, to or from the Premises, by Tenant, its employees and agents; (c)
any and all enforcement, cleanup, removal or other governmental or
regulatory actions instituted or threatened by any federal, state or local
governmental agency with respect to Hazardous Materials affecting the
Premises or the operations of Tenant thereon or therefrom; and (d) all
claims made or threatened by any third party against Tenant or the
Premises relating to damage, contribution, cost recovery compensation,
loss or injury resulting from any Hazardous Materials brought upon,
transported, kept, stored, used, generated, discharged or released or
disposed of on, about, to or from the Premises or Other Premises.
SECTION 17.06. Tenant shall be solely responsible for, and shall
indemnify, defend and hold harmless Landlord, from and against any and all
claims, demands, suits, judgments, liens, damages, penalties, fines,
costs, expenses, liabilities or losses (including, without limitation, any
decline in the fair market value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises, damages arising from any adverse impact on marketing of space in
the buildings or improvements constructed upon the Premises, and sums paid
in settlement of all claims, attorneys' fees, consultants' fees and
experts' fees) which arise out of Tenant's breach of Sections 17.04 or
17.05.
For purposes of this Section 17.06, any decline in the fair market
value of the Premises shall be calculated with reference to the date upon
which such contamination of the Premises is discovered.
This indemnification of Landlord by Tenant shall survive the
expiration or prior termination of this Lease, and the costs and expenses
recoverable under this indemnity shall include, without limitation, costs
incurred in connection with any investigation of site conditions and any
clean-up, remedial, removal or restoration work required by any federal,
state or local government agency or political subdivision because of
Hazardous Materials present in the buildings, soil, water or air on, under
or about the Premises or any Other Premises. Without limiting the
foregoing, if the presence of any Hazardous Materials on the Premises
caused or permitted by Tenant results in any contamination of the Premises
or Other Premises, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Premises and/or Other Premises to
the condition existing prior to the introduction thereto of such Hazardous
Material.
SECTION 17.07. Except to the extent of Landlord's responsibilities
under Section 17.09 Tenant shall initiate all activities necessary to
respond to, remedy or remove Hazardous Materials located on or in the
Premises within thirty (30) days after discovery thereof, or after being
notified of the existence of such Hazardous Materials on the Premises;
provided, however, that in the event the presence of such Hazardous
Materials on, under or about the Premises caused by Tenant, its agents or
employees, either poses an immediate and serious threat to the health,
safety and welfare of any individual or is of such a nature that an
immediate response is necessary, Tenant shall initiate appropriate
remedial activities immediately. Tenant shall be fully responsible for
the conduct of such response and remedial activities, which shall be
accomplished as quickly as reasonably possible. Tenant shall directly
contract for or perform all such actions in Tenant's own name, and shall
dispose of any Hazardous Materials removed from the Property in accordance
with applicable laws. Copies of all reports submitted to governmental
authorities, and of all technical data, test results, expert opinions and
other materials generated in connection with any contamination, response
or remedial activities shall be furnished to Landlord. All remedial work
shall be performed in accordance with applicable laws, both as to remedial
procedures employed and as to levels or concentrations of contamination
allowable thereunder.
SECTION 17.08. Landlord may, at any reasonable time during the Term
of this Lease and upon thirty (30) days notice to Tenant; or within one
hundred eighty (180) days after termination of this Lease, cause to be
conducted an environmental audit of the Premises or any part thereof to
determine whether or not Tenant is complying with or has complied with the
provisions of this Section 17. If Landlord has a reasonable basis to
believe Tenant has violated this Section 17, Tenant shall pay the cost of
said environmental audit. In the event of any environmental audit
hereunder, Tenant agrees to provide Landlord with copies of any and all
records of Tenant pertaining to Tenant's transport, use, storage,
manufacture, generation, release, discharge or disposal of Hazardous
Materials on, about, to or from the Premises.
SECTION 17.09. Landlord represents to Tenant that to Landlord's
actual knowledge the Premises are in compliance with all applicable
environmental regulations as of the commencement of the Lease Term.
Landlord shall hold Tenant harmless from any cost of environmental
remediation of any contamination of the Premises (or any contamination of
Other Premises arising from the migration of Hazardous Materials from the
Premises) occurring prior to the commencement of the Lease Term.
SECTION 17.10. Tenant's indemnity under this Section 17, and
Tenant's other duties and responsibilities under this Section 17, shall
not apply to (or impose liability on Tenant in connection with) any
Hazardous Materials or other contamination occurring prior to the
commencement date of this Lease, shall not apply to any Hazardous
Materials on or contamination caused by an occurrence on adjacent property
or any Hazardous Materials or contamination caused by Landlord, its agents
or employees.
SECTION 18: ESTOPPEL CERTIFICATES
SECTION 18.01. Tenant will within fifteen (15) days of notice by
Landlord, deliver to Landlord a certification that this Lease is
unmodified and in full force and effect (or, if there have been
modifications, stating the modifications) and the dates to which the Fixed
Rent and Additional Rent and other charges have been paid, and stating
whether or not Landlord is in default of this Lease, and, if so,
specifying such default; and also stating such reasonable information
which may be requested by a mortgagee or prospective mortgagee or
prospective purchaser. It is intended that any such certificate may be
relied upon by any prospective purchaser or mortgagee of the Premises.
SECTION 19: LIMITATION OF LANDLORD'S LIABILITY
SECTION 19.01. If Landlord sells or conveys the Premises, Landlord
shall be released from any liability arising thereafter based upon any of
the terms, covenants or conditions, expressed or implied, which are
contained in this Lease. In such event, Tenant agrees to look solely to
Landlord's successor-in-interest for any liability under this Lease.
Except for the foregoing, this Lease shall not be affected by any sale or
conveyance of the Premises by Landlord and Tenant agrees to attorn to
Landlord's successor-in-interest.
SECTION 19.02. Notwithstanding anything to the contrary herein
provided or otherwise provided at law or in equity, there shall be
absolutely no personal liability in excess of its interest in the Premises
including the rents, issues and profits thereof, on the part of the
Landlord or any successor-in-interest thereto (whether the same be an
individual, joint venture, tenancy-in-common, firm or partnership,
general, limited or otherwise) or on the part of the members of any firm,
partnership or joint venture or other unincorporated entity of Landlord
with respect to any of the terms, covenants or conditions of this Lease.
In the event of a breach or default by Landlord, or any successor-in-
interest thereof, of any of its obligations under this Lease, Tenant shall
look solely to the then Landlord or such successor-in-interest of the
Premises for the satisfaction of each and every remedy of Tenant, such
exculpation of personal and additional liability which is in excess of
such interest in the Premises is absolute and without any exception
whatsoever.
SECTION 20: COVENANTS TO RUN WITH THE LAND
SECTION 20.01. Each provision of this Lease shall run with the land
and shall bind and inure to the benefit of the successors and assigns of
Landlord and Tenant.
SECTION 21: SURRENDER
SECTION 21.01. Upon the expiration or sooner termination of this
Lease, Tenant shall peaceably and quietly surrender possession of the
Premises to Landlord in the same condition in which the Premises was
received from Landlord, ordinary wear and tear excepted, and except as set
forth in Sections 24 and 25 hereof, and except for matters that are
Landlord's responsibility under this Lease, and free of occupants. Tenant
shall, at its sole cost and expense, have removed from the Premises all
personal property and trade fixtures situated thereon which are not owned
by Landlord; except as otherwise provided herein, removed all alterations
and additions required by Landlord; and repaired any damage caused by such
removal before surrender of possession of the Premises will be deemed to
be completed. Fixed Rent and Additional Rent shall continue to be due,
owing and paid until surrender is fully completed. Any property not so
removed shall become the property of Landlord or at Landlord's election,
may be removed by Landlord at Tenant's expense.
SECTION 22: NOTICES
SECTION 22.01. All notices required by this Lease shall be in
writing. All such notices shall be served personally or sent by United
States registered or certified mail or air courier, postage or charge
prepaid, addressed to Landlord or Tenant, as the case may be at its
address set forth above, or at such other place as Tenant or Landlord may
from time to time designate in a written notice to the other. Notice to
Landlord shall also include a copy sent to Real Estate Department at
Landlord's address. Notices may also be sent by telefax, provided a
duplicate copy is sent to the addressee by certified mail. Such notices
shall be deemed sufficiently served or given when telefaxed, when
deposited in any U.S. Post Office, or when deposited with any overnight
air courier service, but shall not be deemed effective until actual
receipt by the recipient.
SECTION 23: SEPARABILITY
SECTION 23.01. Each covenant and agreement of this Lease is a
separate independent covenant and agreement, and the breach of any
covenant or agreement shall not relieve the other party from performing
each covenant and agreement in this Lease. If any provision of this Lease
is unenforceable, the remainder of this Lease shall not be affected.
SECTION 24: DAMAGE OR DESTRUCTION
SECTION 24.01. In case of damage or destruction by fire or other
casualty to all or part of the Premises, all Fixed Rent and Additional
Rent provided by this Lease shall abate (with Landlord to receive the
benefits of the rent loss insurance); and Tenant, at its sole cost and
expense, if insurance proceeds are made available to Tenant therefor, will
promptly cause the repair, restoration and rebuilding of the Premises to
the same size, design, and configuration of the Premises that existed
prior to such damage or destruction, or such other improvements as
Landlord may approve so that the condition of the Premises will be the
same, as nearly as practical, as its condition immediately prior to such
damage or destruction. The obligations of Tenant to continue to pay Fixed
Rent and Additional Rent shall not be abated and except as set forth in
Section 24.04 hereof the obligation of Tenant to repair and restore such
damage or destruction of the Premises shall survive and continue despite
Tenant having notified Landlord of its intent to terminate this Lease if
such damage or destruction occurs any time, including but not limited to
the last day of the Lease Term.
SECTION 24.02. Subject to the rights of a mortgagee to insurance
proceeds, all insurance proceeds recovered with respect to any particular
casualty resulting in damage or destruction of less than $25,000.00 in the
aggregate, less any cost of such recovery (such proceeds being termed "Net
Proceeds"), shall be paid to Landlord and delivered to Tenant, to be
applied to cost of restoration. All Net Proceeds, if any, recovered with
respect to any particular casualty resulting in damage or destruction in
excess of $25,000.00 shall be applied by the Landlord and Tenant to the
payment of the cost of repairing, restoring and rebuilding the Premises
(herein referred to as the "Work"), and shall be paid out from time to
time to Tenant as the Work progresses upon the request of Tenant
accompanied by a certificate of Tenant and the architect or engineer in
charge of the Work stating that: (i) the sum requested has been paid by
Tenant to persons who have rendered services or furnished materials for
the Work, or is then due and to such persons and will be paid from the sum
requested; and (ii) no part of the cost of the Work has been the basis for
a previous request. Upon completion of the Work, which completion shall
be evidenced by a certificate of Tenant and the architect or engineer in
charge of the Work stating that the Work has been completed and that there
is no outstanding indebtedness known to Tenant with respect to the Work,
any balance of the Net Proceeds held by Landlord shall be retained by
Landlord. Tenant shall furnish to Landlord at the time of each such
payment evidence satisfactory to Landlord that there has not been filed
with respect to the Premises any vendor's, mechanic's, materialmen's, or
other lien as a result of the Work which has not been discharged of record
or bonded, unless Tenant has instituted proceedings to contest the
validity or amount of such lien pursuant to Section 6 of this Lease.
Landlord shall not be required to pay out any Net Proceeds when the
Premises shall be encumbered by any such lien (unless bonding or
proceedings shall have been instituted to contest the same as aforesaid)
or if an Event of Default has occurred and is continuing under the Lease.
The obligation of Tenant under this Section 24 to repair, restore and
rebuild is not conditional upon the recovery of insurance proceeds from
any insurance company. The provisions of Sections 12 and 13 of this
Lease, except to the extent that such provisions are clearly inconsistent
with the provisions of this Section 24, shall apply to Work required to be
done under this Section 24.
SECTION 24.03. If any Net Proceeds, which would be payable to
Landlord or Tenant, are paid to any mortgagee of Landlord's interest in
the Premises, said mortgagee may apply the Net Proceeds as provided by the
terms of its mortgage. If said mortgagee exercises the right to apply the
Net Proceeds to the reduction or pay-off of the debt secured by its
mortgage, then Landlord at Landlord's sole option shall have the right (i)
to provide, at its sole cost and expense, a fund of money to finance the
Work that is equivalent to the amount of Net Proceeds used by the
mortgagee to reduce or pay-off the mortgage debt or (ii) to terminate this
Lease. If Landlord elects not to terminate, Landlord may provide such
fund of money in installments to be paid as the Work progresses pursuant
to the procedures for progress payments set forth in Section 24.02.
SECTION 24.04. If the Premises is so damaged or destroyed by fire or
other casualty as to be, no longer economically useful to Tenant in the
conduct of its business during the last two (2) years of the Lease Term,
or if it will take more than two hundred seventy (270) days to restore or
repair, Tenant in lieu of repairing, restoring and rebuilding such
improvements may terminate this Lease by giving not less than ninety (90)
days notice of such termination to the Landlord, provided that the Net
Proceeds are sufficient to restore the Premises. If the Net Proceeds are
insufficient to restore the Premises as herein provided, Tenant's right to
terminate this Lease shall not accrue until Tenant has provided to
Landlord an amount of money equivalent to the difference between
restoration costs, as reasonably determined by Landlord, and the Net
Proceeds. Notice having been so given, this Lease shall terminate on the
date specified in such notice, and all Net Proceeds payable as a result of
such damage or destruction, shall be payable to Landlord and said
mortgagee as their interests may appear.
SECTION 24.05. If the damage or destruction occurs during the term
of this Lease and the Premises is so damaged or destroyed by fire or other
casualty as to be, in Landlord's sole judgment, no longer economically
useful to Landlord in the conduct of its business, whatever that business
may then be, Landlord may terminate this Lease by giving no less than
ninety (90) days notice of such termination of Tenant. Notice having been
so given, this Lease shall terminate on the date specified in such notice,
and all insurance proceeds payable as a result of such damage or
destruction, shall be payable to Landlord and any mortgagee as their
interests may appear. If the Net Proceeds are insufficient to restore the
Premises as herein provided, Tenant shall provide Landlord with an amount
of money equivalent to the difference between restoration costs as
determined by Landlord, and the Net Proceeds, and this obligation of
Tenant shall survive the termination of this Lease.
SECTION 25: CONDEMNATION
SECTION 25.01. If during the term of this Lease: (a) the whole of
the Premises is taken for any public or quasi-public use, under any
statute, or by right of eminent domain; or (b) if any part of the Premises
is so taken, and the part not taken is insufficient for the operation of
the Tenant's business at the Premises, then when possession has been taken
thereunder, this Lease shall terminate, and the Fixed Rent, Additional
Rent, and other items payable under this Lease shall be adjusted and paid
to the time of such possession.
If any such taking is insufficient, under the provision of this
Section 25.01, to terminate this Lease, this Lease shall remain
unaffected, except:
A. The Fixed Rent shall be reduced by an amount equal to the square
footage of the taking of constructed improvements multiplied by the Fixed
Rent measured on a square footage basis immediately before the taking.
Until the new Fixed Rent is determined, the Tenant shall pay Fixed Rent at
the rate hereinbefore specified, and, upon such determination, an
appropriate adjustment shall be made and the Tenant shall receive credit
for any overpayment.
B. The Tenant shall, promptly after such taking and at its expense,
restore all the improvements located in the part of the Premises not taken
to the extent practical and reasonable to the condition existing before
such taking. After the completion of such restoration, the Tenant shall be
reimbursed for the cost thereof from the net condemnation award, after
deduction of any costs of collection, including attorneys' fees ("Net
Condemnation Award").
SECTION 25.02. Upon any taking hereunder, and except as otherwise
provided herein, Landlord shall be entitled to receive the entire award
for such taking. Tenant shall not be entitled to any payment based, inter
alia, upon the value of its leasehold estate, the value of the unexpired
term of this Lease or any renewal thereof, consequential damages to the
land not so taken, or the diminution of the assemblage or plottage value
of the land not so taken.
SECTION 25.03. If the taking is for an easement or for an estate in
the land less than a fee simple (other than a taking for temporary use,
hereinafter mentioned), or the taking is for land only that does not
unreasonably affect the use and occupation of the Premises, such taking
shall not terminate this Lease and this Lease shall continue without
change; provided, however, that if there shall be a payment predicated on
a change in the grade of a street on which the Premises abuts, the Tenant
shall be entitled, after making such change or restoration as may be
necessary because of such change of grade, to reimbursement for the
reasonable expense thereof to the extent of the net amount of any payment
after deduction of any costs of collection, including attorneys' fees. Any
part of an award for change of grade which is unexpended after such
restoration shall be the property of the Landlord.
SECTION 25.04. If permitted by law Tenant may file its own
independent claim for damages against the condemning authority.
SECTION 25.05. If a taking of all or part of the Premises is for
temporary use, this Lease shall continue without change, and the Tenant
shall be entitled to such award; provided that:
A. if the temporary taking extends beyond the expiration of the
Lease Term, such award shall be apportioned between Landlord and Tenant as
of the date of the expiration of the term of this Lease; and
B. the Tenant may file and prosecute any claim against the
condemnor for damages, for any negligent use, waste, or injury to the
Premises occurring throughout the balance of the Lease Term.
SECTION 26: USES PROHIBITED, COMPLIANCE WITH ENVIRONMENTAL LAWS,
NUISANCE AND WASTE
SECTION 26.01. Tenant shall not do or permit anything to be done in
or about the Premises nor bring or keep anything therein which will
violate federal, state or local laws relative to air quality standards,
waste disposal standards, objectionable noise or odor standards, or any
other standard relating to the environment whether passed by law,
executive order, or regulation. Tenant agrees that it will equip, manage
and operate the Premises to comply with said requirements; and shall not
create or permit nuisance or waste to exist upon the Premises.
SECTION 27: COMPLIANCE WITH LAWS
SECTION 27.01. Tenant's use and occupation of the Premises, and the
condition thereof, shall, at Tenant's sole cost and expense, comply fully
with all covenants, conditions and restrictions binding upon the Premises
and with all applicable statutes, regulations, rules, ordinances, codes,
licenses, permits, orders and approvals of any governmental agencies,
departments, commissions, bureaus, boards or instrumentalities of the
United States, the state in which the Premises are located and all
political subdivisions thereof, including, without limitation, all health,
building, fire, safety and other codes, ordinances and requirements and
all applicable standards of the national Board of Fire Underwriters and
the National Fire Protective Association.
SECTION 27.02. Tenant will not permit any act or condition to exist
on or about the Premises which will increase any insurance rate thereon,
except when such acts are required in the normal course of its business
and Tenant shall pay for such increase.
SECTION 27.03. Without limiting the generality of the other
provisions of this Section, Tenant agrees that it shall be responsible for
complying in all respects with the Americans with Disabilities Act of
1990, as such act may be amended from time to time, and all regulations
promulgated thereunder (collectively, the "ADA"). Tenant further agrees
that any and all alterations made to the Premises during the Lease Term
will comply with the requirements of the ADA. All plans for alterations
which must be submitted to Landlord under the provisions of Section 17
must include a statement from a licensed Architect or Engineer certifying
that they have reviewed the plans, and that the plans comply with all
applicable provisions of the ADA. Any subsequent approval or consent to
the plans by the Landlord shall not be deemed to be a representation of
Landlord's part that the plans comply with the ADA, which obligation shall
remain with Tenant. Tenant agrees that it will defend, indemnify and hold
harmless Landlord and Landlord's shareholders, directors, officers,
agents, attorneys and employees from and against any and all claims,
demands, causes of action, suits, proceedings, liabilities, damages
(including consequential and punitive damages), losses, costs and
expenses, including attorneys' fees, caused by, incurred or resulting form
Tenant's failure to comply with its obligations under this Section.
SECTION 27.04. In addition to the other requirements of this
Section, Tenant shall, at all times throughout the Lease Term, comply with
all federal, state or local statutes, laws, rules, regulations,
ordinances, codes, policies or rules of common law now or hereafter in
effect and in each case, as amended, and any judicial or administrative
interpretation thereof, including any judicial order, consent, decree or
judgment, applicable to Tenant; provided, however, Tenant shall not be in
default under this Section 40.04 unless Tenant's failure to comply with
the foregoing covenant shall have a material adverse effect on Tenant,
Landlord, the Premises or Landlord's interests in the Premises.
SECTION 27.05. Notwithstanding the foregoing provisions, Tenant will
not be responsible for any conditions or violations of law (including but
not limited to the ADA) relating to the Premises existing on or prior to
the date of this Lease.
SECTION 28: SUBORDINATION/NON-DISTURBANCE
SECTION 28.01. This Lease is subject and subordinated at all times
to the lien of all mortgages, indentures and deeds of trust which are
hereafter placed against Landlord's interest in the Premises, provided
that the mortgagee or beneficiary under such mortgage, indenture or deed
of trust shall agree in writing that, in the event of foreclosure of same
or of any such other such proceeding for the enforcement thereof, or of
any sale thereunder, this Lease will not be barred, terminated, cut off or
foreclosed, nor will the rights and possession of Tenant be disturbed if
the Tenant is not then in default in the payment of Fixed Rent or
Additional Rent beyond the applicable cure period and is not otherwise in
default under this Lease beyond the applicable cure period. Tenant shall
attorn to the purchaser at such foreclosure sale, sale or other action or
proceeding. The foregoing subordination shall be effective without the
necessity of having any further instruments executed by Tenant. Tenant
shall nonetheless execute upon demand such further instruments evidencing
such subordination as may be reasonably requested by Landlord, any
mortgagee or beneficiary.
SECTION 29: TENANT ACCEPTS THE PREMISES "AS IS"
SECTION 29.01. Tenant is fully familiar with the physical condition
of the Premises and the Building, improvements, systems, fixtures and
equipment thereof. Except as otherwise provided in Sections 17.09, 32 and
43 hereof, Landlord has made no representations of any nature in
connection with the condition of the Premises or the Building,
improvements, systems, fixtures or equipment thereon, and the Landlord
shall not be liable for any latent or patent defects therein. Tenant
shall be presumed to have accepted possession of the Premises under this
Lease on the first day of the Lease Term, and such acceptance of
possession shall be conclusive evidence that the Premises was in good and
satisfactory condition when possession was accepted.
SECTION 29.02. Tenant covenants to Landlord that all of its uses and
contemplated uses of the Premises shall comply with all applicable
statutes, ordinances, rules, regulations, order and requirements in effect
during the Lease Term.
SECTION 30: FIRE PROTECTION WATER SUPPLY AND UTILITY SERVICE
SECTION 30.01. Tenant acknowledges that the sprinkler system water
supply serving the Premises is shared with Landlord's adjacent property.
Landlord may at any time (and shall if required under Section 44 below)
separate the premises fire protection water supply from the adjacent
building so that the premises can be exclusively served from its existing
fire protection water supply. Landlord hereby reserves the right to enter
upon the Premises and perform such work as may be required for such
purpose. Tenant shall co-operate with Landlord during such installation,
which shall be provided at no cost to Tenant for the installation. Until
such replacement service is provided Tenant shall maintain and keep the
existing pipes and service located on the premises operational. Landlord
shall maintain the portion of the system located beyond the Premises
Landlord shall have no liability to Tenant for cessation or failure of
service beyond Landlord's control. Tenant shall have no liability for the
performance of the system beyond the Premises or any other matter
affecting other property unless the same is caused by Tenant's intentional
misconduct. Tenant shall have no responsibility to maintain any portion
of the fire protection system after its lease on adjacent premises
terminates or the space it occupies is reduced to the approximate 20,000
square feet of space as provided therein.
SECTION 30.02. Certain utility services to the Building are also
shared with Landlord's adjacent property and Landlord may at any time (and
shall if required under Section 44 below) disconnect and separate those
services so that the premises is exclusively served with such service.
Landlord shall pay the cost of such change in the provision of service but
Tenant shall continue to be responsible for the cost of its consumption of
all such services. Landlord shall have no liability to Tenant for
cessation or failure of service beyond Landlord's control.
SECTION 31: REPRESENTATIONS AND WARRANTIES OF TENANT
SECTION 31.01. The representations and warranties of Tenant
contained in this Section are being made to induce Landlord to enter into
this Lease and Landlord has relied, and will continue to rely, upon such
representations and warranties. Tenant represents and warrants to
Landlord as follows:
SECTION 31.02. (i) Tenant has been duly organized or formed, is
validly existing and in good standing under the laws of its state of
incorporation or formation and is qualified as a foreign corporation,
partnership or limited liability company to do business in any
jurisdiction where such qualification is required. All necessary
corporate, partnership or limited liability company action has been taken
to authorize the execution, delivery and performance by Tenant of this
Lease and of the other documents, instruments and Leases provided for
herein. Tenant is not a "foreign corporation", "foreign partnership",
"foreign trust" or "foreign estate", as those terms are defined in the
Internal Revenue Code and the regulations promulgated thereunder.
Tenant's United States tax identification number is correctly set forth on
the signature page of this Lease; and (ii) the persons who have executed
this Lease on behalf of Tenant are duly authorized to do so.
SECTION 31.03. This Lease constitutes the legal, valid and binding
obligation of Tenant, enforceable against Tenant in accordance with its
terms.
SECTION 31.04. There are no suits, actions, proceedings or
investigations pending, or to the best of its knowledge, threatened
against or involving Tenant before any court, arbitrator, or
administrative or governmental body which might reasonably result in an
adverse effect on either the Premises or Tenant's ability to perform its
obligations under this Lease.
SECTION 31.05. Tenant is not, and the execution, delivery and
performance of this Lease and the documents, instruments and Leases
provided for herein will not result, in any material default under any
other document, instrument or Lease to which Tenant is a party or by which
Tenant, the Premises or any of Tenant's property is subject or bound,
which breach or default could impair Tenant's ability to perform its
obligations under this Lease.
SECTION 31.06. Tenant intends for this Lease to be a "true lease"
and not a financing lease, capital lease, mortgage, equitable mortgage,
deed of trust, trust lease, security lease or other financing or trust
arrangement, and the economic realities of this Lease are those of a true
lease. The term of this Lease, including any term extensions provided for
in this Lease, is less than the remaining economic life of the Premises.
Tenant waives any claim or defense based upon the characterization of this
Lease as anything other than a true lease, and Tenant stipulates and
agrees not to challenge the validity, enforceability or characterization
of the lease of the Premises as a true lease and further stipulates and
agrees that nothing contained in this Lease creates or is intended to
create a joint venture, partnership, equitable mortgage, trust, financing
device or arrangement, security interest or the like. Tenant shall
support the intent of the parties that the lease of the Premises pursuant
to this Lease is a true lease and does not create a joint venture,
partnership, equitable mortgage, trust, financing device or arrangement,
security interest or the like if, and to the extent that, any challenge
occurs.
SECTION 32: LANDLORD'S REPRESENTATIONS
SECTION 32.01. Landlord owns the Premises in fee simple subject to
easements, conditions and restrictions of record, taxes and assessments
not yet due and payable, legal highways, applicable zoning regulations and
matters which would be disclosed by an accurate survey of the Premises.
SECTION 32.02. To Landlord's knowledge based solely on information
provided Cardinal Engineering ("Cardinal"), the Premises are zoned I-1
under the Boone County, Kentucky Zoning and Planning Regulations, and
Landlord has received no notice that the Premises violate such zoning.
SECTION 32.03. To Landlord's knowledge based solely on information
received from Cardinal, the Premises has direct ingress and egress to and
from Litton Lane and such street is a paved, dedicated right of way.
SECTION 33: TAX AND INSURANCE IMPOUND
SECTION 33.01. Upon the occurrence of an Event of Default in the
payment of taxes or insurance as required by this Lease by Tenant,
Landlord may require Tenant to pay to Landlord sums which will provide an
impound account (which shall not be deemed a trust fund) sufficient to pay
all taxes, assessments and insurance premiums coming due during the
forthcoming year. Upon such requirement, Landlord will estimate the
amounts needed for such purposes and will notify Tenant to pay the same to
Landlord in equal monthly installments, as nearly as practicable, in
addition to all other sums due under this Lease. Should additional funds
be required at any time, Tenant shall pay the same to Landlord on demand.
Tenant shall advise Landlord of all taxes and insurance bills which are
due and shall cooperate fully with Landlord in assuring that the same are
paid. Landlord may deposit all impounded funds in accounts insured by any
Federal or State agency and may commingle such funds with other funds and
accounts of Landlord. Interest or other gains from such funds, if any,
shall be the sole property of Landlord. In the event of any Event of
Default by Tenant, Landlord may apply all impounded funds against any sums
due from Tenant to Landlord. Landlord shall give to Tenant an annual
accounting showing all credits and debits to and from such impounded funds
received from Tenant.
SECTION 34: BANKRUPTCY
SECTION 34.01. (a) As a material inducement to Landlord executing
this Lease, Tenant acknowledges and agrees that Landlord is relying upon
(i) Tenant's timely performance of all of its obligations under this Lease
notwithstanding the entry of an order for relief under the United States
Bankruptcy Code, as amended, 11 U.S.C. Section 101 et seq. (The "Code")
for Tenant and (ii) all defaults under the Lease being cured promptly and
the Lease being assumed within sixty (60) days of any order for relief
entered under the Code for Tenant, or the Lease being rejected within such
sixty (60) day period and the Premises surrendered to Landlord.
Accordingly, in consideration of the mutual covenants contained in
this Lease and for other good and valuable consideration, Tenant hereby
agrees that:
(i) All obligations that accrue under this Lease (including the
obligation to pay rent), from and after the date that an action is
commenced under the Code ("Action") shall be timely performed exactly as
provided in this Lease and any failure to so perform shall be harmful and
prejudicial to Landlord;
(ii) Any and all rents that accrue from and after the date that an
Action is commenced and that are not paid as required by this Lease shall,
in the amount of such rents, constitute administrative expense claims
allowable under the Code with priority of payment at least equal to that
of any other actual and necessary expenses incurred after the commencement
of the Action;
(iii) Any extension of the time period within which the Tenant may
assume or reject the Lease without an obligation to cause all obligations
under the Lease to be performed as and when required under the Lease shall
be harmful and prejudicial to Landlord;
(iv) Any time period designated as the period within which the
Tenant must cure all defaults and compensate Landlord for all pecuniary
losses which extends beyond the date of assumption of the Lease shall be
harmful and prejudicial to Landlord;
(v) Any assignment of the Lease must result in all terms and
conditions of the Lease being assumed by the assignee without alteration
or amendment, and any assignment which results in an amendment or
alteration of the terms and conditions of the Lease without the express
written consent of Landlord shall be harmful and prejudicial to Landlord;
(vi) Any proposed assignment of the Lease to an assignee that does
not possess financial condition equal to or better than the financial
condition of Tenant shall be harmful and prejudicial to Landlord;
(vii) The rejection (or deemed rejection) of the Lease for any
reason whatsoever shall constitute cause for immediate relief from the
automatic stay provisions of the Code, and Tenant stipulates that such
automatic stay shall be lifted immediately and possession of the Premises
will be delivered to Landlord immediately without the necessity of any
further action by Landlord.
SECTION 34.02. No provision of this Lease shall be deemed a waiver
of Landlord's rights or remedies under the Code or applicable law to
oppose any assumption and/or assignment of this Lease, to require timely
performance of Tenant's obligations under this Lease, or to regain
possession of the Premises as a result of the failure of Tenant to comply
with the terms and conditions of this Lease or the Code.
SECTION 34.03. Notwithstanding anything in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated as such, shall constitute
"rent" for the purposes of the Code.
SECTION 34.04. For purposes of this Section addressing the rights
and obligations of Landlord and Tenant in the event that an Action is
commenced, the term "Tenant' shall include Tenant's successor in
bankruptcy, whether a trustee, Tenant as debtor in possession or other
responsible person.
SECTION 35: ATTORNEYS' FEES
SECTION 35.01. In the event of any judicial or other adversarial
proceeding between the parties concerning this Lease, to the extent
permitted by law, the prevailing party shall be entitled to recover all of
its reasonable attorneys' fees and other costs in addition to any other
relief to which it may be entitled. In addition, Landlord shall, upon
demand, be entitled to all attorneys' fees and all other costs incurred in
the preparation and service of any notice or demand hereunder, whether or
not a legal action is subsequently commenced. References in this Lease to
the attorneys' fees and/or costs of either Landlord or Tenant shall mean
both the fees and costs of independent counsel retained by such party with
respect to the matter and the reasonable fees and costs of such party's
in-house counsel incurred in connection with the matter.
SECTION 36: FORCE MAJEURE
SECTION 36.01. Any prevention, delay or stoppage due to strikes,
lockouts, acts of God, enemy or hostile governmental action, civil
commotion, fire or other casualty beyond the control of the party
obligated to perform shall excuse the performance by such party for a
period equal to any such prevention, delay or stoppage, except the
obligations imposed with regard to rental and other monies to be paid by
Tenant pursuant to this Lease.
SECTION 37: LANDLORD'S LIEN/SECURITY INTEREST Intentionally Deleted
SECTION 38: HOLDING OVER
SECTION 38.01. If Tenant remains in possession of the Premises, with
Landlord's consent after the expiration of the term of this Lease, it
shall be deemed to be a tenant from month-to-month at two (2) times the
monthly rental rate last in effect during the last month of the expired
term, and governed in all other things, except as to the duration of the
term, by the provisions of the Lease. Either party may terminate such
tenancy by giving the other at least thirty (30) days prior written notice
of such party's intent to terminate.
SECTION 39: CAPTIONS
SECTION 39.01. The captions herein are inserted only as a matter of
convenience for reference and in no way define, limit or describe the
scope of this Lease nor the intent of any of its provisions.
SECTION 40: RECORDING
SECTION 40.01. This Lease shall not be recorded, but Landlord and
Tenant agree to execute a short form of this Lease at the request of
either party, in recordable form, which shall thereafter be recorded.
SECTION 41: REAL ESTATE BROKER, FINDER
SECTION 41.01. Each party represents that it has not had dealings
with any real estate broker, finder, or other person, with respect to this
Lease in any manner. Each party shall hold harmless the other party from
all damages resulting from any claims that may be asserted against the
other party by any broker, finder, or other person, with whom the other
party dealt.
SECTION 42: EASEMENTS
SECTION 42.01. During the Lease Term Landlord shall have the right
upon reasonable notice to Tenant to grant utility easements on, over,
under and above the Premises without the prior consent of Tenant, provided
that such easements will not materially interfere with Tenant's use of the
Premises.
SECTION 42.02. Tenant's driveway along the southerly boundary of the
Premises is partly upon an easement of Tenant on the property adjacent to
that boundary and is partly subject to an easement to the adjacent
property. Tenant shall be responsible for fifty percent (50%) of the cost
of maintenance and repairs to the driveway unless the repair is necessary
as a result of the actions of Tenant, its contractors, employees, vendors,
or visitors in which case Tenant shall be responsible for the entire cost
of repair.
SECTION 43: ADDITIONAL LANDLORD REPRESENTATIONS AND WARRANTIES
SECTION 43.01. Landlord by separate agreement has sold its former
business on the Premises to Tenant and made certain warranties to Tenant
in connection with that sale. Certain of those warranties are listed in
Exhibit B attached hereto and hereby made a part hereof. To the extent
any of those warranties affect the Premises they will supersede any
condition of the Lease which is in conflict with a condition or conditions
of Exhibit B. As used in such Exhibit B, the term "Company" shall mean
Landlord; the term "Business" shall mean the business operations on the
Premises; the terms "Facilities," "Purchased Assets" and "Real Property"
shall mean the Premises; and other capitalized terms shall have the
meanings as set forth in such separate agreement. This Exhibit B shall be
enforceable against Western Atlas Inc. and shall be a personal
responsibility of Western Atlas Inc. but shall not be enforceable against
a successor Landlord of the Premises after a sale thereof.
SECTION 44: FIRE PROTECTION WATER AND UTILITIES SEPARATION
SECTION 44.01. Notwithstanding anything to the contrary in Section
15 and 30 hereof, Landlord shall, if Tenant ceases to lease and occupy the
property adjacent to the Premises known as 2200 Litton Lane, separate the
fire protection water supply from the adjacent building so that the
Premises is exclusively served by its existing service within a reasonable
period of time after Tenant vacates the adjacent building. Landlord shall
also separate any utilities which serve the Premises and the adjacent
property so that the Premises is exclusively served and metered by any
utility serving the Premises within a reasonable period of time after
Tenant vacates the adjacent building. Landlord shall be responsible for
the cost of completing the separations. Tenant shall grant Landlord and
it's contractors and vendors access for performing the necessary planning
and work as well as any follow up attention which may be necessary.
SECTION 45: WAIVER OF JURY TRIAL
SECTION 45.01. LANDLORD AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER
OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR
DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES
HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED
AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
SECTION 46: DECLARATION OF GOVERNING LAW
SECTION 46.01. The Lease shall be governed in accordance with the
laws of the Commonwealth of Kentucky.
SECTION 47: EXTENSION
SECTION 47.01. At any time by giving written notice to Landlord
prior to twelve months before the expiration of this Lease Tenant may
extend the Term of the Lease one time for an additional 120 months. The
extension shall be on the same terms and conditions of the Lease except
Term and Fixed Rent. Fixed Rent during the extended period shall be at
the then prevailing market rate for similar buildings in the same market
area. The market rate shall be based on buildings the size of the
Premises at the commencement of the Lease and shall expressly exclude the
value or existence of any additions, improvements or alterations of the
Premises made by Tenant. If the Landlord and Tenant cannot agree on the
prevailing market rate, they shall jointly retain a professional appraiser
to perform research and determine the then prevailing market rate. If
Landlord and Tenant cannot agree on an appraiser 60 days before the
expiration of the Lease, they shall ask the American Institute of
Appraisers or it's successor organization to immediately select an
appraiser to determine the then prevailing market rate. Landlord and
Tenant shall each pay one-half of the cost of the appraiser. Time is of
the essence with regard to Tenant giving notice to Landlord.
SECTION 48: RIGHT OF FIRST OPPORTUNITY
SECTION 48.01. Landlord hereby grants to Tenant the right of first
opportunity to purchase the Premises. If Landlord intends to sell the
Premises at any time during the Lease Term, Landlord will give Tenant
written notice thereof and of the terms and conditions on which Landlord
will sell the Premises. Tenant shall have a period of thirty (30) days to
submit an offer to purchase the Premises containing terms and conditions
upon which Tenant desires to purchase the Premises, and during such thirty
(30) day period, Landlord will not enter into an agreement with any other
person or entity relating to the sale or transfer of the Premises. If
Tenant fails to submit an offer within such thirty (30) day period or if
Landlord and Tenant cannot agree on the terms of the sale after submission
of an offer by Tenant, this right of first opportunity shall cease.
SECTION 49: ENTIRE AGREEMENT
SECTION 49.01 - This Lease is the entire agreement of the parties
hereto with respect to the matters covered by this Lease, and no other
agreement, statement, or promise made by any party or to any employee,
officer, or agent of any party shall be valid, unless subsequently agreed
to in writing.
IN WITNESS WHEREOF, Landlord and Tenant have respectively caused this
Lease to be executed as of the date set forth above.
Landlord: Tenant:
WESTERN ATLAS INC. HK SYSTEMS, INC.
By: /s/ John R. Kuhnmuench, Jr.
By: /s/ Theodore S. Eagle Its: Vice President
Its: Authorized Representatives
STATE OF WISCONSIN )
) SS:
COUNTY OF MILWAUKEE )
This instrument was acknowledged before me this 15th day of
November, 1996 by Theodore S. Eagle, Authorized Representative of Western
Atlas Inc., a Delaware corporation, on behalf of the corporation.
/s/ Thomas L. Stricker, Jr.
Notary Public
My commission expires:
STATE OF WISCONSIN )
) SS:
COUNTY OF MILWAUKEE )
This instrument was acknowledged before me this 15th day of
November, 1996 by John R. Kuhnmuench, Jr., Vice President of HK
Systems, Inc., a Wisconsin corporation, on behalf of the corporation.
/s/ Thomas L. Stricker, Jr.
Notary Public
My commission expires:
EXHIBIT 11.1
HK SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(In thousands, except share and per share data)
Year Ended October 31,
1995 1996 1997
COMPUTATIONS FOR STATEMENTS
OF INCOME:
Primary earnings per share of
common stock (average share
outstanding):
Net income before dividends
on preferred stock $37 $3,427 $7,260
Class B and D preferred
stock dividends (1,131) (1,312) (1,419)
Class B preferred stock
dividends(1) - 1,120 1,120
-------- ------- -------
Net income (loss)
applicable to common
shareholders $(1,094) $3,235 $6,961
========= ========= =========
Average shares of common
stock outstanding 2,764,083 3,015,360 3,015,360
Incremental common shares
applicable to common stock
options - 322,928 460,728
Incremental common shares
applicable to Class B
convertible preferred stock - 5,600,000 5,600,000
--------- --------- ---------
Average common shares,
adjusted 2,764,083 8,938,288 9,076,088
--------- --------- ---------
Primary earnings per share
of common stock (2) $(0.40) $0.36 $0.77
====== ====== ======
Fully diluted earnings per
share of Common Stock $(0.40) $0.36 $0.77
====== ====== ======
(1) Class B preferred stock is a common stock equivalent and as such the
dividends are added back to net income as these dividends would be
available to common shareholders assuming the conversion of Class B
preferred stock in all periods when the common stock equivalents are
undilutive.
(2) As the Company reported a net loss for the year ended October 31,
1995, the inclusion of stock options and Class B preferred stock in
the earnings per share calculation for such period results in anti-
dilution of the earnings per share calculation. As such, per share
for such period is reported based on the weighted average number of
common shares outstanding.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
September 11, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 332
<SECURITIES> 0
<RECEIVABLES> 53,148
<ALLOWANCES> 552
<INVENTORY> 8,845
<CURRENT-ASSETS> 66,496
<PP&E> 30,742
<DEPRECIATION> 11,148
<TOTAL-ASSETS> 131,361
<CURRENT-LIABILITIES> 54,312
<BONDS> 51,960
18,068
0
<COMMON> 30
<OTHER-SE> 3,492
<TOTAL-LIABILITY-AND-EQUITY> 131,361
<SALES> 246,150
<TOTAL-REVENUES> 246,150
<CGS> 193,646
<TOTAL-COSTS> 193,646
<OTHER-EXPENSES> 34,019
<LOSS-PROVISION> 455
<INTEREST-EXPENSE> 5,570
<INCOME-PRETAX> 11,311
<INCOME-TAX> 4,051
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,260
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
