As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 333-43057
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
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 East Wisconsin 190 South LaSalle
New Berlin, Wisconsin Avenue Street
53151 Milwaukee, Wisconsin Chicago, Illinois
(414) 860-7000 53202 60606
Facsimile: (414) 860-7010 (414) 271-2400 (312) 782-0600
Facsimile: (414) Facsimile: (312)
297-4900 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. [_]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
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 February 27, 1998
PROSPECTUS
5,400,000 Shares
[HK Systems, Inc. Logo]
Common Stock
__________________________
Of the 5,400,000 shares of Common Stock offered hereby, 3,460,000 are
being sold by the Company and 1,940,000 are being sold by 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, 4,320,000
shares are being offered initially in the United States and Canada by the
U.S. Underwriters (the "U.S. Offering"), and 1,080,000 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 $13.00 and $15.00 per share. See "Underwriting" for a
list of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock on the
New York Stock Exchange under the symbol "HKS."
__________________________
See "Risk Factors" beginning on page 7 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.
Proceeds to
Underwriting Proceeds to Selling
Price to Discounts and Company(2) Shareholders
Public Commissions(1)
Per Share $ $ $ $
Total(3) $ $ $ $
(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 $750,000.
(3) The Selling Shareholders and the Company have granted the U.S.
Underwriters a 30-day option to purchase up to 648,000 additional
shares of Common Stock on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. The Selling
Shareholders and the Company have granted the International Managers
a similar option to purchase up to 162,000 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>
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 material handling solutions to 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; maintenance outsourcing; and 24-hour customer support.
[picture illustrating Logistics and Software Systems services and products
with the following text:]
LOGISTICS AND SOFTWARE SYSTEMS
Logistics and Software Systems provides advanced warehouse management
systems ("WMS") and Equipment Management Systems ("EMS") 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; pallet and container loading software systems
that assist customers in determining efficient ways to configure pallet
and truck loads to maximize space utilization; and customized software for
specific supply chain applications.
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."
[logo]
INTEGRATING SUPPLY CHAIN 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 supply chain management 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/WMS Warehouse Management Software Systems provide full
warehouse management functionality that enables improved inventory
control, increased efficiency and reduced delivery time.
2. STOCKMASTER/LMS 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 12 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. STOCKMASTER/EMS is a standard software product that provides
effective management and control of all material handling equipment.
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 $14.00 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 terms "automated
material handling systems," "integration services," "supply chain,"
"supply chain management," "supply chain solutions" and "warehouse
management systems" are used herein as defined under "Business--Glossary."
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 supply chain management ("SCM")
software systems, including warehouse management systems ("WMS") for
Windows/NT and UNIX operating environments and customized 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 semiconductors 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 by all suppliers 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 SCM 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 SCM software systems, including WMS and customized
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 SCM 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
- 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 Industrial 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 . . 3,460,000 shares(1)
Common Stock offered by the Selling
Shareholders . . . . . . . . . . . . . . 1,940,000 shares(1)
Total Common Stock offered . . . . . . 5,400,000 shares(1)
Common Stock outstanding immediately
after the Offering . . . . . . . . . . . 11,692,000 shares(2)
Use of Proceeds . . . . . . . . . . . . . To repay indebtedness and to
pay accrued dividends on and
redeem 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 January 31, 1998 aggregated
1,123,800 shares issuable at a weighted average exercise price of
approximately $2.41 per share; (ii) an aggregate of 25,000 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 124,223 shares of Common Stock at 115% of the initial
public offering price ($16.10 per share assuming an initial public
offering price of $14.00). Includes 329,771 shares of Common Stock
held by the HK Systems, Inc. Employee Stock Ownership Plan ("ESOP")
that are not considered outstanding for financial reporting purposes.
See "Management--Stock Option Plan" and "Description of Capital
Stock--Warrants."
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
Set forth below is certain summary historical and pro forma
consolidated financial data for the periods 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 the Unaudited Pro Forma
Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended October 31, January 31,
1995 (1) 1996 1997 (1) 1997 (1) 1998
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Integrated systems . . . . . . $70,689 $87,150 $163,472 $47,003 $28,098
Customer services . . . . . . . 40,501 49,792 65,200 15,626 17,371
Logistics and software systems 15,413 13,143 17,478 4,092 3,021
-------- -------- -------- -------- --------
Total net revenues . . . . . . 126,603 150,085 246,150 66,721 48,490
Gross profit . . . . . . . . . 18,077 26,731 52,504 12,689 11,365
Selling, general & administrative
expenses . . . . . . . . . . . 13,492 16,255 31,724 7,137 7,685
Amortization of goodwill . . . . 1,033 1,225 3,979 2,701(2) 427
Income from operations . . . . 3,552 9,251 16,801 2,851 3,253
Interest expense . . . . . . . . 3,108 3,545 5,570 1,365 1,315
Income before income taxes . . . 622 5,715 11,311 1,426 1,938
Net income (loss) applicable to
common shareholders . . . . . (1,094) 2,115 5,841 561 876
Basic net income (loss) per
share of common stock . . . . (0.40) 0.70 1.94 0.19 0.32
Diluted net income (loss) per
share of common stock . . . . (0.40) 0.37 0.77 0.10 0.13
Pro Forma Data (3):
Net income applicable to common
shareholders . . . . . . . . . NA NA 8,679 1,270 1,595
Basic net income per share of
common stock . . . . . . . . . NA NA 1.34 0.20 0.26
Diluted net income per share of
common stock . . . . . . . . . NA NA 0.69 0.10 0.13
Other Data:
Capital expenditures . . . . . . 1,429 3,145 4,086 554 1,407
Depreciation . . . . . . . . . . 2,851 3,852 5,224 1,308 1,160
EBITDA (4) . . . . . . . . . . . 9,271 15,994 27,044 7,023 5,056
Backlog (at end of periods) . . . 89,871 97,218 85,654 113,888 143,894
<CAPTION>
As of October 31, As of January 31, 1998
Pro Forma Pro Forma
1996 1997 (3) As Adjusted(3)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total assets . . . . . . . . . . $90,789 $131,361 $139,546 $139,546
Total debt . . . . . . . . . . . 28,000 51,960 68,170 28,892
Redeemable preferred stock . . . 16,948 18,068 4,348 -
Common stock with put rights . . 633 633 - -
Total shareholders' (deficit)
equity . . . . . . . . . . . (2,952) 2,889 7,140 51,439
____________________
(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) During the first quarter of 1997, the Company decided to abandon one
of its software product lines. Amortization includes a write-off of
$2,295 of unamortized software costs related to this decision.
(3) 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,
the reclassification of all common stock with put rights of the
Company into Common Stock and the termination of certain management
common stock "put" rights simultaneous with the Offering (the
"Recapitalization"); (ii) the establishment of the 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 (iii) the Offering and the application of
the Company's net Offering proceeds to repay certain indebtedness and
to pay accrued dividends on and redeem the Company's Class D
Cumulative Redeemable Preferred Stock ("Class D Preferred Stock").
The pro forma balance sheet data give effect to the Recapitalization.
The pro forma as adjusted give effect to the application of the net
Offering proceeds. See "Unaudited Pro Forma Consolidated Financial
Statements."
(4) 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; Potential Risks Associated with
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. For example,
revenues for the three months ended January 31, 1998 were lower than for
the comparable period in 1997 due largely to the delay in the award of two
large contracts until the end of the period. 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. This group of customers typically changes from year
to year. For example, for fiscal 1997, Ford Motor Company and Philip
Morris together accounted for 23% of the Company's total revenues pursuant
to seven principal contracts, and for fiscal 1996, Ford Motor Company and
Imperial Wall Coverings together accounted for 24% of the Company's total
revenues pursuant to five principal contracts. 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.
Acquisition Risks. While the Company has no potential acquisitions
pending that are probable of being consummated, the Company regularly
evaluates such opportunities and may make acquisitions in the future. 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.
Risks Associated With 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 their 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. 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
the breach of contract and recission and restitution counts of the SF
Fed's complaint. On January 30, 1998, the court granted partial summary
judgment in favor of the Company and the other defendants, holding that
the SF Fed cannot recover the cost of constructing two new bank vaults or
litigation expenses. However, the SF Fed may continue to seek damages in
excess of $10 million against the Company based on claims that have not
been dismissed. The court's orders granting partial summary judgment are
subject to appeal after the entry of final judgment in the action, and
there can be no assurance that the results of any appeal would be
favorable to the Company. It is anticipated that a jury trial on the
remaining damage issues on the contract claim against the Company and
Eaton-Kenway, if not all the remaining claims against all the parties,
will be held 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."
Risks Associated with 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.
Risk of Software Defects. Implementing the Company's systems and
software for automated material handling systems and its SCM 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 Issues. 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 Company
may be obligated under fixed price software service contracts to address
any Year 2000 issues associated with covered products, and the failure of
such products to be Year 2000 compliant could materially 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 it will be more
costly than anticipated to ensure that the products the Company uses in
internal operations are Year 2000 compliant.
Risk of Environmental Liabilities. 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. 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.
Economic Factors Affecting the Industry. 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 50.4% of the outstanding
Common Stock (approximately 44.7% 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 5,888,947 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"), all
of which have been held in excess of requisite holding period under Rule
144 but are subject to resale volume limitations imposed under Rule 144.
Although holders of options to purchase 1,123,800 additional shares of
Common Stock (as of January 31, 1998) 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 403,053 shares of Common Stock, approximately
73,282 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 of $12.93 per share in net tangible book value of
their purchased Common Stock. 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
$44 million based on the assumed public offering price $14.00 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 and to make certain payments to
Selling Shareholders in respect of Class D Preferred Stock, all as
described below.
The Company will use a portion of its net proceeds to pay dividends
accrued on Class D Preferred Stock through the consummation of the
Offering and to redeem Class D Preferred Stock outstanding immediately
prior to the consummation of the Offering. The aggregate of such payments
calculated as of January 31, 1998 was approximately $5.0 million, and this
amount will increase at a rate of approximately $94,000 per month until
the consummation of the Offering. Such payments will be made to 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 January
31, 1998, the Company owed approximately $44.8 million under this facility
bearing interest at rates ranging from 7.1% to 8.5% per annum. In
December 1997 and January 1998, the Company incurred 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 36,641 shares to the ESOP; (ii) the Company
obtained a $6.0 million term loan (which bears interest at rates
comparable to those under the revolving credit facility) to obtain funds
to make a loan of approximately $6.0 million to the ESOP, which matures on
October 31, 2006 and bears interest at a fixed rate of 8%, the proceeds of
which the ESOP used to purchase shares of common stock of the Company from
Management shareholders; and (iii) the Company borrowed approximately $0.6
million under the revolving credit facility to contribute to the ESOP to
enable the ESOP to make the first scheduled principal payment under its
term loan, the effect of which contribution and principal payment was to
transform $0.6 million of term debt of the Company into revolving debt.
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 January 31, 1998 (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 3,460,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering
price of $14.00 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 and redeem 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."
As of January 31, 1998
Pro Forma After As Adjusted for
Recapitalization the Offering
(in thousands)
Long-term debt:
Revolving line of credit . . . . $44,770 $13,492
Subordinated Promissory Note due
2003 . . . . . . . . . . . . . . 8,000 --
Subordinated Promissory Note due
2005 . . . . . . . . . . . . . . 10,000 10,000
Term Note relating to ESOP due
2002 . . . . . . . . . . . . . . 5,400 5,400
------- -------
Total long-term debt . . . . . . 68,170 28,892
------- -------
Redeemable Preferred Stock:
Class D Cumulative Redeemable
Preferred Stock (2,000,000
shares designated; 1,739,000
shares issued and outstanding
after Recapitalization; no
shares issued and outstanding
after Offering) . . . . . . . . 4,348 --
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 7,902,230 shares
outstanding after
Recapitalization; 12,075,358
shares issued and 11,362,230
outstanding after Offering (1) . 86 121
Additional paid-in capital . . . 14,547 58,811
Treasury stock, at cost, 383,358
shares of Common Stock . . . . . (5,858) (5,858)
Unearned compensation - ESOP . . (5,400) (5,400)
Retained earnings . . . . . . . . 3,765 3,765
------ ------
Total shareholders' equity . . . 7,140 51,439
------ ------
Total capitalization . . . . . $79,658 $80,331
====== ======
__________________
(1) Does not include (a) outstanding options to purchase 1,123,800 shares
of Common Stock and (b) outstanding warrants to purchase an aggregate
of 124,223 shares of Common Stock. Outstanding shares on a pro forma
basis after Recapitalization and as adjusted for the Offering exclude
329,771 shares held by the ESOP that have not been allocated to ESOP
participants' accounts and are not considered outstanding for
financial reporting purposes.
DILUTION
The net tangible book value of the Company as of January 31, 1998 was
$(31.8) million, or $(3.86) 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 3,460,000 shares of Common Stock in the
Offering at an assumed initial public offering price of $14.00 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
January 31, 1998 would have been $12.5 million or $1.07 per share. This
represents an immediate increase in net tangible book value of $4.93 per
share to existing shareholders and an immediate dilution of $12.93 per
share to new investors purchasing shares in the Offering.
The following table illustrates the per share dilution:
Initial public offering price per share . $14.00
Net tangible book value per share before
the Offering . . . . . . . . . . . . . . (3.86)
Increase per share attributable to new
investors . . . . . . . . . . . . . . . 4.93
------
Pro forma net tangible book value per
common share after the Offering . . . . 1.07
------
Dilution per share to new investors . . . $ 12.93
======
The following table sets forth, on an adjusted basis as of January
31, 1998, 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 $14.00 per share (before
deducting the underwriting discounts and commissions and estimated
offering expenses):
Number of Percent Average
Shares of Shares Price
Purchased Purchased Amount Paid Percent Per Share
Existing
shareholders . 8,232,000 70.4% $15,149,000 23.8% $1.84
New investors . 3,460,000 29.6% 48,440,000 76.2% 14.00
========== ====== =========== =====
Total . . 11,692,000 100% $63,589,000 100%
The above assumes no exercise of any stock options outstanding as of
January 31, 1998 under the 1993 Plan. As of that date, there were options
outstanding to purchase a total of 1,123,800 shares of Common Stock at an
average exercise price of $2.41 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 $12.81. The foregoing tables also exclude shares reserved for
future grants or purchases pursuant to the Directors Plan. See
"Management - Director Compensation" and "Management - Stock Option Plan."
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 and for the three months
ended January 31, 1997 and 1998. 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 and for the three months ended January 31, 1997 and
1998 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 and for the three months ended January 31,
1997 and 1998 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.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Predecessor (1) Company (1)
Year ended Three Months Ended
October 31, Years ended October 31, January 31,
1993 1994 1995 (2) 1996 1997 (3) 1997 (3) 1998
<S> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net revenues:
Integrated systems . $93,404 $67,886 $70,689 $87,150 $163,472 $47,003 $28,098
Customer services . . 9,965 13,171 40,501 49,792 65,200 15,626 17,371
Logistics and software
systems . . . . . . 4,522 6,674 15,413 13,143 17,478 4,092 3,021
-------- -------- -------- -------- -------- -------- --------
Total net revenues . 107,891 87,731 126,603 150,085 246,150 66,721 48,490
Cost of sales . . . . . 97,330 76,600 108,526 123,354 193,646 54,032 37,125
-------- -------- -------- -------- -------- -------- --------
Gross profit . . . . 10,561 11,131 18,077 26,731 52,504 12,689 11,365
Selling expenses . . . 6,469 5,700 8,907 9,981 19,682 4,431 5,090
General &
administrative
expenses . . . . . . 5,053(4) 3,279 4,585 6,274 12,042 2,706 2,595
Amortization of
goodwill . . . . . . - $4,753(5) 1,033 1,225 3,979(6) 2,701(6) 427
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations . . . . . (961) (2,601) 3,552 9,251 16,801 2,851 3,253
Interest expense . . . 641(7) 1,683 3,108 3,545 5,570 1,365 1,315
Other, net . . . . . . - (109) (178) (9) (80) 60 -
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes . . . . (1,602) (4,175) 622 5,715 11,311 1,426 1,938
Provision (credit) for
income taxes . . . . (467) (1,646) 398 2,288 4,051 511 698
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
before minority
interest . . . . . . (1,135) (2,529) 224 3,427 7,260 915 1,240
Minority interest
expense (8) . . . . . - 620 187 - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
before dividends on
preferred stock . . (1,135) (3,149) 37 3,427 7,260 915 1,240
Dividends on preferred
stock . . . . . . . . - 824 1,131 1,312 1,419 354 364
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to common
shareholders . . . . $(1,135) $(3,973) $(1,094) $2,115 $5,841 $ 561 $ 876
====== ====== ====== ====== ====== ======== ========
Basic net income (loss)
per share of common
stock . . . . . . . . NA $(1.84) $(0.40) $0.70 $1.94 $ 0.19 $ 0.32
====== ====== ====== ====== ====== ======== ========
Diluted net income
(loss) per share of
common stock . . . . NA $(1.84) $(0.40) $0.37 $0.77 $ 0.10 $ 0.13
====== ====== ====== ====== ====== ======== ========
Other Data:
Capital expenditures . $969 $657 $1,429 $3,145 $4,086 $554 $1,407
Depreciation . . . . . 1,124 1,657 2,851 3,852 5,224 1,308 1,160
EBITDA (9) . . . . . . 163 5,575 9,271 15,994 27,044 7,023 5,056
Backlog (at end of
periods) . . . . . . 53,577 41,903 89,871 97,218 85,654 113,888 143,894
<CAPTION>
As of October 31, As of October 31,
As of January 31,
1993 1994 1995(2) 1996 1997(3) 1997 (3) 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets . . . . . $50,491 $53,381 $89,996 $90,789 $131,361 $164,373 $139,546
Total debt . . . . . . - 14,000 34,000 28,000 51,960 64,000 68,170
Minority interest (8) . - 10,600 - - - - -
Redeemable preferred
stock . . . . . . . . - 10,800 15,828 16,948 18,068 17,228 18,348
Common stock with put
rights . . . . . . . - 461 633 633 633 633 633
Total shareholders'
(deficit) equity . . 18,987 (3,973) (5,067) (2,952) 2,889 (2,298) (7,493)
_______________
(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) During the first quarter of 1997, the Company decided to abandon one
of its software product lines. Amortization includes a write-off of
$2,295 of unamortized software costs related to this decision.
(7) Balance represents a charge by Harnischfeger on intercompany equity
advances.
(8) 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.
(9) 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 period ended and as of the dates indicated. This
information is derived from, and should be read in conjunction with, the
Unaudited Pro Forma Consolidated Financial Statements appearing elsewhere
in this Prospectus. The summary pro forma consolidated statement of
income data for the year ended October 31, 1997 and the three months ended
January 31, 1997 and 1998 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;
(ii) the ESOP Transactions; and (iii) the Offering and the application of
the proceeds to the Company from the Offering to repay certain
indebtedness and to pay accrued dividends on and redeem preferred stock.
The summary pro forma consolidated balance sheet data as of January 31,
1998 reflects the effects of the Recapitalization and the Offering
transactions as if they had occurred on January 31, 1998. 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>
Historical Pro Forma
Three months ended Three months ended
Year ended Year ended
October January January October January January
Pro Forma Statement of 31, 1997 31, 1997 31, 1998 31, 1997 31, 1997 31, 1998
Income Data:
<C> <C> <C> <C> <C> <C> <C>
Net revenues . . . . $246,150 $ 66,721 $ 48,490 $246,150 $ 66,721 $ 48,490
Gross profit . . . . 52,504 12,689 11,365 52,504 12,689 11,365
Selling, general &
administrative
expenses . . . . . 31,724 7,137 7,685 31,724 7,137 7,685
Amortization of
goodwill . . . . . 3,979 2,701 427 3,979 2,701 427
Income from
operations . . . . 16,801 2,851 3,253 16,801 2,851 3,253
Interest expense . . 5,570 1,365 1,315 3,353(a) 811(a) 761(a)
Income before income
taxes . . . . . . . 11,311 1,426 1,938 13,528 1,980 2,492
Provision for income
taxes . . . . . . . 4,051 511 698 4,849(b) 710(b) 897(b)
Net income before
dividends on
preferred stock . 7,260 915 1,240 8,679 1,270 1,595
Dividends on preferred
stock . . . . . . . 1,419 354 364 -(c) -(c) -(c)
Net income
applicable to
common shareholders
5,841 561 876 8,679 1,270 1,595
Basic net income per
share of common
stock . . . . . . 1.94 0.19 0.32 1.34 0.20 0.26
Diluted net income
per share of common
stock . . . . . . 0.77 0.10 0.13 0.69 0.10 0.13
<CAPTION>
As of January 31, 1998
Pro Forma Balance Sheet Data: Historical Adjustments Pro Forma
<S> <C> <C> <C>
Total assets . . . . . . . . . . . $139,546 - $139,546
Accrued liabilities . . . . . . . . 9,330 (673)(f) 8,657
Total current liabilities . . . . . 56,389 (673) 55,716
Other liabilities . . . . . . . . . 3,499 - 3,499
Long-term debt . . . . . . . . . . 68,170 (8,000)(a) 28,892
(31,278)(a)
Mandatory redeemable preferred stock 18,348 (14,000)(e) -
(4,348)(f)
Common stock with put rights . . . 633 (633)(e) -
Common stock . . . . . . . . . . . - 121 (d)(e) 121
Additional paid-in capital . . . . - 44,264 (d) 58,811
14,547 (e)
Treasury stock . . . . . . . . . . (5,858) - (5,858)
Unearned compensation - ESOP . . . (5,400) - (5,400)
Retained earnings . . . . . . . . . 3,765 - 3,765
Total shareholders' equity . . . . (7,493) 60,383 51,439
Total liabilities and shareholders'
equity . . . . . . . . . . . . . 139,546 - 139,546
______________________________
(a) Adjusted to reflect (i) a reduction in debt and interest expense in
connection with the repayment from the proceeds of the Offering of
(A) the $8,000 subordinated promissory note due to Western Atlas at an
interest rate of 10.0% and (B) $31,278 outstanding on the revolving
credit facility at an average interest rate of 7.3% from the proceeds
of the Offering and (ii) an increase in debt and interest expense on
indebtedness incurred as follows: (A) $6,458 ($600 of which was
repaid in January 1998) under the Company's revolving credit facility
to repurchase 420,000 shares of common stock of the Company and (B)
$6,000 under a term loan provided by its bank lenders which it
subsequently loaned to the ESOP. The pro forma interest expense
savings are $2,217, $554 and $554 for the twelve months ending
October 31, 1997 and the three months ending January 31, 1997 and
January 31, 1998, respectively.
(b) Adjusted to reflect the above pro forma adjustments utilizing a
combined federal and state tax rate of 36.0%
(c) Adjusted to reflect the elimination of dividends on Class B Preferred
Stock and Class D Preferred Stock, which accrue at an 8.0% rate, in
connection with the Recapitalization and the Offering.
(d) Represents the $44,385 in net proceeds associated with the sale of
3,460,000 shares of Common Stock with a par value of $0.01 offered by
the Company.
(e) Represents (i) 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 and (ii) the
termination of certain management "put" rights with respect to
3,015,360 shares of common stock with a stated amount of $633 and a
par value of $0.01.
(f) Represents the payment of $673 in accrued dividends and the
redemption of Class D Preferred Stock of $4,348 using the proceeds of
the Offering.
</TABLE>
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 software 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. The Company recently expanded a former
Eaton-Kenway plant (completed September 1997) and is in the process of
expanding a former Western Atlas plant (expected completion in March 1998)
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:
Three Months Ended
Years ended October 31, January 31,
1995 1996 1997 1997 1998
Net revenues:
Integrated systems . 56% 58% 66% 70% 58%
Customer services . . 32 33 26 23 36
Logistics and software
systems . . . . . . 12 9 8 7 6
---- ---- ---- ---- ----
Total net revenues . 100 100 100 100 100
Cost of sales . . . . . 86 82 79 81 77
---- ---- ---- ---- ----
Gross profit . . . . 14 18 21 19 23
Selling expenses . . . 7 7 8 7 10
General & administrative
expenses . . . . . . 3 4 4 4 5
Amortization of goodwill 1 1 2 4 1
---- ---- ---- ---- ----
Income from operations 3% 6% 7% 4% 7%
==== ==== ==== ==== ====
Three Months Ended January 31, 1998 Compared to Three Months Ended January
31, 1997
Revenues. Total revenues decreased 27.3% to $48.5 million in the three
months ended January 31, 1998 from $66.7 million in the three months ended
January 31, 1997. This decline was primarily due to the delay in the
award of two large contracts in the Integrated Systems business unit
(which contracts were awarded near the end of the period) and a planned
reduction in lower-margin revenues associated with the Western Atlas
Acquisition.
Logistics and Software Systems revenues declined 26.2% to $3.0 million
in the three months ended January 31, 1998 from $4.1 million in the three
months ended January 31, 1997. Most of this decrease was due to revenues
associated with a product the Company no longer markets. The Company
released version 4.0 of STOCKMASTER/WMS in October 1997, which includes
Yard and Dock management and standard interface to Oracle's enterprise
resource planning software, Applications version 10.7. The full
STOCKMASTER/SCM suite generated orders of $8.1 million in the three months
ended January 31, 1998.
Backlog. The Company's backlog as of January 31, 1998 increased 28.8%
compared to January 31, 1997 and increased 67.1% compared to the year
ended October 31, 1997. This increase was due to record bookings of
$109.0 million resulting from new order inflow in all three business units
in addition to the award of contracts in the Integrated Systems unit that
the Company had expected to receive in 1997. The backlog of the Company
at January 31, 1998 by business unit was comprised of Integrated Systems -
$95.9 million, Customer Services - $30.6 million and Logistics and Software
Systems - $17.3 million.
Gross Margin. Gross margin declined from $12.7 million in the three
months ended January 31, 1997 to $11.4 million in the comparable 1998
period, but increased as a percentage of revenues from 19.0% to 23.4%.
Integrated Systems' gross margin improved due to the favorable completion
of contracts below budgeted costs and a planned reduction of lower-margin
revenues associated with the Western Atlas Acquisition. Customer Services
gross margin improved due to a higher content of spare parts sales.
Logistics and Software Systems gross margin decreased due to a lower
license fee content in the revenue mix due to lower bookings in the fourth
quarter of 1997.
Operating Income. Operating income increased to $3.3 million in the
three months ended January 31, 1998 from $2.9 million in the 1997 period.
Selling expenses increased 14.9% to $5.1 million primarily due to
increased proposal and salesperson expenditures. General and
administrative expenses decreased 4.1% due to lower professional fees.
Amortization expense declined 84.2% from $2.7 million in the three months
ended January 31, 1997 to $0.4 million in the comparable period of 1998.
Included in the 1997 amortization expense is a non-recurring charge of
$2.3 million related to the abandonment of a software product line.
Interest Expense. Interest expense declined 3.6% to $1.3 million due
to the impact of lower outstanding borrowings and lower interest rates.
Borrowings in the first quarter of 1997 were higher due to the Western
Atlas Acquisition.
Income Taxes. The Company's effective income tax rate of 36.0% in the
three months ended January 31, 1998 approximated the 35.8% in the
comparable 1997 period.
Net Income. As a result of the foregoing factors, the Company's net
income before preferred dividends increased to $1.2 million in the first
three months of fiscal 1998, from $0.9 million in the comparable period in
1997.
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.
In early fiscal 1997, the Company introduced a new, NT-based version of
its STOCKMASTER/WMS software, as the successor product to the original
STOCKMASTER/WMS, a UNIX-based WMS software application originally
introduced in 1989. New bookings for the new version were slow early in
the year as the Company refocused its marketing and engineering resources
to the new product.
Backlog. 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 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/WMS product. 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 three 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/WMS 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 and for the quarter ended January 31,
1998. 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 Fiscal 1998
Q1 Q2 Q3 Q4 Q1
<S> <C> <C> <C> <C> <C>
Net revenues:
Integrated systems $47,003 $47,258 $40,373 $28,838 $28,098
Customer services 15,626 14,417 15,092 20,065 17,371
Logistics and software systems 4,092 4,975 4,256 4,155 3,021
------- ------- ------- ------- -------
Total net revenues 66,721 66,650 59,721 53,058 48,490
Cost of sales 54,032 53,342 48,208 38,064 37,126
Gross profit 12,689 13,308 11,513 14,994 11,364
Selling general &
administrative expenses 7,137 8,157 7,093 9,337 7,685
Amortization of goodwill 2,701 426 426 426 426
Income from operations $2,851 $4,725 $3,994 $5,231 $3,253
</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 (used) provided by operating activities was $(2.5) million and
$10.8 million for the three months ended January 31, 1998 and the three
months ended January 31, 1997, respectively. The primary reasons for the
decrease in cash flow from operations for the three months ended January
31, 1998 as compared to the three months ended January 31, 1997 were (i) a
$10.9 million decrease in cash flow from working capital items due to
increases in receivables and inventory, and decreased billings in excess
of costs as a result of payment terms contained within the contract mix
and (ii) decreases in non-cash charges, from $4.2 million to $1.8 million.
Net cash provided by operating activities was $22.7, $9.3 and $1.8 million
in fiscal 1997, 1996 and 1995, respectively. Both investing and financing
activities for the three months ended January 31, 1998 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
decreased to $5.1 million from $7.2 million, or 29.8%, for the three
months ended January 31, 1998 compared to the three months ended January
31, 1997 mainly as a result of a decrease in revenues due primarily to the
timing of the award of two large contracts. Additionally, EBITDA
increased 69.1% to $27 million in fiscal 1997, as compared to $16 million
in fiscal 1996.
The Company's revolving line of credit provides for borrowings of up to
$80 million, bearing interest at 7.06% to 8.50%. The agreement contains
various restrictive financial covenants that, among other things, place
limits on the amount of additional long-term debt the Company may issue and
on the amount of capital expenditures in any year and restrictions on the
payment of dividends; require maintenance of minimum current, leverage and
interest coverage ratios; and require minimum total capitalization and
billed receivable balances, as defined. The line of credit is
collateralized by the assets of the Company and expires in December 2002.
Outstanding amounts under the line of credit aggregated $44.8 million,
$34.0 million and $18.0 million at January 31, 1998, October 31, 1997 and
October 31, 1996, respectively. At January 31, 1998, the Company had
available an additional $35.2 million under its line of credit. 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."
Capital expenditures of the Company for the three months ended January
31, 1998 were $1.4 million. For the years ended October 31, 1997 and
1996, capital expenditures were $4.1 million and $3.2 million,
respectively. The Company anticipates capital expenditures to be $4
million to $6 million per year in fiscal 1998 and 1999, including amounts
for plant expansion, computer system upgrades and construction of a new
capabilities and demonstration center that the Company currently
contemplates. The center will be located at the Company's headquarters
and will enable the Company to demonstrate the Company's supply chain
solutions capabilities to potential customers.
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.
Other Matters
The Company recognizes the need to identify and address "Year 2000"
issues. First, the Company has included in its capital expenditure plans
discussed above substantial amounts for fiscal 1998 and 1999 for computer
system upgrades and enhancements that, among other things, will address
all potential internal Year 2000 problems. All such enhancements are
scheduled to be completed by the third quarter of fiscal 1999. Second,
the Company is currently conducting a survey of its key vendors and
suppliers to determine whether any of them anticipate Year 2000 problems.
Third, the Company believes all SCM software and virtually all automated
material handling equipment and systems that it currently sells are Year
2000 compliant. Further, the Company provides no express Year 2000
warranty on any products that it sells unless it has first conducted an
audit to verify that the product is Year 2000 compliant, and all such
warranties expressly exclude product provided by anyone other than the
Company. Fourth, the Company currently estimates that only ten percent of
its installed base of automated material handling systems may experience
significant Year 2000 problems. The Company expects that virtually all
Year 2000 work that it may provide on its installed base will be done on a
funded basis and will not have a material effect on the Company. Fifth,
the Company has agreements to provide maintenance support for
approximately 30 of its installed SCM software systems, and the Company is
currently conducting an audit to determine if any of those systems poses a
potential Year 2000 problem. The Company does not believe any obligation
that it may have to remedy Year 2000 problems under these maintenance
support agreements will have a material effect on the Company.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes standards for the
way public companies report information about operating segments in both
interim and annual financial statements, including related disclosures
about products and services, geographic areas and major customers. The
Company's initial analysis indicates that the Company operates in one
business segment according to the requirements of SFAS 131. However, the
Company will continue to evaluate the potential impact of the requirements
of SFAS 131 prior to the time the Company adopts it.
In February 1997, the FASB issued Statement No. 128 ("SFAS 128"),
"Earnings per Share," which is effective for periods ending after December
15, 1997, including interim periods. SFAS 128 establishes standards for
computing and presenting earnings per share ("EPS") by replacing primary
EPS with the presentation of basic EPS and requiring dual presentation of
basic and diluted EPS on the face of the income statement. The Company
adopted SFAS 128 for the three month period ended January 31, 1998. All
EPS computation have been applied retroactively to all periods to conform
with the provisions of SFAS 128.
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 SCM software systems,
including WMS for Windows/NT and UNIX operating environments and
customized 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 Industrial
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 supply chain
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,
provided the controls and integration software for the plant and
supplied The Times with seven of the Company's OMNIWRAP palletizers.
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 supply chain solutions 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. Providing complete supply chain
solutions 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 coordinating operations through the entire
supply chain requires effective inventory management and control, since
managing the supply chain 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 supply chain solutions, 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 supply
chain 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 personnel resources
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 supply chain 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 supply chain 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 supply chain
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 supply chain solutions. The Company
believes it is one of the leading WMS software providers in North America.
HK Systems' current WMS software solutions 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.
The Company intends to leverage this extensive customer base by (i)
promoting long-term "Strategic Customer Partnerships"; (ii) cross-selling
the Company's SCM software 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 software systems offerings
through selective acquisitions and internal software development. In
doing so, HK Systems will capitalize on the consolidation trend in the SCM
software industry, which is expected to continue as customers seek scale
and reliability in their SCM software 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.
Continue to Improve Profitability of Acquired Businesses
HK Systems will continue to improve the profitability of 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. 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 $28.1 million, $163.5 million, $87.2
million and $70.7 million to the Company's total revenues in the three
months ended January 31, 1998 and in fiscal 1997, 1996 and 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 such types of equipment,
which projects usually involve 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 has adopted STOCKMASTER/EMS, a Logistics and Software Systems
product introduced in 1997, as its baseline equipment control system.
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 supply chain 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 12 pounds to 100,000 pounds 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;
(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, AGVS and AEMS 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 as components of larger
automated material handling systems.
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 $17.4 million, $65.2 million, $49.8
million and $40.5 million to the Company's total revenues in the three
months ended January 31, 1998 and 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 SCM
software that allows its customers to manage the planning, scheduling,
tracking and related logistics of manufacturing, warehousing, distribution
and transportation. Logistics and Software Systems has 107 employees,
approximately 70 of whom are software engineers (as of October 31, 1997).
The Company's suite of SCM software, STOCKMASTER/SCM, is dedicated to the
management and deployment of inventory and associated resources across an
enterprise. The software suite enables customers to compress delivery
schedules, reduce inventory levels, increase customer service, improve
execution of operations and provide an accurate and timely view of
inventory. The Company believes it is one of the leading WMS software
providers in North America. The Company also provides software extensions
to its STOCKMASTER/SCM suite of applications to address customer specific
requirements.
STOCKMASTER/SCM is a client/server (Client: Windows 95 or NT; Server:
Windows NT or UNIX) suite of applications that utilizes a graphical user
interface, providing an intuitive user interface. STOCKMASTER/SCM
consists of WMS for warehouse management; YMS for yard and dock
management; EMS for material handling equipment management; DMS, which is
under development and will be an enterprise wide inventory deployment
management system; LMS, a container, pallet and trailer configuration
management system (Windows only); and TMS for transportation management.
The STOCKMASTER/SCM suite architecture easily supports the integration of
complementary third party software systems such as Oracle and SAP
enterprise resource planning ("ERP") systems and manufacturing execution
systems through it Common Object Resource Broker Architecture (CORBA)
capabilities.
STOCKMASTER/WMS, introduced in 1989, provides full warehouse
management functionality from the moment a facility receives a shipment or
material from production through the time the facility ships the product,
including receiving, put-a-way, quality control, lot and serial number
control, ownership, cycle counting, replenishment, picking, value added
processing, packing, shipping, and supervisory functions. STOCKMASTER/WMS
provides real time inventory control and employee management through radio
frequency (RF)-based hand-held and vehicle-mounted terminals. Employees
using RF terminals are instructed to perform tasks (such as put-a-way,
pick or move), the employee verifies each task is completed by scanning a
bar code associated with the task (such as location, quantity and lot),
and as each task is completed and verified a new task is dispatched to the
employee. Bar code verification and real-time inventory tracking provide
up-to-the-minute views of inventory (including on hold, available and
committed) and customer orders (such as picked or shipped). The Company
released version 4.0 of STOCKMASTER/WMS in October 1997, which includes
Yard and Dock management and standard interface to Oracle's ERP software,
Applications/TM/ version 10.7.
STOCKMASTER/YMS, introduced in 1997, is a yard and dock management
system providing features for appointment scheduling, trailer check
in/check out, yard location management, trailer management (including
cycle counting, seal numbers, temperature control and refueling) and dock
door management. STOCKMASTER/YMS provides management with views into
inventory in the yard and expected inventory not yet arrived, giving
management the opportunity to improve customer service. In the event of a
warehouse inventory stock-out, customer orders may be filled with
inventories in the yard. STOCKMASTER/YMS can be integrated with
STOCKMASTER/WMS or implemented in a stand-alone environment.
STOCKMASTER/EMS, introduced in 1997, is an automated material
handling equipment management system product providing startup and shut
down, equipment synchronization, load balancing and alarm management for
automated material handling systems. STOCKMASTER/EMS incorporates
standardized Application Programmable Interface (API) to HK's complete
line of material handling equipment and third party equipment. The
STOCKMASTER/EMS product is scalable, providing a range of control
functions for a single piece of equipment or a complex multi-system
installation. STOCKMASTER/EMS may be integrated with STOCKMASTER/WMS to
provide a hybrid warehousing solution or be implemented in a stand-alone
environment.
STOCKMASTER/LMS is a product the Company acquired in the Western
Atlas Acquisition under the name LoadBuilder. STOCKMASTER/LMS is a load
planning application that determines efficient ways to combine, stack and
arrange products to maximize the available space within a given container.
STOCKMASTER/LMS was introduced in 1994 and has approximately
500 customers. STOCKMASTER/LMS may be interfaced with other systems such
as WMS and TMS or be implemented in a stand-alone environment.
The Company recently began offering STOCKMASTER/TMS, an integrated
transportation management product, in cooperation with InterTrans
Logistics Solutions, Inc. STOCKMASTER/TMS includes the InterTrans
Logistics Solutions Freight Management and Freight Optimizer products.
Freight management provides fully integrated, multi-modal, transportation
management across a single enterprise or in a multi-enterprise
environment. STOCKMASTER/TMS may be integrated with WMS and YMS to
provide a complete comprehensive solution or be implemented in a
stand-alone environment.
STOCKMASTER/DMS, under development with initial release planned for
early 1999, is a comprehensive deployment management software product that
will enable a customer to make real-time inventory deployment decisions
across the enterprise.
Logistics and Software Systems contributed $3.0 million,
$17.5 million, $13.1 million and $15.4 million to the Company's total
revenues in the three months ended January 31, 1998 and 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 supply chain
management functions, the Company has begun forming alliances with other
software vendors. In 1996, the Company became part of the Oracle
Cooperative Application Initiative (CAI) program, which focuses on
pre-integrating software with Oracle's applications. In 1997, the Company
entered the SAP Complementary Software Partner (CSP) program. This
program is designed to provide SAP customers with third-party software
solutions that extend the capabilities of SAP's R/3/TM/ product.
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 ERP and transportation
planning vendors to widen 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
Boeing (continued)
Northrup Grumman Coca-Cola Enterprises
AUTOMOTIVE/CAPITAL GOODS Dannon Yogurt
Robert Bosch Frito-Lay
Caterpillar Mrs. Smith's
Chrysler Bakeries/Flowers Industries
Ford
General Electric Ocean Spray
General Motors PepsiCo
Tower Automotive Philip Morris
CHEMICAL/PETROLEUM Ralston Purina
Dow Chemical RJR Nabisco
DuPont Seagram Co./Tropicana
Mobil Chemical PAPER/PACKAGING
Mobil Oil Appleton Papers
Shell Oil Ball Foster Glass
Texaco Consolidated Papers
CONSUMER PRODUCTS Kimberly-Clark
Eastman Kodak Mead Paper
Estee Lauder Western States Envelope
Gillette PHARMACEUTICALS
Procter & Gamble Abbott Labs
Revlon Medco
DISTRIBUTION/RETAIL Novartis
Canadian Tire PRIMARY METAL
Dillards Department Stores Alcoa
W.W. Grainger Alumax
The Limited Kaiser Aluminum
J.C. Penney O'Neal Steel
ELECTRONICS/COMMUNICATIONS PUBLISHING/PRINTING
AT&T R.R. Donnelley
Hewlett-Packard The New York Times
IBM The Washington Post
Lucent Technologies TEXTILES
Motorola Collins & Aikman
Rockwell International Mt. Vernon Mills
Sony Russell Corporation
U.S. West Sara Lee Knit Products
FOOD/BEVERAGE/TOBACCO TRANSPORTATION
Anheuser-Busch American Airlines
Brown & Williamson Delta Airlines
The Coca-Cola Company GATX
United Airlines
For fiscal 1997, Ford Motor Company and Philip Morris together
accounted for 23% of the Company's total revenues pursuant to seven
principal contracts, and for fiscal 1996, Ford Motor Company and Imperial
Wall Coverings together accounted for 24% of the Company's total revenues
pursuant to five principal contracts. 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 software 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 SCM software 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 SCM 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 the three months ended January 31, 1998 and in fiscal 1997, 1996
and 1995, the Company incurred research and development expenses of $1.0
million, $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 $5.0 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 software 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 SCM software systems market are BDM International, Catalyst, EXE
Technologies, McHugh International 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:
Square Owned/ Term
Location Utilization Footage Leased Expires
Milwaukee, WI Headquarters 85,000 Leased 10-31-11
(Integrated Systems,
Customer Services and
Logistics and Software
Systems)
Salt Lake City, Principal office 61,829 Leased 02-28-05
UT (Integrated Systems
and Customer Services)
Bountiful, UT Manufacturing-AS/RS 76,061 Owned
and AGVS
Hebron, KY Principal office 19,773 Leased 10-31-98
(Integrated Systems)
Hebron, KY Office/Manufacturing- 157,144 Leased 10-31-16
sortation and
conveyors
Montgomery, AL 113,753 Owned
Office/Manufacturing-
palletizer systems
Glendale, WI Research and 25,600 Leased 12-31-98
demonstration center
San Diego, CA Principal office 13,865 Leased 12-14-98
(Logistics and
Software Systems)
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.
The Company maintains sales offices in California, Georgia, Illinois,
Michigan, New Jersey and Texas to coordinate sales and marketing of unit
services and products. Full-time field service and factory technician
teams are located nationwide to provide fast and professional service and
support mission critical systems on an on-call basis or on a full-time
basis.
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 purported 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. On January 30, 1998,
the court granted partial summary judgment in favor of the Company and the
other defendants, holding that the SF Fed cannot recover the cost of
constructing new vaults or litigation expenses. However, the SF Fed may
continue to seek damages in excess of $10 million plus interest against
the Company on the breach of contract and recission and restitution claims
which have not been dismissed, in addition to the damages it seeks from
Eaton and Eaton-Kenway on the fraud and RICO claims from which the Company
was previously dismissed. The January 30, 1998 ruling in favor of the
Company and the other defendants, as well as the 1995 partial summary
judgment in favor of the SF Fed, are subject to appeal after the entry of
final judgment in the action, and there can be no assurance that the
results of any appeal would be favorable to the Company. It is
anticipated that a jury trial on the remaining damage issues on the
contract claim against the Company and Eaton-Kenway, if not all the
remaining claims against all the parties, will be held 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. The Company does not anticipate that an
unfavorable outcome with respect to such counterclaims would have a
material effect on the Company's financial condition.
With the exception of the proceedings described herein and those that
arise in the ordinary course of business, the Company is currently not
involved in any legal proceedings that may materally effect the Company's
business, results of operations or financial condition.
Glossary
1. "Automated Material Handling Systems" - combinations of equipment and
electrical and software controls that automate the physical and
informational aspects of receiving, transporting, sorting, picking,
palletizing and shipping materials throughout the manufacturing,
warehousing and distribution processes.
2. "Integration Services" - process by which a vendor plans, designs
and/or implements the coordination and interaction of the various
components of a system (such as an automated material handling system).
Integration services often include the original design and installation of
the system components.
3. "Supply Chain" - represents all points in the complex physical and
related informational flow of materials from raw materials to products
that are distributed to end users.
4. "Supply Chain Management" - process by which a business coordinates
operations through points in the supply chain to improve order response
times and accuracy and cut operating expenses. Supply chain management,
as the term is generally used, connotes software designed to
simultaneously manage internal constraints (such as production capacity,
human resource availability and inventories) and external constraints
(such as supplier lead times and customer demand requirements). However,
supply chain management also involves the physical components of systems
(such as automated material handling systems) that sort, store and
retrieve the materials used in any given business.
5. "Supply Chain Solutions" - systems or services that allow businesses
to more efficiently manage the flow of materials along the supply chain.
Supply chain solutions can address operations at any single discrete point
along the supply chain or can integrate operations across multiple points
along the supply chain.
6. "Warehouse Management Systems" - systems that typically utilize radio
frequency equipment and bar code technology to enable companies to
effectively coordinate, at both the enterprise level and a facility or
other local level, the people and products necessary in performing the
warehousing functions of physical order fulfillment, inventory control and
shipping.
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 January 31, 1998.
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 . . . 40 Senior Vice President-
Integrated Systems
Larry S. Cinpinski . . 40 Senior Vice President-
Logistics and Software
Systems
John C. Hines . . . . . 40 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 (1)
David M. Upton. . . . . 37 Director (3)
Jose J. Yglesias . . . 68 Director (2)
______________________
(1) Term expires in 2001.
(2) Term expires in 1999.
(3) Term expires in 2000.
Mr. Splude has served as President and Chief Executive Officer of the
Company since November 1993 and was elected Chairman of the Board 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. Sadowski is on a temporary
leave of absence, and his duties are being assumed by other executives.
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 1999, one in the class whose term will expire in
2000 and two in the class whose term will expire in 2001.
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 1993 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. The Compensation Committee will also 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.
Summary Compensation Table
Annual Compensation
Name and Principal All Other
Position Salary Bonus Compensation(1)
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.
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.
1997 Fiscal Year-End Option Values
Number of shares Dollar value of
underlying unexercised
unexercised options in-the-money options at
Name at October 31, 1997 October 31, 1997 (1)
John W. Splude 0 --
Glen P. Davis 0 --
John C. Hines 0 --
David W. Bartley 72,000 $979,200
Stephen S. Sadowski 72,000 $979,200
Larry S. Cinpinski 28,000 $363,440
________________
(1) Determined by subtracting the option exercise price per share of
Common Stock from an assumed initial public offering price per share
of $14.00 and multiplying by the number of shares subject to purchase
upon option exercise.
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 has 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 December 31, 1998, there were options to purchase 1,123,800 shares of
Common Stock outstanding under the 1993 Plan at a weighted average
exercise price of approximately $2.41 per share, substantially all of
which become exercisable upon the consummation of the Offering.
The per share purchase price of incentive stock options is 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 each of Messrs.
Splude, Davis and Hines and the Company certain put and call rights with
respect to common stock of the Company that are exercisable when such
individual is 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 any time 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, John C. Hines and a former employee, dated as of
October 28, 1993, as amended and restated on February 13, 1995 and as
subsequently amended (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 as subsequently amended (the "Investment
Agreement"). The Investment Agreement granted registration rights to 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 will be amended and restated
pursuant to a Registration Rights Agreement by and among the Company,
Management, MIVC and SWIB, which such parties will execute 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 piggyback registration rights. Management will also
receive piggyback registration rights. In addition, the Company will
agree to indemnify SWIB, MIVC and Management against certain liabilities,
including liabilities under the Securities Act, in connection with the
Offering and any subsequent registrations. The Company will pay the
expenses of the Selling Shareholders 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
borrowed $6.0 million from its bank lenders and loaned that amount to the
ESOP to enable the ESOP to purchase 237,068, 64,672 and 64,672 shares of
common stock of the Company, on January 9, 1998, from Messrs. Splude,
Davis and Hines, respectively; and (iv) on January 31, 1998, the Company
contributed 36,641 shares of Treasury Stock to the ESOP.
The Recapitalization; Dividends and Redemption
In connection with and immediately prior to the consummation of the
Offering, the Company will effect the Recapitalization. Upon the
consummation of the Offering, as a result of the Recapitalization, the
payment of accrued dividends on the Class B Preferred Stock and Class D
Preferred Stock and the redemption of Class D Preferred Stock, Common
Stock will be the only outstanding capital stock of the Company. Prior to
the Recapitalization, 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) 2,416,640 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. 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 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. Upon the consummation of the Offering,
the Company will use a portion of the proceeds of the Offering to (a) pay
dividends that have accrued on the Class B Preferred Stock prior to the
Recapitalization by delivering shares of Class D Preferred Stock with an
equivalent stated value and (b) redeem all of the outstanding shares of
Class D Preferred Stock at their face amount of $2.50 per share. See "Use
of Proceeds."
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock (a) as of January 31, 1998 (without
giving effect to any allocation of ESOP shares to employee accounts),
after giving effect to the Recapitalization 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 Prior to Offering Owned After Offering(1)
Shares
Being
Name Number Percent Offered Number Percent
<S> <C> <C> <C> <C> <C>
John W. Splude 1,302,931(2) 15.8% 0(1) 1,302,931(2) 11.1%
Glen P. Davis 355,328(3) 4.3% 0(1) 355,328(3) 3.0%
John C. Hines 355,328(4) 4.3% 0(1) 355,328(4) 3.0%
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% 360,000(1) 1,535,360 13.1%
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) 360,000(1) 1,535,360 13.1%
State of Wisconsin
Investment Board
121 East Wilson St.
P.O. Box 7842
Madison, WI 53707-7842 3,920,000 47.6%(8) 1,580,000(1) 2,340,000 20.0%
HK Systems, Inc. Employee
Stock Ownership Plan(9) 403,053 4.9% 0 403,053 3.4%
All Directors and
Executive Officers as a
group (11 persons) 4,144,947 50.4% 360,000(1) 3,784,947 31.6%
All Optionholders as a
group 1,123,800 12.0% 0 1,123,800 9.6%
All Directors, Executive
Officers and
Optionholders as a group 3,137,387(10) 33.5% 0(1)(10) 3,137,387 24.0%
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment options to
purchase Common Stock from the Company and 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, MIVC, SWIB, all directors and executive officers as a group,
and all directors, executive officers and optionholders as a group
would beneficially own 1,160,074 shares (or 9.7%), 283,900 shares
(or 2.4%), 319,613 shares (or 2.7%), 1,481,360 shares (or 12.4%),
2,103,000 shares (or 17.6%), 3,534,947 shares (or 29.0%) and
2,887,387 shares (or 22.1%), 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 were 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. Voting rights of the Common Stock held 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, than the shares
are voted by M&I Trust.
(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, 12,075,358 shares of Common
Stock and no shares of preferred stock will be issued and 11,692,000
shares of Common Stock will be 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 Firstar Trust Company.
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 $14.00 per
share, the Warrant may be exercised by the holder following the Effective
Date for a total of approximately 124,223 shares of Common Stock at a
price per share of $16.10 which is 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.
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 1999, one in the class whose term will expire in 2000 and
two in the class whose term will expire in 2001. 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
of shareholders 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
12,075,358 shares of Common Stock issued and 11,692,000 shares of Common
Stock outstanding. Of these outstanding shares of Common Stock, the
5,460,000 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. 5,888,947 of the remaining shares of Common
Stock 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 403,053 shares of Common Stock,
approximately 73,282 of which were allocated to employee accounts as of
January 31, 1998, 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 116,920 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 1,087,800 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 will be
available for immediate resale following the Offering 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) 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. 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.
Prior to January 1, 1999, 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 for purposes of determining the applicability of a tax
treaty rate. For dividends paid after December 31, 1998, however, a non-
U.S. holder of Common Stock who wishes to claim the benefit of an
applicable treaty rate will be required to satisfy applicable
certification and other requirements. In the case of a foreign
partnership, the certification requirement for dividends paid after
December 31, 1998 will generally be applied to the partners of the
partnership. In addition, the partnership will be required to provide
certain information, including a United States taxpayer identification
number, and look-through rules will apply 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
purposes 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 shares of Common Stock 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 shares of Common Stock 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, (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"), or (iii) in the case of
payments after December 31, 1998, the broker is a foreign partnership with
certain connections to the United States, 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 Selling Shareholders, and the Company and
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 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.
The Selling Shareholders have granted to the U.S. Underwriters a 30-day
option to purchase up to an additional 432,800 shares of Common Stock, and
the Company has granted to the U.S. Underwriters a 30-day option to
purchase up to an additional 215,200 shares of Common Stock, on the same
terms and conditions as set forth above to cover over-allotments, if any,
and the Selling Shareholders and the Company have granted the
International Managers a similar option to purchase up to an additional
108,200 and 53,800 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 executive 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.
At the request of the Company, the Underwriters have reserved for sale,
at the initial public offering price, up to 270,000 shares offered hereby
for directors, officers, employees, business associates and related
persons of the Company. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby.
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. 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.
<PAGE>
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-23
Combined Statements of Income for the year ended
December 31, 1995 and the period January 1, 1996 to
November 15, 1996 . . . . . . . . . . . . . . . . . . F-24
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-25
Combined Statements of Cash Flows for the year ended
December 31, 1995 and the period January 1, 1996 to
November 15, 1996 . . . . . . . . . . . . . . . . . . F-26
Notes to Combined Financial Statements for the year
ended December 31, 1995 and the period
January 1, 1996 to November 15, 1996 . . . . . . . . F-27
HK SYSTEMS, INC.
Consolidated Balance Sheets as of October 31, 1997 and
January 31, 1998 . . . . . . . . . . . . . . . . . . F-30
Consolidated Statements of Income for each of the three
months ended January 31, 1997 and
1998 . . . . . . . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Cash Flows for each of the
three months ended January 31, 1997 and
1998 . . . . . . . . . . . . . . . . . . . . . . . . F-32
Notes to Consolidated Financial Statements for each of
the three months ended January 31, 1997 and 1998 . . F-34
HK SYSTEMS, INC.
Unaudited Pro Forma Consolidated Financial Statements F-37
<PAGE>
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
December 12, 1997
(except with respect to the
matters discussed in Note 16,
as to which the date
is February 27, 1998),
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 $31,106 $27,951
Accrued liabilities 6,575 11,941
Accrued employee costs 2,971 6,933
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
COMMON STOCK WITH PUT RIGHTS
$.01 par value; authorized
9,764,093 at 1996 and 1997;
issued 3,015,360 at 1996 and
1997 633 633
SHAREHOLDERS' EQUITY:
Common stock -- --
Additional paid-in capital -- --
Retained (deficit) earnings (2,952) 2,889
-------- ---------
Total shareholders' (deficit)
equity (2,952) 2,889
-------- ---------
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 31,724
AMORTIZATION OF GOODWILL 1,033 1,225 3,979
--------- --------- ---------
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:
Basic net income
(loss) per share of
common stock $(0.40) $0.70 $1.94
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)
Redeemable Common Retained
Preferred Stock With (Deficit)
Stock Put Rights Earnings
BALANCE, October 31, 1994 $10,800 $461 $(3,973)
Shares issued 4,000 172 --
Stock dividends on Class B
Preferred Stock 1,028 -- (1,028)
Accrued dividends on Class D
Preferred Stock -- -- (103)
Net income -- -- 37
------- ------ -------
BALANCE, October 31, 1995 15,828 633 (5,067)
Stock dividends on Class B
Preferred Stock 1,120 -- (1,120)
Accrued dividends on Class D
Preferred Stock -- -- (192)
Net income -- -- 3,427
------ ------ -------
BALANCE, October 31, 1996 16,948 633 (2,952)
Stock dividends on Class B
Preferred Stock 1,120 -- (1,120)
Accrued dividends on Class D
Preferred Stock -- -- (299)
Net income -- -- 7,260
------ ------ -------
BALANCE, October 31, 1997 $18,068 $633 $2,889
====== ====== =======
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
the complex material handling and supply chain needs of a wide array
of 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 supply chain management software systems,
including warehouse management systems and customized 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. HEI's primary activities
are considered to be in the technological or software areas. 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. Eaton-Kenway's primary
activities are considered to be in the technological or software
areas. 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. Western Atlas' primary
activities relate to manufacturing. 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 for the year
ended October 31, 1996, assuming the Western Atlas Acquisition had
been made as of November 1, 1995, would be as follows:
Net Revenues $253,649
Net Income Applicable To Common
Shareholders 1,181
Basic Net Income Per Share of
common stock $0.39
Diluted Net Income Per Share of
common stock $0.11
Unaudited pro forma operating results of the Company for the year
ended October 31, 1997, 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 concentration of credit risk exists
at October 31, 1997 with respect to the Company's accounts receivable
or unbilled revenues.
Fair value of financial instruments-
The Company's financial instruments consist of an interest rate cap,
interest rate swaps and various debt instruments. The interest rate
cap and interest rate swaps are assets and are described in Note 13.
The debt instruments are liabilities to the Company and are more
fully described in Note 7.
The interest rate cap and interest rate swaps have an immaterial
value as of October 31, 1997 and no market value based on prevailing
interest rates.
The Company's revolving line of credit bears interest at floating
rates of interest expressed in relation to either LIBOR or the bank's
prime rate. Based on the terms currently available, the Company
believes that the revolving line of credit balance of $33,960 as of
October 31, 1997 is stated at fair market value.
The Company has two junior subordinated notes that were given to the
sellers in conjunction with two separate acquisitions. Because each
of these notes was negotiated in the overall context of the related
acquisition, the Company believes it is impracticable to obtain the
current market value of these notes because of excessive costs that
would have to be incurred to obtain this information.
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, and
recorded a gain on sale of $343.
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 $3,979, respectively. Accumulated
amortization at October 31, 1996 and 1997 was $2,825 and $6,804,
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. During the
first quarter of 1997, the Company decided to abandon one of its
software product lines. Amortization of goodwill includes a write-
off of $2,295 of unamortized software costs related to this decision.
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 $960,
respectively. Accumulated amortization at October 31, 1996 and 1997
was $4,971 and $5,931, 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 and on
the amount of capital expenditures in any year and restrictions on
the payment of dividends; require maintenance of minimum current,
leverage and interest coverage ratios; and require minimum total
capitalization and billed receivable balances, as defined. As of
October 31, 1996 and 1997, the Company was either in compliance with
its debt covenants or those covenants were waived by the lender.
(8) Common Stock With Put Rights-
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.
Certain employee agreements entered into between management and
the Company give management certain put and call rights with
respect to the Common Stock of the Company that are exercisable
when they are no longer employed by the Company.
(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 and 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 (i) the fair market value at the date
of grant in the case of incentive stock options or (ii) 85% of the
fair market value at the date of grant in the case of nonqualified
stock options. 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 (24,000) 1.00 1.00
--------- ----------- --------
Outstanding at October 31, 1996 950,000 $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 1,087,800 $1.00 - 8.75 $2.20
========= ============ =======
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-
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" ("SFAS 128"). The Company
adopted SFAS 128 for the three month period ended January 31, 1998.
All earnings per share computations have been applied retroactively
to all periods to conform with the provisions of SFAS 128.
The following reconciles the numerators and denominators of the
basic and diluted net income (loss) per share computations:
Years Ended October 31,
1995 1996 1997
Basic
Net income before dividends on
preferred stock $37 $3,427 $7,260
Less: Class B and D preferred
stock dividends (1,131) (1,312) (1,419)
--------- --------- ---------
Net income (loss) applicable to
common shareholders $(1,094) $2,115 $5,841
========= ========= =========
Weighted average shares of
common stock outstanding 2,764,083 3,015,360 3,015,360
--------- --------- ---------
Basic net income (loss) per
share of common stock $(0.40) $0.70 $1.94
========= ========= =========
Diluted
Net income before dividends on
preferred stock $37 $3,427 $7,260
Less: Class B and D preferred
stock dividends (1,131) (1,312) (1,419)
Plus: Class B preferred stock
dividends(a) - 1,120 1,120
--------- --------- ---------
Net income (loss) applicable to
common shareholders $(1,094) $3,235 $6,961
========= ========= =========
Weighted average shares of
common stock outstanding 2,764,083 3,015,360 3,015,360
Incremental common shares
applicable to common stock
options - 230,714 443,206
Incremental common shares
applicable to Class B
convertible preferred stock - 5,600,000 5,600,000
--------- --------- ---------
Average common shares, adjusted 2,764,083 8,846,074 9,058,568
--------- --------- ---------
Diluted net income (loss) per
share of common stock (b) $(0.40) $0.37 $0.77
========= ========= =========
(a) Class B preferred stock is a common stock equivalent. 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 dilutive.
(b) 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.
(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 a
lawsuit ("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 purported 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. On January 30,
1998, the court granted partial summary judgment in favor of the
Company and the other defendants, holding that the SF Fed cannot
recover the cost of constructing two new vaults or litigation
expenses. However, the SF Fed may continue to seek damages in
excess of $10 million against the Company based on claims that have
not been dismissed. The court's orders granting partial summary
judgment are subject to appeal after the entry of final judgment in
the action, and there can be no assurance that the results of any
appeal would be favorable to the Company. It is anticipated that a
jury trial on the remaining damage issues on the contract claim
against the Company and Eaton-Kenway, if not all the remaining
claims against all the parties, will be held 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.
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:
Employee cost accruals $ 328 $1,296
Book versus tax contract
accounting 674 2,072
Warranty accrual 78 155
Reserve for bad debts 37 159
Other 208 218
----- -----
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.
(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 was used by the Company to fund its
substantially concurrent loan of like amount to the ESOP.
(d) Declared a 0.40 to 1 stock split on preferred and common stock.
All share and per share information has been retroactively
adjusted.
(e) All put rights that management has to require a repurchase of
all of the common stock will terminate upon the effectiveness
of an initial public offering of Common 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
394 (404)
Other liabilities
------- -------
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 assets 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>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF OCTOBER 31, 1997 AND JANUARY 31, 1998
(In thousands, except share and per share data)
Pro Forma
October 31, January 31, January 31,
1997 1998 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $332 $90 $90
Accounts receivable, less
allowance of $552 and $517,
respectively 27,057 29,254 29,254
Unbilled revenue 25,539 26,616 26,616
Inventory 8,845 10,658 10,658
Deferred income taxes 3,900 3,900 3,900
Prepaid expenses and other
current assets 823 4,505 4.505
------- ------- -------
Total current assets 66,496 75,023 75,023
PROPERTY, PLANT AND EQUIPMENT:
Land 1,060 1,060 1,060
Building and building
improvements 3,986 3,905 3,905
Leasehold improvements 2,321 2,669 2,669
Computer equipment 12,372 12,762 12,762
Machinery and equipment 7,398 7,540 7,540
Office furniture and other 3,605 4,161 4,161
------- ------- -------
30,742 32,097 32,097
Less-Accumulated depreciation (11,148) (12,316) (12,316)
------- ------- -------
19,594 19,781 19,781
GOODWILL 39,121 38,695 38,695
DEFERRED INCOME TAXES 2,527 2,527 2,527
OTHER ASSETS 3,623 3,520 3,520
------- ------- -------
Total $131,361 $139,546 $139,546
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $27,951 $29,274 $29,274
Accrued liabilities 11,941 9,330 9,330
Accrued employee costs 6,933 5,237 5,237
Billings in excess of costs 7,487 12,548 12,548
------- ------- -------
Total current liabilities 54,312 56,389 56,389
LONG-TERM DEBT 51,960 68,170 68,170
OTHER LONG-TERM LIABILITIES 3,499 3,499 3,499
REDEEMABLE PREFERRED STOCK 18,068 18,348 4,348
COMMON STOCK WITH PUT RIGHTS,
$.01 par value; authorized
9,764,093 at 1997 and 1998,
issued 3,015,360 at 1997 and
1998 633 633 --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
authorized 40,000,000 at Pro
Forma 1998; 8,615,360 issued
and 7,902,230 outstanding at
Pro Forma 1998 -- -- 86
Additional paid-in capital -- -- 14,547
Treasury, at cost, 383,358
shares of Common Stock -- (5,858) (5,858)
Unearned compensation - ESOP -- (5,400) (5,400)
Retained earnings 2,889 3,765 3,765
------- ------- -------
Total shareholders' (deficit)
equity 2,889 (7,493) 7,140
------- ------- -------
Total $131,361 $139,546 $139,546
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR EACH OF THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
(In thousands, except per share data)
Three Months Ended January 31,
1997 1998
NET REVENUES:
Integrated systems $47,003 $28,098
Customer services 15,626 17,371
Logistics and software systems 4,092 3,021
------- -------
Total net revenues 66,721 48,490
COST OF SALES 54,032 37,125
------- -------
Gross profit 12,689 11,365
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,137 7,685
AMORTIZATION OF GOODWILL 2,701 427
------- -------
Income from operations 2,851 3,253
OTHER INCOME (EXPENSE):
Interest expense (1,365) (1,315)
Other, net (60) --
------- -------
Income before income taxes 1,426 1,938
PROVISION FOR INCOME TAXES 511 698
------- -------
Net income before dividends on
preferred stock 915 1,240
DIVIDENDS ON PREFERRED STOCK (354) (364)
------- -------
Net income applicable to common
shareholders $561 $876
======= =======
PER SHARE DATA:
Basic net income per share of
common stock $0.19 $0.32
======= =======
Diluted net income per share of
common stock $0.09 $0.13
======= =======
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
(UNAUDITED)
FOR EACH OF THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
(In thousands)
Three Months Ended January 31,
1997 1998
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $915 $1,240
Adjustments to reconcile net
income to net cash provided by
(used for) operating
activities-
Depreciation 1,308 1,160
Amortization 2,924 643
Changes in assets and
liabilities-
Accounts receivable 12,406 (2,196)
Unbilled revenue (8,856) (1,076)
Inventory (893) (1,814)
Prepaid expenses and other
current assets (1,890) (3,683)
Accounts payable 3,420 849
Accrued liabilities 3,448 (2,710)
Billings in excess of costs (1,978) 5,060
-------- --------
Net cash provided by (used for)
operating activities 10,804 (2,527)
-------- --------
CASH FLOWS USED FOR INVESTING
ACTIVITIES:
Purchase of fixed assets (554) (1,407)
Payment of financing fees (265) (60)
Acquisition of Eaton Kenway,
Inc. 33 --
Investment in joint venture (1,890) --
Acquisition of the Material
Handling Systems division and
VantageWare division (31,402) --
------- --------
Net cash used for investing
activities (34,078) (1,467)
======= ========
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR EACH OF THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
(In thousands)
(Continued)
Three Months Ended January 31,
1997 1998
CASH FLOWS (USED FOR) PROVIDED BY
FINANCING ACTIVITIES:
Proceeds from borrowings on
revolving line of credit, net $28,000 $10,810
Proceeds from term loan, net -- 5,400
Purchase of treasury stock -- (6,458)
Purchase of Unallocated ESOP
shares -- (6,000)
------- -------
Net cash provided by financing
activities 28,000 3,752
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,726 (242)
CASH AND CASH EQUIVALENTS, beginning
of period 152 332
------- -------
CASH AND CASH EQUIVALENTS, end of
period $4,878 $90
======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $688 $1,105
Income taxes paid $1,979 $1,800
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
(UNAUDITED)
FOR EACH OF THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
(In thousands, except share and per share data)
(1) Basis of Presentation-
The consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods presented. These financial
statements should be read in conjunction with the Company's audited
financial statements for each of the three years ended October 31,
1997.
(2) Pro Forma Balance Sheet-
The pro forma balance sheet reflects various equity transactions that
occurred subsequent to October 31, 1997 or will occur concurrently
with the initial public offering. Specifically, the pro forma
balance sheet reflects (i) the conversion of the Company's Class B
Cumulative Redeemable Preferred Stock into common stock of the
Company; (ii) the termination of certain management common stock
"put" rights; and (iii) the reclassification of all common stock of
the Company into Common Stock.
(3) Earnings Per Share of Common Stock-
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" ("SFAS 128"). The Company adopted
SFAS 128 for the three month period ended January 31, 1998. All
earnings per share computations have been applied retroactively to
all periods to conform with the provisions of SFAS 128.
The following reconciles the numerators and denominators of the basic
and diluted net income per share computations:
Three Months Ended January 31,
1997 1998
Basic
Net income before dividends on
preferred stock $915 $1,240
Less: Class B and D preferred stock
dividends (354) (364)
--------- ---------
Net income applicable to common
shareholders $561 $876
========= =========
Weighted average shares of common
stock outstanding 3,015,360 2,713,173
--------- ---------
Basic net income per share of common
stock $0.19 $0.32
========= =========
Diluted
Net income before dividends on
preferred stock $915 $1,240
Less: Class B and D preferred stock
dividends (354) (364)
Plus: Class B preferred stock
dividends(a) 280 280
--------- ---------
Net income applicable to common
shareholders $841 $1,156
========= =========
Diluted
Weighted average shares of common stock
outstanding 3,015,360 2,713,173
Incremental common shares applicable to
common stock options 230,714 488,351
Incremental common shares applicable to
Class B convertible preferred stock 5,600,000 5,600,000
--------- ---------
Average common shares, adjusted 8,846,074 8,801,524
--------- ---------
Diluted net income per share of
common stock $0.10 $0.13
===== =====
(a) Class B preferred stock is a common stock equivalent. 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 dilutive.
(4) 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, 1997, and January 31, 1998 consisted of
the following:
1997 1998
Raw materials $4,875 $4,904
Work in process 2,551 3,763
Finished goods 1,419 1,991
------ -------
$8,845 $10,658
====== =======
(5) Contingency-
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 a lawsuit
("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 purported 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. On January 30, 1998, the court granted
partial summary judgment in favor of the Company and the other
defendants, holding that the SF Fed cannot recover the cost of
constructing two new vaults or litigation expenses. However, the SF
Fed may continue to seek damages in excess of $10 million against the
Company based on claims that have not been dismissed. The court's
orders granting partial summary judgment are subject to appeal after
the entry of final judgment in the action, and there can be no
assurance that the results of any appeal would be favorable to the
Company. It is anticipated that a jury trial on the remaining damage
issues on the contract claim against the Company and Eaton-Kenway, if
not all the remaining claims against all the parties, will be held 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.
(6) Employee Stock Ownership Plan-
Effective November 1, 1997, the Company adopted an employee stock
ownership plan (the "ESOP"), in which substantially all of the
employees of the Company participate. 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. The
Company also borrowed $6.0 million from its bank lenders and loaned
that amount to the ESOP to purchase 366,412 shares of the Company on
January 9, 1998. In January 1998, shares with a value of $1.2
million were allocated to the accounts of ESOP participants, of which
$0.6 million pertained to Treasury Stock and $0.6 million pertained
to unallocated ESOP shares.
Compensation expense related to the allocation of shares with a value
of $1.2 million to the accounts of ESOP participants was recognized
in the October 31, 1997 financial statements.
<PAGE>
HK SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Set forth below is certain unaudited summary pro forma consolidated
financial data for the period ended and as of the dates indicated. The
summary pro forma consolidated statement of income data for the year ended
October 31, 1997 and the three months ended January 31, 1997 and 1998
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; (ii) the ESOP Transactions;
and (iii) the Offering and the application of the proceeds to the Company
from the Offering to repay certain indebtedness and to pay accrued dividends
on and redeem preferred stock. The summary pro forma consolidated balance
sheet data as of January 31, 1998 reflects the effects of the
Recapitalization and the Offering transactions as if they had occurred on
January 31, 1998. 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.
Year ended October 31, 1997
Pro Forma Statement of Income
Data: Historical Adjustments Pro Forma
Net revenues . . . . . . . . $ 246,150 $ - $ 246,150
Gross profit . . . . . . . . 52,504 - 52,504
Selling, general &
administrative expenses 31,724 - 31,724
Amortization of goodwill . . 3,979 - 3,979
Income from operations . 16,801 - 16,801
Interest expense . . . . . . 5,570 (3,083) (a) 3,353
866 (b)
Income before income taxes . 11,311 2,217 13,528
Provision for income taxes . 4,051 798 (c) 4,849
Net income before
dividends on preferred
stock . . . . . . . . 7,260 1,419 8,679
Dividends on preferred stock 1,419 (1,419) (d) -
Net income applicable to
common shareholders . 5,841 2,838 8,679
Basic net income per share
of common stock . . . 1.94 1.34
Diluted net income per
share of common stock 0.77 0.69
<TABLE>
<CAPTION>
Three months ended January 31,
1997 1998
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Statement of
Income Data:
Net revenues . . . . . . $66,721 $ $66,721 $48,490 $ - $48,490
Gross profit . . . . . . 12,689 12,689 11,365 - 11,365
Selling, general &
administrative
expenses . . . . . . 7,137 7,137 7,685 - 7,685
Amortization of goodwill 2,701 2,701 427 - 427
Income from
operations . . . . 2,851 2,851 3,253 - 3,253
Interest expense . . . . 1,365 (771)(a) 811 1,315 (771)(a) 761
217 (b) 217 (b)
Income before income taxes 1,426 554 1,980 1,938 554 2,492
Provision for income taxes 511 199 (c) 710 698 199 (c) 897
Net income before
dividends on
preferred stock . 915 355 1,270 1,240 355 1,595
Dividends on preferred
stock . . . . . . . 354 (354)(d) - 364 (364)(d) -
Net income applicable
to common
shareholders . . . . 561 709 1,270 876 735 1,595
Basic net income per
share of common
stock . . . . . . 0.19 0.20 0.32 0.26
Diluted net income
per share of common
stock . . . . . . 0.10 0.10 0.13 0.13
</TABLE>
<PAGE>
As of January 31, 1998
Pro Forma Balance Sheet Data: Historical Adjustments Pro Forma
Total assets . . . . . . . . . $139,546 - $139,546
Accrued liabilities . . . . . . 9,330 (673)(g) 8,657
Total current liabilities . . . 56,389 (673) 55,716
Other liability . . . . . . . . 3,499 - 3,499
Long-term debt . . . . . . . . 68,170 (8,000)(a) 28,892
(31,278)(a)
Mandatory redeemable preferred
stock . . . . . . . . . . 18,348 (14,000)(f) -
(4,348)(g)
Common stock with put rights . 633 (633)(f) -
Common stock . . . . . . . . . - 121 (e)(f) 121
Additional paid-in capital . . - 44,264 (e) 58,811
14,547 (f)
Treasury stock . . . . . . . . (5,858) - (5,858)
Unearned compensation - ESOP . (5,400) - (5,400)
Retained earnings . . . . . . . 3,765 - 3,765
Total shareholders' equity . . (7,493) 60,383 51,439
Total liabilities and
shareholders' equity . . . 139,546 - 139,546
(a) In connection with the Offering and repayment of certain
indebtedness, the Company would have incurred a reduction in interest
expense on the following:
October 31, January 31, January 31,
1997 1998 1997
(1) $8,000 subordinated
promissory note due to
Western Atlas; interest
rate at 10 percent $ (800) $ (200) $ (200)
(2) $31,278 outstanding on
revolving credit facility;
average interest rate of
7.3 percent (2,283) (571) (571)
--------- --------- ---------
$ (3,083) $ (771) $ (771)
========= ========= =========
(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 ($600 of which was repaid
in January 1998) to repurchase 420,000 shares of common stock of the
Company and (ii) 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:
October 31, January 31, January 31,
1997 1998 1997
(1) $6,000 term note due in
December 2002; average
interest rate of 7.3
percent: $ 438 $ 110 $ 110
(2) $5,858 draw on
revolving credit
facility; average
interest rate of 7.3
percent: 428 107 107
------- ------- ------
$ 866 $ 217 $ 217
======= ======= ======
(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:
October 31, January 31, January 31,
1997 1998 1997
(1) Class B Preferred
Stock; dividends $ (1,120) $ (280) $ (280)
accrue at a rate of
8.0 percent:
(2) Class D Preferred
Stock; dividends
accrue at a rate of
8.0 percent: (299) (84) (74)
------- ------- -------
$ (1,419) $ (364) $ (354)
======= ======= =======
(e) Represents amount of net proceeds associated with the sale of
3,460,000 shares of Common Stock with a par value of $0.01 offered by
the Company.
(f) Represents (i) 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 and (ii) the
termination of certain management common stock "put" rights with a
stated amount of $633 to 3,015,360 shares of Common Stock at a par
value of $0.01 per share.
(g) Represents the amount of net proceeds used to pay accrued dividends
of $673 and redeem shares of Class D Preferred Stock of $4,348.
<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.
<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.
5,400,000 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
International Prospectus
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
5,400,000 Shares
[HK Systems, Inc. Logo]
Common Stock
__________________________
Of the 5,400,000 shares of Common Stock offered hereby, 3,600,000 are
being sold by the Company and 1,800,000 are being sold by 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, 1,080,000
shares are being offered initially outside the United States and Canada by
the International Managers (the "International Offering"), and 4,320,000
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 $13.00 and $15.00 per share. See "Underwriting" for a
list of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock on the
New York Stock Exchange under the symbol "HKS."
__________________________
See "Risk Factors" beginning on page 7 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.
Proceeds to
Underwriting Proceeds to Selling
Price to Discounts and Company(2) Shareholders
Public Commissions(1)
Per Share .
Total(3) .
(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 $750,000.
(3) The Selling Shareholders and the Company have granted the
International Managers a 30-day option to purchase up to 162,000
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 648,000 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>
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.
5,400,000 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, in connection with the Eaton-Kenway Acquisition
(and as adjusted for the 100-for-one stock split which occurred on
September 18, 1996), the Company issued and sold (a) 1,100,000 Class A
Common shares to John W. Splude and 300,000 Class A Common shares each to
Glen P. Davis, John C. Hines and Gordon W. Jones for an aggregate of
$160,000; (b) 153,800 Class C Common shares to MIVC for $12,304; and (c)
1,200,000 shares of Class B Preferred Stock to MIVC and 2,800,000 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. On
November 15, 1996, in connection with the Western Atlas Acquisition, the
Company issued the Warrant to Western Atlas. The issuance of (i)
securities in connection with the Eaton-Kenway Acquisition and (ii) the
Warrant were exempt from registration under the Securities Act pursuant to
Section 4(2) as transactions 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, as
amended, the Registrant has duly caused this Amendment to the 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 27th
day of February, 1998.
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, as
amended, this Amendment to the Registration Statement has been signed
below as of February 27th, 1998 by the following persons in the capacities
indicated.
Signature Title
/s/ John W. Splude Chairman, President, Chief
John W. Splude Executive Officer and Director
(Principal Executive Officer)
/s/ Glen P. Davis* Executive Vice President-
Glen P. Davis Integration Services and
Director
/s/ John C. Hines* Senior Vice President and Chief
John C. Hines Financial Officer (Principal
Financial and Accounting
Officer)
/s/ John Byrnes* Director
John Byrnes
/s/ David Upton* Director
David Upton
/s/ Jose Yglesias* Director
Jose Yglesias
*By: /s/ John W. Splude
Attorney-in-Fact
<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 Proposed form of Amended and Restated Articles of
Incorporation of the Company.
3.2 Proposed form of 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.*
4.5 First Amendment to the Third Amended and Restated
Credit Agreement dated as of December 15, 1997 by and
among the Company, Harris Trust and Savings Bank,
individually and as agent, and the lenders that are a
party thereto.
4.6 Second Amendment to the Third Amended and Restated
Credit Agreement dated as of January 9, 1998 by and
among the Company, Harris Trust and Savings Bank,
individually and as agent, and the lenders that are a
party thereto.
5.1 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 and
February 19, 1998, by and between the Company and John
W. Splude.
10.2 Employment and Noncompetition Agreement, dated as of
October 28, 1993 and as amended October 31, 1996 and
February 19, 1998, by and between the Company and Glen
P. Davis.
10.3 Employment and Noncompetition Agreement, dated as of
July 1, 1997, by and between the Company and David W.
Bartley.
10.4 HK Systems, Inc. 1997 Stock Plan for Outside
Directors.
10.5 HK Systems, Inc. 1993 Executive Stock Option Plan.*
10.6 Proposed form of Registration Rights Agreement by and
among the Company, MIVC, SWIB, John W. Splude, Glen P.
Davis and John C. Hines.
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.*
10.10 Employment and Noncompetition Agreement, dated as of
October 28, 1993 and as amended October 31, 1996 and
February 19, 1998, by and between the Company and John
C. Hines.
10.11 Employment and Noncompetition Agreement, dated as of July 1,
1997, by and between the Company and Stephen S. Sadowski.
10.12 Employment and Noncompetition Agreement, dated as of
July 1, 1997, by and between the Company and Larry S.
Cinpinski.
10.13 Amendment to the HK Systems, Inc. 1993 Executive Stock
Option Plan.
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.
__________________
* Previously filed.
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HK SYSTEMS, INC.
_____________________
ARTICLE 1
NAME
The name of this Corporation is HK Systems, Inc.
ARTICLE 2
PURPOSE
The purposes for which the Corporation is organized are to engage in
any lawful activity within the purposes for which a Corporation may be
organized under the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes.
ARTICLE 3
CLASSES OF STOCK
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is fifty million
(50,000,000) shares which shall be divided into two classes as follows:
(1) Ten million (10,000,000) shares of preferred stock, one cent
($.01) par value (the "Preferred Stock"); and
(2) Forty million (40,000,000) shares of common stock, one cent
($.01) par value (the "Common Stock").
ARTICLE 4
RIGHTS OF STOCK
A statement of the voting powers and of the designations, preferences
and relative participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof, of each class of
stock of the Corporation is as follows:
(1) In General
To the fullest extent permitted under the Wisconsin Business
Corporation Law, the number of authorized shares of any class or
classes of stock may be increased or decreased without the approval
of such class or classes as a separate voting group except to the
extent that, in the resolution or resolutions providing for the
issuance of a class or series of stock, the Board of Directors
specifies that approval of the holders of one or more classes or
series of stock shall be required to increase or decrease the number
of authorized shares of such one or more classes or series of stock.
Subject to the terms of any resolution or resolutions providing for
the issuance of a class or series of stock (insofar as such
resolution or resolution relates to the rights of such class or
series), the ability of shareholders to demand a special meeting of
shareholders is restricted to the fullest extent permitted by the
Wisconsin Business Corporation Law, and the Board of Directors of the
Corporation has the authority to take any action necessary or
appropriate to carry out the intent of this sentence, including
without limitation adopting any Bylaw.
(2) Preferred Stock
The Preferred Stock may be issued from time to time in one or
more series, with such distinguishing designations as may be stated
or expressed in the resolution or resolutions providing for the issue
of such stock adopted from time to time by the Board of Directors;
and in such resolution or resolutions providing for the issue of
shares of each particular series, the Board of Directors is also
expressly authorized, to the fullest extent permitted under the
Wisconsin Business Corporation Law, to fix and amend: the number of
shares constituting such series; the rate of dividends upon which and
the times at which dividends on shares of such series shall be
payable and the preference, if any, which such dividends shall have
relative to dividends on shares of any other class or classes or any
other series of stock of the Corporation; whether such dividends
shall be cumulative or noncumulative, and if cumulative, the date or
dates from which dividends on shares of such series shall be
cumulative; the voting rights, if any, to be provided for shares of
such series; the rights, if any, which the holders of shares of such
series shall have in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation; the rights, if any, which the holders of shares of such
series shall have to convert such shares into or exchange such shares
for shares of any other class or classes or any other series of stock
of the Corporation and the terms and conditions, including price and
rate of exchange, of such conversion or exchange; the redemption
price or prices and other terms of redemption, if any, for shares of
such series; and any and all other preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof pertaining to shares of such
series.
(3) Common Stock
Subject to preferences and rights to which holders of stock
other than the Common Stock may have become entitled by resolution or
resolutions of the Board of Directors as hereinbefore provided:
A. The holders of the Common Stock shall be entitled to such
dividends (payable in cash, stock or otherwise) upon the Common Stock
as may be declared from time to time by the Board of Directors and
paid out of funds legally available therefor.
B. In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of the Common Stock
shall be entitled to share ratably in all assets available for
distribution to the shareholders.
C. The holders of Common Stock shall be entitled to one vote
for each of the shares held by them of record at the time for
determining holders thereof entitled to vote.
ARTICLE 5
MATTERS RELATING TO BOARD OF DIRECTORS
(1) Power of the Board of Directors. The business and affairs of
the Corporation shall be managed under the direction of its Board of
Directors. In furtherance, and not in limitation, of the powers conferred
by the laws of the State of Wisconsin, the Board of Directors is expressly
authorized:
A. to make, alter, amend or repeal the Bylaws of the
Corporation; provided, however, that no Bylaws hereafter adopted
shall invalidate any prior act of the Directors that would have been
valid if such Bylaws had not been adopted;
B. to determine the rights, powers, duties, rules and
procedures that affect the power of the Board of Directors to direct
the business and affairs of the Corporation, including the power to
designate and empower committees of the Board of Directors, to elect,
appoint and empower the officers and other agents of the Corporation,
and to determine the time and place of, and the notice requirements
for, Board meetings, as well as quorum and voting requirements
(except as otherwise provided in these Amended and Restated Articles
of Incorporation) for, and the manner of taking, Board action; and
C. to exercise all such powers and do all such acts as may be
exercised by the Corporation, subject to the provisions of the laws
of the State of Wisconsin, these Amended and Restated Articles of
Incorporation, and any Bylaws of the Corporation.
Notwithstanding the foregoing or any other provision in these Amended and
Restated Articles of Incorporation or the Bylaws of the Corporation to the
contrary, no provision of the Bylaws shall be amended, altered, changed or
repealed and no provision inconsistent therewith shall be adopted unless
adopted (i) by the Board of Directors by resolution adopted by a Requisite
Vote (as hereinafter defined), (ii) by the affirmative vote of the holders
of record of outstanding shares representing at least eighty percent (80%)
of the voting power of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of Directors,
voting together as a single class or (iii) if the Board of Directors has
proposed such amendment, alteration, change or repeal by resolution
adopted by a Requisite Vote, by the affirmative vote of the holders of
record of outstanding shares representing at least a majority of the
voting power of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of Directors present and acting
at a meeting at which a quorum is present, voting together as a single
class. As used herein, the term "Requisite Vote" shall mean the
affirmative vote of at least seventy five percent (75%) of the directors
then in office, but in no case more than all of the directors then in
office.
(2) Number of Directors. The number of Directors constituting the
entire Board of Directors shall be not less than five (5) nor more than
fifteen (15). The specific number of Directors constituting the entire
Board of Directors shall be as authorized from time to time exclusively by
the Board of Directors by resolution adopted by a Requisite Vote. As used
in these Amended and Restated Articles of Incorporation, the term "entire
Board of Directors" means the total authorized number of Directors that
the Corporation would have if there were no vacancies.
(3) Classified Board. The Board of Directors shall be divided into
three classes, with respect to the time that they severally hold office,
as nearly equal in number as possible, with the initial term of the first
class of Directors (as designated by the shareholders of the Corporation
at the time the shareholders approve these Amended and Restated Articles
of Incorporation) to expire at the 1999 Annual Meeting of Shareholders,
the initial term of office of the second class of Directors (as designated
by the shareholders of the Corporation at the time the shareholders
approve these Amended and Restated Articles of Incorporation) to expire at
the 2000 Annual Meeting of Shareholders and the initial term of office of
the third class of Directors (as designated by the shareholders of the
Corporation at the time the shareholders approve these Amended and
Restated Articles of Incorporation) to expire at the 2001 Annual Meeting
of Shareholders. Directors elected to succeed those Directors whose terms
have thereupon expired shall be elected for a term of office to expire at
the third succeeding Annual Meeting of Shareholders after their election,
and upon the election and qualification of their successors. A person
elected as a Director shall be deemed a Director as of the time of such
election. In no case will a decrease in the number of Directors shorten
the term of any incumbent Director.
(4) Nominations. Nominations for the election of Directors and
advance notice of other action to be taken at meetings of shareholders of
the Corporation shall be given in the manner provided in the Bylaws of the
Corporation.
(5) Vacancies. Subject to the rights of the holders of any series
of Preferred Stock or any other class of capital stock of the Corporation
(other than the Common Stock) then outstanding, any vacancies in the Board
of Directors for any reason and any newly created Directorships resulting
by reason of any increase in the number of Directors may, if occurring
prior to the expiration of the term of office of the class in which such
vacancy or increase occurs, be filled only by the Board of Directors,
acting by the affirmative vote of a majority of the remaining Directors
then in office, although less than a quorum, and any Directors so elected
shall hold office until the next election of the class for which such
Directors have been elected and until their successors are elected and
qualified.
(6) Removal of Directors. Subject to the rights of the holders of
any series of Preferred Stock or any other class of capital stock of the
Corporation (other than the Common Stock) then outstanding, any Director,
or the entire Board of Directors, may be removed from office at any time
prior to the expiration of his or their term of office, but only for Cause
(as hereinafter defined) and only by the affirmative vote of the holders
of record of outstanding shares representing at least eighty percent (80%)
of the voting power of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of Directors,
voting together as a single class; provided, however, that if the Board of
Directors by resolution adopted by the Requisite Vote shall have
recommended removal of a director, then the shareholders may remove such
director from office without Cause by a majority vote of such outstanding
shares. As used herein, "Cause" shall exist only if the director whose
removal is proposed (i) has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal or (ii) has been adjudged by a court of competent jurisdiction to
be liable for willful misconduct in the performance of his or her duties
to the Corporation in a matter that has a material adverse effect on the
business of the Corporation and such adjudication is no longer subject to
direct appeal.
(7) Acquisition Proposals. In determining whether an Acquisition
Proposal (as hereinafter defined) is in the best interests of the
Corporation and its shareholders, the Board of Directors may give
consideration to all factors it deems relevant, including, without
limitation, (a) the amount, nature and terms of the consideration being
offered in the Acquisition Proposal, not only in relation to the then
current market price of the Corporation's stock, but also in relation to
the then current value of the Corporation in a freely-negotiated
transaction and in relation to the Board of Directors' estimate of the
future value of the Corporation as an independent entity, (b) the social,
legal and economic effects upon employees, suppliers and customers of the
Corporation and on the communities in which the Corporation operates, as
well as on the long-term business prospects of the Corporation, and
(c) the effect of indebtedness arising out of consummation of the
Acquisition Proposal on the ongoing viability and prospects of the
Corporation.
In furtherance and not in limitation of the powers conferred by
law or in these Amended and Restated Articles of Incorporation, the Board
of Directors (and any committee of the Board of Directors) is expressly
authorized to take such action or actions as the Board of Directors or
such committee may determine to be reasonably necessary or desirable in
connection with any Acquisition Proposal to (i) encourage any person to
enter into negotiations with the Board of Directors and officers of the
Corporation with respect to any transaction that may result therefrom or
(ii) contest or oppose any such Acquisition Proposal that the Board of
Directors or such committee determines to be unfair, abusive or otherwise
undesirable with respect to the Corporation and its shareholders or other
constituencies. Such action may include, without limitation, the issuance
or amendment of rights, options, capital stock, notes, debentures or other
evidences of indebtedness or other securities of the Corporation on such
terms as the Board of Directors shall determine.
In connection with an Acquisition Proposal, a Director or
officer of the Corporation, in determining what he or she believes or
recommends to be in the best interests of the Corporation, may decide or
recommend, without limitation, that the Corporation should be sold; that
the interests of the Corporation may be best served by the continued
independence of the Corporation; that the Acquisition Proposal should be
rejected even though there are no contemporaneous offers at a higher
price; that strategies, rights plans or Bylaws put in place by the
Corporation to impede the takeover of the Corporation under certain
circumstances or to prevent abusive takeover tactics likely to affect
adversely the Corporation or some or all of the Corporation's shareholders
or other constituencies do not have to be terminated simply to facilitate
the Acquisition Proposal; that the Corporation should not be put up for
auction for sale to the highest bidder; that in the event the Corporation
is put up for auction, the management of the Corporation may be a bidder;
that in connection with a sale of the Corporation the Corporation may be
sold to a bidder that does not offer the highest nominal consideration if
the Board of Directors determines that the interests of the Corporation's
constituencies other than shareholders would be better served in the
transaction contemplated by such bidder; or that the Corporation should be
restructured.
"Acquisition Proposal" means any proposal of any person (i) for
a tender offer, exchange offer or any other method of acquiring any equity
securities of the Corporation with a view toward acquiring control of the
Corporation, (ii) to merge or consolidate the Corporation with any
corporation or (iii) to purchase or otherwise acquire all or substantially
all of the properties and assets of the Corporation.
This Section (7) shall not be interpreted to create any rights
on behalf of third persons, such as employees, suppliers or customers.
ARTICLE 6
CERTAIN BUSINESS COMBINATIONS
(1) Certain Definitions. For the purposes of this Article 6 and the
second proviso of Article 7:
A. "Business Combination" means:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (a) an Interested Stockholder
or (b) any other person (whether or not itself an Interested
Stockholder) which is, or after such merger, consolidation or
share exchange would be, an Affiliate or Associate or an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or disposition (in one transaction or a series of transactions)
to or with, or proposed by or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested
Stockholder of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value of not less than one
percent (1%) of the total assets of the Corporation as reported
in the consolidated balance sheet of the Corporation as of the
end of the most recent quarter with respect to which such
balance sheet has been prepared; or
(iii) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to, or
proposed by or on behalf of, an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder in exchange
for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of not less than
one percent (1%) of the total assets of the Corporation as
reported in the consolidated balance sheet of the Corporation as
of the end of the most recent quarter with respect to which such
balance sheet has been prepared; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spin-off
or split-up of any kind of the Corporation or any Subsidiary,
proposed by or on behalf of an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or
any merger, consolidation or share exchange of the Corporation
with any Subsidiary or any other transaction (whether or not
with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the
percentage of the outstanding shares of (a) any class of equity
securities of the Corporation or any Subsidiary or (b) any class
of securities of the Corporation or any Subsidiary, represented
by securities of such class which are directly or indirectly
owned by an Interested Stockholder and all of its Affiliates and
Associates; or
(vi) any agreement, contract or other arrangement providing
for any one or more of the actions specified in clauses (i)
through (v) of this Section (1)A.
B. "Affiliate" or "Associate" have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in any subsequent provisions replacing such
Rule.
C. "Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act, as amended, or in any subsequent provisions replacing such Rule,
and a person shall "Beneficially Own" and have "Beneficial Ownership"
of any securities of which such person is the Beneficial Owner.
D. "Continuing Director" means: (i) any member of the Board
of Directors of the Corporation who (a) is neither the Interested
Stockholder involved in the Business Combination as to which a vote
of Continuing Directors is provided hereunder (or, for purposes of
the second proviso of Article 7, any Interested Stockholder), nor an
Affiliate, Associate, employee, agent or nominee of such Interested
Stockholder (taking into account only nominations after the Effective
Time (as defined in Article 9)), or the relative of any of the
foregoing, and (b) either was a member of the Board of Directors of
the Corporation prior to the time that such Interested Stockholder
became an Interested Stockholder or was a member of the Board of
Directors of the Corporation at the Effective Time; and (ii) any
successor of a Continuing Director described in clause (i) who is
recommended or elected to succeed a Continuing Director by the
affirmative vote of a majority of Continuing Directors then on the
Board of Directors of the Corporation.
E. "Fair Market Value" means: (i) in the case of stock, the
highest last sale price, regular way, during the 30-day period
immediately preceding the date in question of a share of such stock
on the New York Stock Exchange, or, if such stock is not listed or
admitted to trading on the New York Stock Exchange, on the principal
consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such
stock is listed or admitted to trading, or, if such stock is not
listed or admitted to trading on any such exchange, the highest last
quoted price or if not so quoted, the highest average high bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System ("Nasdaq") or such system then in use during the 30-day period
preceding the date in question, or, if no such quotation is
available, the fair market value on the date in question of a share
of such stock as determined by a majority of the Continuing Directors
in good faith; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in question
as determined by a majority of the Continuing Directors in good
faith.
F. "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary, any employee benefit plan maintained
by the Company or any Subsidiary or any trustee or fiduciary with
respect to any such plan when acting in such capacity) who or which:
(i) is, or was at any time within the two-year period
immediately prior to the date in question, the Beneficial Owner
of five percent (5%) or more of the voting power of the then
outstanding Voting Stock of the Corporation; or
(ii) is an assignee of, or has otherwise succeeded to, any
shares of Voting Stock of the Corporation of which an Interested
Stockholder was the Beneficial Owner at any time within the two-
year period immediately prior to the date in question, if such
assignment or succession shall have occurred in the course of a
transaction, or series of transactions, not involving a public
offering within the meaning of the Securities Act of 1933, as
amended.
For the purpose of determining whether a person is an Interested
Stockholder, the outstanding Voting Stock of the Corporation shall
include unissued shares of Voting Stock of the Corporation of which
the Interested Stockholder is the Beneficial Owner but shall not
include any other shares of Voting Stock of the Corporation that may
be issuable pursuant to any agreement, arrangement or understanding,
or upon the exercise of conversion rights, warrants or options, or
otherwise, to an person who is not the Interested Stockholder.
G. A "person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization or other
entity, as well as any syndicate or group deemed to be a person under
Section 14(d)(2) of the Exchange Act.
H. "Subsidiary" means any corporation of which the Corporation
owns, directly or indirectly, (i) a majority of the outstanding
shares of equity securities of such corporation, or (ii) shares
having a majority of the voting power represented by all of the
outstanding shares of Voting Stock of such corporation. For the
purpose of determining whether a corporation is a Subsidiary, the
outstanding Voting Stock and shares of equity securities thereof
shall include unissued shares of which the Corporation is the
Beneficial Owner but shall not include any other shares of Voting
Stock of the corporation that may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, warrants or options, or otherwise, to any person
who is not the Corporation.
I. "Voting Stock" means outstanding shares of capital stock of
the relevant corporation entitled to vote generally in the election
of directors.
(2) Higher Vote for Business Combinations. In addition to any
affirmative vote required by law or by these Amended and Restated Articles
of Incorporation, and except as otherwise expressly provided in
Section (3) of this Article, any Business Combination shall require the
affirmative vote of the holders of record of outstanding shares
representing at least eighty percent (80%) of the voting power of the then
outstanding shares of the Voting Stock of the Corporation, voting together
as a single class, voting at a shareholders' meeting and not by consent in
writing. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be
specified, by law or in any agreement with any national securities
exchange or otherwise.
(3) When Higher Vote Is Not Required. The provisions of Section (2)
of this Article shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such
affirmative vote, if any, of the shareholders as is required by law and
any other provision of these Amended and Restated Articles of
Incorporation, if the conditions specified in either of the following
paragraphs A and B are met.
A. Approval by Continuing Directors. The Business Combination
shall have been approved by the affirmative vote of a majority of the
Continuing Directors, even if the Continuing Directors do not
constitute a quorum of the entire Board of Directors.
B. Form of Consideration, Price and Procedure Requirements.
All of the following conditions shall have been met:
(i) With respect to each share of each class of Voting
Stock of the Corporation (including Common Stock), the holder
thereof shall be entitled to receive on or before the date of
the consummation of the Business Combination (the "Consummation
Date") consideration, in the form specified in
subsection (3)(B)(ii) hereof, with an aggregate Fair Market
Value as of the Consummation Date at least equal to the highest
of the following:
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder to which
the Business Combination relates, or by any Affiliate or
Associate of such Interested Stockholder, for any shares of
such class of Voting Stock acquired by it (1) within the
five-year period immediately prior to the first public
announcement of the proposal of the Business Combination
(the "Announcement Date"), (2) within the five-year period
prior to the Consummation Date or (3) within the five-year
period prior to, or in, the transaction in which it became
in Interested Stockholder, whichever is highest; plus, in
any such case, interest compounded annually from the
earliest date on which that highest per share acquisition
price was paid through the Consummation Date at the rate
for one-year United States Treasury obligations from time
to time in effect; less the aggregate amount of any cash
dividends paid, and the Fair Market Value of any dividends
paid other than in cash, per share of such class of Voting
Stock since that earliest date, up to the amount of that
interest;
(b) the Fair Market Value per share of such class of
Voting Stock of the Corporation on the Announcement Date or
on the date on which the Interested Stockholder became an
Interested Stockholder, whichever is higher; plus interest
compounded annually from that date through the Commencement
Date at the rate for one-year United States Treasury
obligations from time to time in effect; less the aggregate
amount of any cash dividends paid, and the Fair Market
Value of any dividends paid other than in cash, per share
of such class of Voting Stock since that date, up to the
amount of that interest; and
(c) the highest preferential amount per share, if
any, to which the holders of shares of such class of Voting
Stock of the Corporation are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; plus the aggregate amount of
any dividends declared or due as to which those holders are
entitled prior to payment of dividends on some other class
or series of stock (unless the aggregate amount of those
dividends is included in that preferential amount).
(ii) The consideration to be received by holders of a
particular class of outstanding Voting Stock of the Corporation
(including Common Stock) as described in subsection (3)(B)(i)
hereof shall be in cash or, if the consideration previously paid
by or on behalf of the Interested Stockholder in connection with
its acquisition of beneficially ownership of shares of such
class of Voting Stock consisted in whole or in part of
consideration other than cash, then in the same form as such
consideration. If such payment for shares of any class of
Voting Stock of the Corporation has been made in varying forms
of consideration, then the form of consideration for such class
of Voting Stock shall be either cash or the form used to acquire
the beneficial ownership of the largest number of shares of such
class of Voting Stock previously acquired by the Interested
Stockholder.
(iii) After such Interested Stockholder has become an
Interested Stockholder and prior to the Consummation Date: (a)
except as approved by the affirmative vote of a majority of the
Continuing Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on the outstanding
Preferred Stock of the Corporation, if any; (b) there shall have
been (1) no reduction in the annual rate of dividends paid on
the Common Stock of the Corporation (except as necessary to
reflect any subdivision of the Common Stock), except as approved
by the affirmative vote of a majority of the Continuing
Directors, and (2) an increase in such annual rate of dividends
as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number
of outstanding shares of Common Stock, unless the failure so to
increase such annual rate is approved by the affirmative vote of
a majority of the Continuing Directors; and (c) such Interested
Stockholder shall not have become the Beneficial Owner of any
additional shares of Voting Stock of the Corporation except (I)
as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder, (II) by virtue
of proportionate stock splits, stock dividends or other
distributions of stock in respect of stock not constituting a
Business Combination meeting all of the conditions of this
Section (3).
(iv) After such Interested Stockholder has become an
Interested Stockholder, neither such Interested Stockholder nor
any Affiliate or Associate thereof shall have received the
benefit, directly or indirectly (except proportionately as a
shareholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation.
(v) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Exchange Act and the General Rules and
Regulations thereunder (or any subsequent provision replacing
such Act, rules or regulations) shall be mailed to the
shareholders of the Corporation at least 45 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions thereof). Such proxy or
information statement shall contain, if a majority of the total
number of Continuing Directors so request, an opinion of a
reputable investment banking firm (which firm shall be selected
by a majority of the total number of Continuing Directors,
furnished with all information it reasonably requests, and paid
a reasonable fee for its services by the Corporation upon the
Corporation's receipt of such opinion) as to the fairness (or
lack of fairness) of the terms of the proposed Business
Combination from the point of view of the holders of shares of
Voting Stock (other than the Interested Stockholder).
(4) Powers of Continuing Directors. A majority of the Continuing
Directors shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article, including, without limitation, (a)
whether a person is an Interested Stockholder, (B) the number of shares of
Voting Stock of the Corporation beneficially owned by any person, (C)
whether a person is an Affiliate or Associate of another, (D) whether the
requirements of paragraph B of Section (3) have been met with respect any
Business Combination, and (E) whether the assets that are the subject of
any Business Combination have, or the consideration to be received from
the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value
of not less than one percent (1%) of the total assets of the Corporation
as reported in the consolidated balance sheet of the Corporation as of the
end of the most recent quarter with respect to which such balance sheet
has been prepared; and the good faith determination of a majority of the
Continuing Directors on such matters shall be conclusive and binding for
all purposes of this Article.
(5) No Effect on Fiduciary Obligations.
A. Nothing contained in this Article shall be construed to
relieve the members of the Board of Directors or an Interested
Stockholder from any fiduciary obligation imposed by law.
B. The fact that any Business Combination complies with the
provisions of Section (3) of this Article shall not be construed to
impose an fiduciary duty, obligation or responsibility on the Board
of Directors, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the shareholders
of the Corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors, or any
member thereof, with respect to evaluations of or actions and
responses taken with respect to such Business Combination.
ARTICLE 7
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Amended and Restated Articles of
Incorporation in the manner now or hereafter prescribed by law, and all
rights and powers conferred herein on shareholders, directors and officers
are subject to this reserved power; provided that, notwithstanding the
fact that a lesser percentage may be specified by the Wisconsin Business
Corporation Law, the affirmative vote of the holders of record of
outstanding shares representing at least eighty percent (80%) of the
voting power of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of Directors, voting together
as a single class, shall be required to amend, alter, change or repeal, or
adopt any provision or provisions inconsistent with, Section (2) of
Article 4, Article 5 and this Article 7 (except for the second proviso of
this Article 7) of these Amended and Restated Articles of Incorporation
unless such amendment, alteration, change, repeal or adoption of any
inconsistent provision or provisions is declared advisable by the Board of
Directors by resolution adopted by a Requisite Vote; and provided further
that, notwithstanding the fact that a lesser percentage may be specified
by the Wisconsin Business Corporation Law, the affirmative vote of the
holders of record of outstanding shares representing at least eighty
percent (80%) of the voting power of all of the outstanding Voting Stock
of the Corporation, voting together as a single class, shall be required
to amend, alter, change or repeal, or adopt any provision or provisions
inconsistent with, any provision of Article 6 or this proviso of Article
7, unless such amendment, alteration, change, repeal or adoption of any
inconsistent provision or provisions is declared advisable by the Board of
Directors by a Requisite Vote and by a majority of the Continuing
Directors.
ARTICLE 8
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation is 2855 South
James Drive, New Berlin, Wisconsin 53151, and the name of its registered
agent at such address is Mr. John R. Kuhnmuench, Jr.
ARTICLE 9
RECAPITALIZATION
Upon the effectiveness of these Amended and Restated Articles of
Incorporation (the "Effective Time"), the Corporation shall redeem for
cash each then issued and outstanding share of Class D Cumulative
Preferred Stock at a price per share equal to the "Class D Face Value"
plus all accrued and unpaid dividends thereon (whether or not earned or
declared and with such dividends accruing to the date of payment), and
each then issued and outstanding share of Class A Common Stock, Class B
Common Stock, Class C Common Stock and Class B Cumulative Convertible
Preferred Stock of the Corporation, which shall constitute all of the
remaining capital stock of the Corporation then outstanding, shall
simultaneously be reclassified into one share of Common Stock subject to
the following: (a) such reclassification shall have no effect on the
amount of dividends payable with respect to the quarter in which the
Effective Time occurs in respect of any share of Class B Cumulative
Convertible Preferred Stock issued and outstanding immediately prior to
the Effective Time; and (b) the Corporation shall require each holder of
issued and outstanding shares of capital stock of the Corporation prior to
the Effective Time to surrender for cancellation the certificates
representing such shares and receive certificates that the Corporation
shall issue representing the shares of Common Stock into which such shares
have been reclassified as of the Effective Time.
EXHIBIT 3.2
BYLAWS
OF
HK SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. OFFICES
1.01. Principal and Business Offices . . . . . . . . . . . . B-4
1.02. Registered Office . . . . . . . . . . . . . . . . . . B-4
1.03. Corporate Records . . . . . . . . . . . . . . . . . . B-4
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting . . . . . . . . . . . . . . . . . . . . B-4
2.02. Special Meetings . . . . . . . . . . . . . . . . . . . B-5
2.03. Place of Meeting . . . . . . . . . . . . . . . . . . . B-8
2.04. Notice of Meeting . . . . . . . . . . . . . . . . . . B-8
2.05. Fixing of Record Date . . . . . . . . . . . . . . . . B-8
2.06. Shareholder Lists . . . . . . . . . . . . . . . . . . B-9
2.07. Quorum and Voting Requirements; Postponements;
Adjournments . . . . . . . . . . . . . . . . . . . . . B-9
2.08. Meetings Procedure . . . . . . . . . . . . . . . . . . B-10
2.09. Proxies . . . . . . . . . . . . . . . . . . . . . . . B-13
2.10. Voting of Shares . . . . . . . . . . . . . . . . . . . B-13
2.11. Acceptance of Instruments Showing Shareholder Action . B-13
2.12. Inspectors of Election . . . . . . . . . . . . . . . . B-14
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers . . . . . . . . . . . . . . . . . . . . B-15
3.02. Resignation . . . . . . . . . . . . . . . . . . . . . B-15
3.03. Regular Meetings . . . . . . . . . . . . . . . . . . . B-15
3.04. Special Meetings . . . . . . . . . . . . . . . . . . . B-15
3.05. Notice; Waiver . . . . . . . . . . . . . . . . . . . . B-15
3.06. Quorum . . . . . . . . . . . . . . . . . . . . . . . . B-16
3.07. Manner of Acting . . . . . . . . . . . . . . . . . . . B-16
3.08. Conduct of Meetings . . . . . . . . . . . . . . . . . B-16
3.09. Compensation . . . . . . . . . . . . . . . . . . . . . B-17
3.10. Presumption of Assent . . . . . . . . . . . . . . . . B-17
3.11. Committees . . . . . . . . . . . . . . . . . . . . . . B-17
3.12. Telephonic Meetings . . . . . . . . . . . . . . . . . B-18
3.13. Unanimous Consent without Meeting . . . . . . . . . . B-18
ARTICLE IV. OFFICERS
4.01. Number . . . . . . . . . . . . . . . . . . . . . . . . B-18
4.02. Removal and Resignation . . . . . . . . . . . . . . . B-18
4.03. Vacancies . . . . . . . . . . . . . . . . . . . . . . B-19
4.04. Duties . . . . . . . . . . . . . . . . . . . . . . . . B-19
4.05. Chief Executive Officer . . . . . . . . . . . . . . . B-19
4.06. Chairman of the Board, Vice Chairman of the Board and
President . . . . . . . . . . . . . . . . . . . . . . B-19
4.07. Vice Presidents. . . . . . . . . . . . . . . . . . . . B-20
4.08. Chief Financial Officer . . . . . . . . . . . . . . . B-20
4.09. Controller . . . . . . . . . . . . . . . . . . . . . . B-21
4.10. Secretary . . . . . . . . . . . . . . . . . . . . . . B-21
4.11. Treasurer . . . . . . . . . . . . . . . . . . . . . . B-21
4.12. Assistants and Acting Officers . . . . . . . . . . . . B-22
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares . . . . . . . . . . . . . . . B-22
5.02. Uncertificated Shares . . . . . . . . . . . . . . . . B-22
5.03. Facsimile Signatures and Seal . . . . . . . . . . . . B-23
5.04. Signature by Former Officers . . . . . . . . . . . . . B-23
5.05. Transfer of Shares . . . . . . . . . . . . . . . . . . B-23
5.06. Restrictions on Transfer . . . . . . . . . . . . . . . B-23
5.07. Lost, Destroyed or Stolen Certificates . . . . . . . . B-23
5.08. Consideration for Shares . . . . . . . . . . . . . . . B-23
5.09. Stock Regulation . . . . . . . . . . . . . . . . . . . B-24
5.10. No Nominee Procedures . . . . . . . . . . . . . . . . B-24
ARTICLE VI. INDEMNIFICATION
6.01. Certain Definitions . . . . . . . . . . . . . . . . . B-24
6.02. Mandatory Indemnification . . . . . . . . . . . . . . B-25
6.03. Procedural Requirements . . . . . . . . . . . . . . . B-25
6.04. Determination of Indemnification . . . . . . . . . . . B-26
6.05. Mandatory Allowance of Expenses . . . . . . . . . . . B-27
6.06. Indemnification and Allowance of Expenses of Certain
Others . . . . . . . . . . . . . . . . . . . . . . . . B-27
6.07. Insurance . . . . . . . . . . . . . . . . . . . . . . B-28
6.08. Notice to the Corporation . . . . . . . . . . . . . . B-28
6.09. Severability . . . . . . . . . . . . . . . . . . . . . B-28
6.10. Nonexclusivity of Article VI . . . . . . . . . . . . . B-28
6.11. Contractual Nature of Article VI; Repeal or Limitation
of Rights . . . . . . . . . . . . . . . . . . . . . . B-28
ARTICLE VII. MISCELLANEOUS
7.01. Amendments . . . . . . . . . . . . . . . . . . . . . . B-29
7.02. Seal . . . . . . . . . . . . . . . . . . . . . . . . . B-29
7.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . B-29
7.04. Emergency Provisions . . . . . . . . . . . . . . . . . B-29
ARTICLE I. OFFICES
1.01. Principal and Business Offices. The corporation may
have such principal and other business offices, either within or without
the State of Wisconsin, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
1.02. Registered Office. The registered office of the
corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical
with the principal office in the State of Wisconsin, and the address of
the registered office may be changed from time to time by the Board of
Directors. The business office of the registered agent of the corporation
shall be identical to such registered office.
1.03. Corporate Records. The following documents and
records shall be kept at the corporation's principal office or at such
other reasonable location as may be specified by the corporation:
(a) Minutes of shareholders' and Board of Directors'
meetings and any written notices thereof.
(b) Records of actions taken by the shareholders or
directors without a meeting.
(c) Records of actions taken by committees of the Board of
Directors.
(d) Accounting records.
(e) Records of its shareholders.
(f) Current bylaws.
(g) Written waivers of notice by shareholders or directors
(if any).
(h) Written consents by shareholders or directors for
actions without a meeting (if any).
(i) Voting trust agreements (if any).
(j) Stock transfer agreements to which the corporation is
a party or of which it has notice (if any).
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the
shareholders of the corporation (the "Annual Meeting") shall be held on
the first Friday in the month of March of each year, at 10:00 a.m. (local
time), or at such other time and date as may be fixed by or under the
authority of the Board of Directors, for the purpose of electing directors
and for the transaction of such other business as may properly come before
the Annual Meeting in accordance with Section 2.08 of these bylaws. If
the day fixed for the Annual Meeting shall be a legal holiday in the State
of Wisconsin, such meeting shall be held on the next succeeding business
day. If the election of directors shall not be held on the day designated
herein, or fixed as herein provided, for any Annual Meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders (a "Special Meeting") as
soon thereafter as conveniently may be. In fixing a meeting date for any
Annual Meeting, the Board of Directors may consider such factors as it
deems relevant within the good faith exercise of its business judgment.
2.02. Special Meetings.
(a) 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, in
accordance with this Section 2.02, 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.
(b) In order that the corporation may determine the
shareholders entitled to demand a Special Meeting, the Board of Directors
may fix a record date to determine the shareholders entitled to make such
a demand (the "Demand Record Date"). The Demand Record Date shall not
precede the date upon which the resolution fixing the Demand Record Date
is adopted by the Board of Directors and shall not be more than 10 days
after the date upon which the resolution fixing the Demand Record Date is
adopted by the Board of Directors. Any shareholder of record seeking to
have shareholders demand a Special Meeting shall, by sending written
notice to the Secretary of the corporation by hand or by certified or
registered mail, return receipt requested, request the Board of Directors
to fix a Demand Record Date. The Board of Directors shall promptly, but
in all events within 10 days after the date on which a valid request to
fix a Demand Record Date is received, adopt a resolution fixing the Demand
Record Date and shall make a public announcement of such Demand Record
Date. If no Demand Record Date has been fixed by the Board of Directors
within 10 days after the date on which such request is received by the
Secretary, the Demand Record Date shall be the 10th day after the first
day on which a valid written request to set a Demand Record Date is
received by the Secretary. To be valid, such written request shall set
forth the purpose or purposes for which the Special Meeting is to be held,
shall be signed by one or more shareholders of record (or their duly
authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative) and
shall set forth all information about each such shareholder and about the
beneficial owner or owners, if any, on whose behalf the request is made
that would be required to be set forth in a shareholder's notice described
in Section 2.08(b) of these bylaws.
(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date 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 must be delivered to the corporation.
To be valid, each written demand by a shareholder for a Special Meeting
shall set forth the specific purpose or purposes for which the Special
Meeting is to be held (which purpose or purposes shall be limited to the
purpose or purposes set forth in the written request to set a Demand
Record Date received by the corporation pursuant to paragraph (b) of this
Section 2.02, shall be signed by one or more persons who as of the Demand
Record Date are shareholders of record (or their duly authorized proxies
or other representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative), and shall set forth the
name and address, as they appear in the corporation's books, of each
shareholder signing such demand and the class or series and number of
shares of the corporation which are owned of record and beneficially by
each such shareholder, shall be sent to the Secretary by hand or by
certified or registered mail, return receipt requested, and shall be
received by the Secretary within 70 days after the Demand Record Date.
(d) The corporation shall not be required to call a Special
Meeting upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 2.02, the Secretary receives a
written agreement signed by each Soliciting Shareholder (as defined
herein) pursuant to which each Soliciting Shareholder, jointly and
severally, agrees to pay the corporation's costs of holding the Special
Meeting, including the costs of preparing and mailing proxy materials for
the corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is
adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as director at such meeting is
elected, then the Soliciting Shareholders shall not be required to pay
such costs. For purposes of this paragraph (d), the following terms shall
have the meanings set forth below:
(i) "Affiliate" of any Person shall mean any Person
controlling, controlled by or under common control with such
first Person.
(ii) "Participant" shall have the meaning assigned to
such term in Rule 14a-11 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term
in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to
such term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to
any Special Meeting demanded by a shareholder or shareholders,
any of the following Persons:
(A) if the number of shareholders signing
the demand or demands for a meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.02 is 10 or fewer,
each shareholder signing any such demand;
(B) if the number of shareholders signing
the demand or demands for a meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.02 is more than 10,
each Person who either (I) was a Participant in any Solicitation
of such demand or demands or (II) at the time of the delivery to
the corporation of the documents described in paragraph (c) of
this Section 2.02, had engaged or intended to engage in any
Solicitation of Proxies for use at such Special Meeting (other
than a Solicitation of Proxies on behalf of the corporation); or
(C) any Affiliate of a Soliciting
Shareholder, if a majority of the directors then in office
determine, reasonably and in good faith, that such Affiliate
should be required to sign the written notice described in
paragraph (c) of this Section 2.02 and/or the written agreement
described in this paragraph (d) in order to prevent the purposes
of this Section 2.02 from being evaded.
(e) Except as provided in the following sentence, any Special
Meeting shall be held at such hour and day as may be designated by
whichever of the Chairman of the Board, the President or the Board of
Directors shall have called such meeting. In the case of any Special
Meeting called by the Chairman of the Board or the President upon the
demand of shareholders (a "Demand Special Meeting"), such meeting shall be
held at such hour and day as may be designated by the Board of Directors;
provided, however, that the date of any Demand Special Meeting shall be
not more than 70 days after the Meeting Record Date (as defined in Section
2.05 of these bylaws); and provided further that in the event that the
directors then in office fail to designate an hour and date for a Demand
Special Meeting within 10 days after the date that valid written demands
for such meeting by the holders of record as of the Demand Record Date 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 are delivered
to the corporation (the "Delivery Date"), then such meeting shall be held
at 2:00 p.m. (local time) on the 100th day after the Delivery Date or, if
such 100th day is not a Business Day (as defined below), on the first
preceding Business Day. In fixing a meeting date for any Special Meeting,
the Chairman of the Board, the President or the Board of Directors may
consider such factors as he or it deems relevant within the good faith
exercise of his or its business judgment, including, without limitation,
the nature of the action proposed to be taken, the facts and circumstances
surrounding any demand for such meeting, and any plan of the Board of
Directors to call an Annual Meeting or a Special Meeting for the conduct
of related business.
(f) The corporation may engage nationally or regionally
recognized independent inspectors of elections to act as an agent of the
corporation for the purpose of promptly performing a ministerial review of
the validity of any purported written demand or demands for a Special
Meeting received by the Secretary. For the purpose of permitting the
inspectors to perform such review, no purported demand shall be deemed to
have been delivered to the corporation until the earlier of (i) 5 Business
Days following receipt by the Secretary of such purported demand and (ii)
such date as the independent inspectors certify to the corporation that
the valid demands received by the Secretary represent at least 10% of all
the votes entitled to be cast on each issue proposed to be considered at
the Special Meeting. Nothing contained in this paragraph shall in any way
be construed to suggest or imply that the Board of Directors or any
shareholder shall not be entitled to contest the validity of any demand,
whether during or after such 5 Business Day period, or to take any other
action (including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto).
(g) For purposes of these bylaws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated by law
or executive order to close.
2.03. Place of Meeting. The Board of Directors, the Chairman
of the Board or the President may designate any place, either within or
without the State of Wisconsin, as the place of meeting for any Annual
Meeting or for any Special Meeting, or for any postponement thereof. If
no designation is made, the place of meeting shall be the principal
business office of the corporation in the State of Wisconsin. Any meeting
may be adjourned to reconvene at any place designated by vote of the Board
of Directors or by the Chairman of the Board or the President.
2.04. Notice of Meeting. Written notice stating the place, day
and hour of any Annual Meeting or Special Meeting shall be delivered not
less than 10 (unless a longer period is required by the Wisconsin Business
Corporation Law) nor more than 70 days before the date of such meeting,
either personally or by mail, by or at the direction of the Secretary, to
each shareholder of record entitled to vote at such meeting and to other
shareholders as may be required by the Wisconsin Business Corporation Law.
In the event of any Demand Special Meeting, such notice of meeting shall
be sent not more than 30 days after the Delivery Date. If mailed, notice
pursuant to this Section 2.04 shall be deemed to be effective when
deposited in the United States mail, addressed to each shareholder at his
or her address as it appears on the stock record books of the corporation,
with postage thereon prepaid. Unless otherwise required by the Wisconsin
Business Corporation Law, a notice of an Annual Meeting need not include a
description of the purpose for which the meeting is called. In the case
of any Special Meeting, (a) the notice of meeting shall describe any
business that the Board of Directors shall have theretofore determined to
bring before the meeting and (b) in the case of a Demand Special Meeting,
the notice of meeting (i) shall describe any business set forth in the
statement of purpose of the demands received by the corporation in
accordance with Section 2.02 of these bylaws and (ii) shall contain all of
the information required in the notice received by the corporation in
accordance with Section 2.08(c) of these bylaws. If an Annual Meeting or
Special Meeting is adjourned to a different date, time or place, the
corporation shall not be required to give notice of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment; provided, however, that if a new Meeting Record Date for an
adjourned meeting is or must be fixed, then the corporation shall give
notice of the adjourned meeting to persons who are shareholders as of the
new Meeting Record Date.
2.05. Fixing of Record Date. The Board of Directors may fix in
advance a date not less than 10 days and not more than 70 days prior to
the date of any Annual Meeting or Special Meeting as the record date for
the determination of shareholders entitled to notice of, or to vote at,
such meeting (the "Meeting Record Date"). In the case of any Demand
Special Meeting, (i) the Meeting Record Date shall be not later than the
30th day after the Delivery Date and (ii) if the Board of Directors fails
to fix the Meeting Record Date within 30 days after the Delivery Date,
then the close of business on such 30th day shall be the Meeting Record
Date. The shareholders of record on the Meeting Record Date shall be the
shareholders entitled to notice of and to vote at the meeting. Except as
provided by the Wisconsin Business Corporation Law for a court-ordered
adjournment, a determination of shareholders entitled to notice of and to
vote at any Annual Meeting or Special Meeting is effective for any
adjournment of such meeting unless the Board of Directors fixes a new
Meeting Record Date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
The Board of Directors may also fix in advance a date as the record date
for the purpose of determining shareholders entitled to take any other
action or determining shareholders for any other purpose. Such record
date shall be not more than 70 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. The record date for determining shareholders entitled to a
distribution (other than a distribution involving a purchase, redemption
or other acquisition of the corporation's shares) or a share dividend is
the date on which the Board of Directors authorizes the distribution or
share dividend, as the case may be, unless the Board of Directors fixes a
different record date.
2.06. Shareholder Lists. After a Meeting Record Date has been
fixed, the corporation shall prepare a list of the names of all of the
shareholders entitled to notice of the meeting. The list shall be
arranged by class or series of shares, if any, and show the address of and
number of shares held by each shareholder. Such list shall be available
for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and
continuing to the date of the meeting, at the corporation's principal
office or at a place identified in the meeting notice in the city where
the meeting will be held. A shareholder or his or her agent may, on
written demand, inspect and, subject to the limitations imposed by the
Wisconsin Business Corporation Law, copy the list, during regular business
hours and at his or her expense, during the period that it is available
for inspection pursuant to this Section 2.06. The corporation shall make
the shareholders' list available at the meeting, and any shareholder or
his or her agent or attorney may inspect the list at any time during the
meeting or any adjournment thereof. Refusal or failure to prepare or make
available the shareholders' list shall not affect the validity of any
action taken at a meeting of shareholders.
2.07. Quorum and Voting Requirements; Postponements;
Adjournments.
(a) Shares entitled to vote as a separate voting group may
take action on a matter at any Annual Meeting or Special Meeting only if a
quorum of those shares exists with respect to that matter. If the
corporation has only one class of stock outstanding, then such class shall
constitute a separate voting group for purposes of this Section 2.07.
Except as otherwise provided in the Amended and Restated Articles of
Incorporation, any bylaw adopted under authority granted in the Amended
and Restated Articles of Incorporation or the Wisconsin Business
Corporation Law, a majority of the votes entitled to be cast on the matter
shall constitute a quorum of the voting group for action on that matter.
Once a share is represented for any purpose at any Annual Meeting or
Special Meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present
for purposes of determining whether a quorum exists for the remainder of
the meeting and for any adjournment of that meeting unless a new Meeting
Record Date is or must be set for the adjourned meeting. If a quorum
exists, except in the case of the election of directors, action on a
matter shall be approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the
Amended and Restated Articles of Incorporation, any bylaw adopted under
authority granted in the Amended and Restated Articles of Incorporation or
the Wisconsin Business Corporation Law requires a greater number of
affirmative votes. Directors shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election of directors at any
Annual Meeting or Special Meeting at which a quorum is present. For
purposes of this Section 2.07(a), "plurality" means that the individuals
with the largest number of votes are elected as directors up to the
maximum number of directors to be chosen at the Annual Meeting or Special
Meeting.
(b) The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled Annual Meeting or Special Meeting;
provided, however, that a Demand Special Meeting shall not be postponed
beyond the 100th day following the Delivery Date. Any Annual Meeting or
Special Meeting may be adjourned from time to time, whether or not there
is a quorum, (i) at any time, upon a resolution of shareholders if the
votes cast in favor of such resolution by the holders of shares of each
voting group entitled to vote on any matter theretofore properly brought
before the meeting exceed the number of votes cast against such resolution
by the holders of shares of each such voting group or (ii) at any time
prior to the transaction of any business at such meeting, by the chairman
of the meeting identified in Section 2.08 of these bylaws or pursuant to
resolution of the Board of Directors. No notice of the time and place of
adjourned meetings need be given except as required by the Wisconsin
Business Corporation Law. At any adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
2.08. Meetings Procedure.
(a) The Chairman of the Board, and in his absence the
President, shall call any Annual Meeting or Special Meeting to order and
shall act as chairman and presiding officer of such meeting. In the
absence of the Chairman of the Board and the President, such duties shall
be performed by a Vice-President in the order provided under Section 4.07,
or in their absence, by any person chosen by the shareholders present.
The Secretary of the corporation shall act as secretary of all Annual
Meetings and Special Meetings, but, in the absence of the Secretary, the
presiding officer may appoint any other person to act as secretary of the
meeting. The Board of Directors may, to the extent not prohibited by law,
adopt by resolution such rules and regulations for the conduct of any
meeting of shareholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the
Board of Directors, the chairman of any meeting of shareholders shall have
the right and authority to prescribe such rules, regulations or procedures
and to do all acts as, in the judgment of the chairman, are appropriate
for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may to the extent not prohibited by law include,
without limitation, the following: (i) the establishment of an agenda or
order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
shareholders of record of the corporation, their duly authorized and
constituted proxies (which shall be reasonable in number) or such other
persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof;
and (v) limitations on the time allotted to questions or comments by
participants.
(b) At an Annual Meeting, only such business shall be
conducted, and only nominations for the election of directors shall be
made, as shall have been properly brought before the meeting in accordance
with these bylaws. To be properly brought before an Annual Meeting,
business or nominations must (i) be specified in the notice of the meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors; (ii) otherwise properly be brought before the meeting by or at
the direction of the Board of Directors; or (iii) otherwise (A) properly
be requested to be brought before the meeting by a shareholder of record
entitled to vote in the election of directors generally and (B) constitute
a proper subject to be brought before such meeting. For nominations or
other business to be properly requested to be brought before an Annual
Meeting by a shareholder of record, any shareholder who intends to bring
any matter before an Annual Meeting and is entitled to vote on such matter
must deliver written notice of such shareholder's intent to bring the
matter before the Annual Meeting, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the corporation. Such
notice must be received by the Secretary not less than 75 nor more than
100 days prior to (x) March 5, 1999, in the case of the Annual Meeting
scheduled to be held on March 5, 1999, or (y) the first anniversary of the
immediately preceding Annual Meeting in the case of any other Annual
Meeting; provided, however, that in the event that the date for which the
Annual Meeting is called is advanced by more than 30 days or delayed by
more than 60 days from the date specified in clause (x) or (y), as the
case may be, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 100th day prior to the date
of such Annual Meeting and not later than the close of business on the
later of the 75th day prior to the date of such annual meeting or the 10th
day following the day on which public announcement of the date of such
meeting is first made. In no event shall the announcement of an
adjournment of an annual meeting of shareholders commence a new time
period for the giving of a shareholder notice as described above. For
purposes of this Section 2.08, "public announcement" shall mean the date
disclosure of the date of the meeting of shareholders is first made in a
press release reported by the Dow Jones New Service, Associated Press or
comparable national news service, or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Exchange Act.
A shareholder's notice to the Secretary required by this Section
2.08(b) shall set forth as to each matter the shareholder proposes to
bring before the Annual Meeting: (i) in the case of any proposed
nomination for election or re-election as a director, (A) the name, age,
business and residence addresses, and principal occupation or employment
of each nominee; (B) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (C) such other information
regarding each nominee proposed by such shareholder as would be required
to be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission; and (D) the written consent of
each nominee to serve as a director of the corporation if so elected;
(ii) in the case of any other business that such shareholder proposes to
bring before the Annual Meeting, (A) a brief description of the business
to be brought before the meeting and the reasons for conducting such
business at the meeting and (B) any material interest of the shareholder
in such business; (iii) the name and address of the shareholder intending
to propose such business; (iv) the number of shares of stock of the
corporation beneficially held, either personally or in concert with
others, by the shareholder; and (v) a representation that the shareholder
is a holder of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to make such
nomination or present such proposal. The corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. No business shall be
conducted at an Annual Meeting except in accordance with the procedures
set forth in this Section 2.08(b). The chairman of the Annual Meeting
shall, if the facts warrant, determine and declare to the Annual Meeting
that a nomination was not made or business was not properly brought before
the meeting in accordance with the provisions hereof and, if he should so
determine, he shall so declare to the Annual Meeting that any such
nomination shall be disregarded and/or any such business not properly
brought before the Annual Meeting shall not be transacted.
Notwithstanding anything in the fourth sentence of this Section
2.08(b) to the contrary, in the event that the number of directors to be
elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least
85 days prior to the date specified in clause (x) or (y), as the case may
be, of such sentence, a shareholder's notice required by this Section
2.08(b) with respect to any nomination of a person for election to the
Board of Directors shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
received by the Secretary of the corporation not later than the close of
business on the 10th day following the day on which such public
announcement is first made by the corporation.
(c) At a Special Meeting, only such business shall be
conducted, and only nominations for the election of directors shall be
made, as shall have been described in the notice of meeting sent to
shareholders pursuant to Section 2.04 of these bylaws. Nominations of
persons for election to the Board of Directors may be made at a Special
Meeting at which directors are to be elected pursuant to such notice of
meeting (i) by or at the direction of the Board of Directors or (ii) by
any shareholder of the corporation who (A) is a shareholder of record, (B)
is entitled to vote in the election of directors at the meeting and (C)
complies with the notice procedures set forth in this Section 2.08(c).
Any shareholder desiring to nominate persons for election to the Board of
Directors at such a Special Meeting must deliver written notice of such
shareholder's proposed nomination, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the corporation.
Such notice must be received by the Secretary not more than 90 days prior
to such Special Meeting and not later than the close of business on the
later of (x) the 60th day prior to such Special Meeting or (y) the 10th
day following the day on which public announcement is first made of the
date of such Special Meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
A shareholder's notice to the Secretary required by this Section
2.08(c) shall set forth (i) the name, age, business and residence
addresses, and principal occupation or employment of each nominee; (ii) a
description of all arrangements or understandings between the shareholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (iii) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; (iv) the written consent of each nominee to serve as
a director of the corporation if so elected; (v) the name and address of
the shareholder intending to propose such business; (vi) the number of
shares of stock of the corporation beneficially held, either personally or
in concert with others, by the shareholder; and (vii) a representation
that the shareholder is a holder of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to make such nomination. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by
the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation. No business shall be conducted at
a Special Meeting except in accordance with the procedures set forth in
this Section 2.08(c). The chairman of the Special Meeting shall, if the
facts warrant, determine and declare to the Special Meeting that a
nomination was not made or business was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so
determine, he shall so declare to the Special Meeting that any such
nomination shall be disregarded and/or any such business not properly
brought before the Special Meeting shall not be transacted.
(d) Notwithstanding the foregoing provisions of this Section
2.08, a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 2.08.
2.09. Proxies. At any Annual Meeting or Special Meeting, a
shareholder entitled to vote may vote in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for the
shareholder by signing an appointment form, either personally or by his or
her attorney-in-fact. Except as otherwise provided by the Wisconsin
Business Corporation Law, a shareholder may also authorize another person
or persons to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram, cablegram or
other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the
telegram, cablegram or other transmission was authorized by the
shareholder. Any proxy shall be filed with the Secretary of the
corporation or other person authorized to tabulate votes before or at the
time of the meeting and shall be effective when received by the Secretary
or other person authorized to tabulate votes. No proxy shall be valid
after 11 months from the date of its execution unless otherwise provided
in the proxy. Unless otherwise provided in the appointment form, a proxy
appointment may be revoked at any time before it is voted by written
notice filed with the Secretary or other officer or agent of the
corporation authorized to tabulate votes. The presence of a shareholder
who has filed his proxy appointment shall not of itself constitute a
revocation. The Board of Directors and the chairman of any meeting of
shareholders shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiency of proxies.
2.10. Voting of Shares. Each outstanding share shall be
entitled to one vote upon each matter submitted to a vote at any Annual
Meeting or Special Meeting except to the extent that the voting rights of
the shares of any class or classes are enlarged, limited or denied by the
Amended and Restated Articles of Incorporation or the Wisconsin Business
Corporation Law. No vote upon any matter, except the election of
directors or the amendment of the Amended and Restated Articles of
Incorporation, is required to be by ballot unless demanded by the holders
of at least 10% of the voting power of the shares of capital stock
represented and entitled to vote at the meeting. All motions to introduce
a matter for a vote by shareholders at a meeting thereof, except for
nominations for election as directors approved by the Board of Directors,
shall be seconded prior to a vote thereon by shareholders.
2.11. Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of a shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a
shareholder, the corporation, if acting in good faith, may accept the
vote, consent, waiver or proxy appointment and give it effect as the act
of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.
(b) The name purports to be that of a personal
representative, administrator, executor, guardian or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation is presented with respect
to the vote, consent, waiver or proxy appointment.
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation is presented with
respect to the vote, consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver or proxy appointment if
the Secretary or other officer or agent of the corporation who is
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder. The corporation and
its officer or agent who accepts or rejects a vote, consent, waiver or
proxy appointment in good faith and in accordance with the standards of
this section are not liable in damages to the shareholder for the
consequences of the acceptance or rejection. Corporate action based on
the acceptance or rejection of a vote, consent, waiver, or proxy
appointment under this section is valid unless a court of competent
jurisdiction determines otherwise.
2.12. Inspectors of Election. The Chief Executive Officer may,
in advance of any meeting of shareholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. He may designate
one or more persons as alternate inspectors to replace any inspector who
fails to act. If no such inspector or alternate is able to act at a
meeting of shareholders, the chairman of the meeting shall appoint one or
more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath, in a form
satisfactory to the chairman of the meeting, faithfully to execute the
duties of inspector with strict impartiality and according to the best of
his ability.
The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the number of
shares represented at a meeting and the validity of proxies and ballots,
(iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to
any determination by the inspectors, and (v) certify their determination
of the number of shares represented at the meeting, and their count of all
votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors. The inspectors shall determine the validity of and count the
proxies and ballots in accordance with applicable law.
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, its Board of
Directors.
3.02. Resignation. A director may resign at any time by
delivering written notice which complies with the Wisconsin Business
Corporation Law to the Chairman of the Board or to the corporation. A
director's resignation is effective when the notice is delivered unless
the notice specifies a later effective date.
3.03. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately
after the Annual Meeting, and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the Annual
Meeting which precedes it, or such other suitable place as may be
announced at such Annual Meeting. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of
Wisconsin, for the holding of additional regular meetings without other
notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board,
the President or any two directors then in office. The Chairman of the
Board or the President may fix any place, either within or without the
State of Wisconsin, as the place for holding any special meeting of the
Board of Directors, and if no other place is fixed the place of meeting
shall be the principal business office of the corporation in the State of
Wisconsin.
3.05. Notice; Waiver. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 3.03) shall
be given by written notice delivered or communicated in person, by
telegram, facsimile or other form of wire or wireless communication, or by
mail or private carrier, to each director at his business address or at
such other address as such director shall have designated in writing filed
with the Secretary, in each case (i) if sent by mail, not less than three
days prior to the time of the meeting, (ii) if sent by means that
guarantee delivery to the address by a stated date and time, such that the
notice would be received not less than one day prior to the time of the
meeting or (iii) if sent by means where the notice is delivered to the
address on the date it is sent, not less than one day prior to the time of
the meeting, but during an emergency, as defined in Section 3.06, notice
may be given only to such of the directors as it may be feasible to reach
at the time and by such means as may be feasible at the time, including
publications or private or public electronic means. If mailed, such
notice shall be deemed to be effective when deposited in the United States
mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be effective when the telegram is
delivered to the telegraph company. If notice is given by private
carrier, such notice shall be deemed to be effective when the notice is
delivered to the private carrier. Whenever any notice whatever is
required to be given to any director of the corporation under the Amended
and Restated Articles of Incorporation or these bylaws or any provision of
the Wisconsin Business Corporation Law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the
director entitled to such notice, shall be deemed equivalent to the giving
of such notice. The corporation shall retain any such waiver as part of
the permanent corporate records. A director's attendance at or
participation in a meeting waives any required notice to him of the
meeting unless the director at the beginning of the meeting or promptly
upon his arrival objects to holding the meeting or transacting business at
the meeting and does not thereafter vote for or assent to action taken at
the meeting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
3.06. Quorum. Except during the existence of an emergency and
except as otherwise provided in these bylaws or in the Amended and
Restated Articles of Incorporation, one-half of the total number of
directors, as fixed pursuant to Section (2) of Article 5 of the Amended
and Restated Articles of Incorporation, shall constitute a quorum for the
transaction of business. During the existence of an emergency, two
directors shall constitute a quorum for the transaction of business. To
the extent required to constitute a quorum at any meeting of the Board of
Directors during an emergency, the officers of the corporation who are
present shall be deemed, in order of rank and within the same rank in
order of seniority, directors for such meeting. Subject to the provisions
of the Amended and Restated Articles of Incorporation, the action of the
majority of directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. In the event of lack of a
quorum, a majority of the directors present may adjourn the meeting from
time to time without notice other than announcement at the meeting until a
quorum shall be obtained. At any such adjourned meeting at which there is
a quorum, any business may be transacted which might have been transacted
at the meeting originally called.
An "emergency" for the purpose of these bylaws shall mean a
catastrophic event that prevents a quorum of the corporation's directors
from being readily assembled.
3.07. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is
required by the Wisconsin Business Corporation Law or by the Amended and
Restated Articles of Incorporation or these bylaws.
3.08. Conduct of Meetings. The Chairman of the Board, and in
his absence, the President, or a Vice-President in the order provided
under Section 4.07, and in their absence, any director chosen by the
directors present, shall call meetings of the Board of Directors to order
and shall act as chairman of the meeting. The Secretary of the
corporation shall act as secretary of all meetings of the Board of
Directors, but in the absence of the Secretary, the presiding officer may
appoint any Assistant Secretary or any director or other person present to
act as secretary of the meeting. Minutes of any regular or special
meeting of the Board of Directors shall be prepared and distributed to
each director.
3.09. Compensation. The Board of Directors, irrespective of
any personal interest of any of its members, may establish reasonable
compensation of all directors for services to the corporation as
directors, officers or otherwise, or may delegate such authority to an
appropriate committee. The Board of Directors also shall have authority
to provide for or to delegate authority to an appropriate committee to
provide for reasonable pensions, disability or death benefits, and other
benefits or payments, to directors and executive officers of the
corporation. The Board of Directors shall provide for reimbursing the
directors for expenses incurred in attending meetings of the Board of
Directors or committees thereof. Any director may also serve the
corporation in any other capacity and receive compensation, including fees
and expenses, for such service.
3.10. Presumption of Assent. A director of the corporation who
is present at a meeting of the Board of Directors or a committee thereof
of which he is a member at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless any of the
following occurs: (a) the director objects at the beginning of the
meeting or promptly upon his arrival to holding the meeting or transacting
business at the meeting; (b) the director dissents or abstains from an
action taken and minutes of the meeting are prepared that show the
director's dissent or abstention from the action taken; (c) the director
delivers written notice that complies with the Wisconsin Business
Corporation Law of his dissent or abstention to the presiding officer of
the meeting before its adjournment or to the corporation immediately after
adjournment of the meeting; or (d) the director dissents or abstains from
an action taken, minutes of the meeting are prepared that fail to show the
director's dissent or abstention from the action taken, and the director
delivers to the corporation a written notice of that failure that complies
with the Wisconsin Business Corporation Law promptly after receiving the
minutes. Such right to dissent or abstain shall not apply to a director
who voted in favor of such action.
3.11. Committees. The Board of Directors may create one or
more committees, appoint members of the Board of Directors to serve on the
committees and designate other members of the Board of Directors to serve
as alternates. Each committee shall have two or more members who shall,
unless otherwise provided by the Board of Directors, serve at the pleasure
of the Board of Directors. A committee may be authorized to exercise the
authority of the Board of Directors, except that a committee may not do
any of the following: (a) authorize distributions; (b) approve or propose
to shareholders action that the Wisconsin Business Corporation Law
requires to be approved by shareholders; (c) fill vacancies on the Board
of Directors or, unless the Board of Directors provides by resolution that
vacancies on a committee shall be filled by the affirmative vote of the
remaining committee members, on any Board of Directors committee; (d)
amend the corporation's Amended and Restated Articles of Incorporation;
(e) adopt, amend or repeal bylaws; (f) approve a plan of merger not
requiring shareholder approval; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; and (h) authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that
the Board of Directors may authorize a committee to do so within limits
prescribed by the Board of Directors. Each committee shall fix its own
rules of procedure and shall meet where and as provided by such rules, but
the presence of a majority shall be necessary to constitute a quorum,
unless otherwise provided by these bylaws. The Secretary of the
corporation or a member of the appropriate committee shall keep minutes of
proceedings. Each committee shall make such reports to the Board of
Directors of its activities as the Board of Directors may request. Unless
otherwise provided by the Board of Directors in creating the committee, a
committee may employ counsel, accountants and other consultants to assist
it in the exercise of its authority.
3.12. Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
bylaws, members of the Board of Directors (and any committee thereof) may
participate in regular or special meetings by, or through the use of, any
means of communication by which all participants may simultaneously hear
each other, such as by conference telephone. If a meeting is conducted by
such means, then at the commencement of such meeting the presiding officer
shall inform the participating directors that a meeting is taking place at
which official business may be transacted. Any participant in a meeting by
such means shall be deemed present in person at such meeting.
Notwithstanding the foregoing, no action may be taken at any meeting held
by such means on any particular matter which the presiding officer
determines, in his sole discretion, to be inappropriate under the
circumstances for action at a meeting held by such means. Such
determination shall be made and announced in advance of such meeting.
3.13. Unanimous Consent without Meeting. Any action required
or permitted by the Amended and Restated Articles of Incorporation or
these bylaws or any provision of the Wisconsin Business Corporation Law to
be taken by the Board of Directors (or a committee thereof) at a meeting
may be taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by all members of the Board of Directors
or of the committee, as the case may be, then in office. Such action
shall be effective when the last director or committee member signs the
consent, unless the consent specifies a different effective date.
ARTICLE IV. OFFICERS
4.01. Number. Each year at the annual meeting of the Board of
Directors the directors shall elect a Chairman of the Board, a Chief
Executive Officer and a Chief Financial Officer. From time to time the
Board of Directors may also elect or appoint a Vice Chairman of the Board,
a President, such Executive, Senior or other Vice Presidents as it may
deem appropriate, a Treasurer, and such other officers, including a
Controller, Assistant Vice Presidents, Assistant Secretaries, Assistant
Treasurers and Assistant Controllers, as it may deem appropriate. The
Chief Executive Officer may appoint any officers of the corporation not
required under the first sentence of this Section 4.01 to be elected by
the Board of Directors, as he may deem appropriate. The Chairman of the
Board, the Chief Executive Officer and any Vice Chairman of the Board must
be directors; no other officer need be a director. Any number of offices
may be held by the same person. The term of each officer, whenever
elected or appointed, shall be until the election or appointment (as the
case may be) and qualification of his successor or until his earlier
resignation or removal.
4.02. Removal and Resignation. The Board of Directors may
remove any officer and, unless restricted by the Board of Directors or
these bylaws, an officer may remove any officer or assistant officer
appointed by that officer, at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed.
Election or appointment shall not of itself create contract rights. An
officer may resign at any time by delivering notice to the corporation
that complies with the Wisconsin Business Corporation Law. The
resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date and the corporation accepts the
later effective date.
4.03. Vacancies. A vacancy in any office may be filled by the
Board of Directors, and a vacancy in any appointed office may be filled by
the Chief Executive Officer, for the unexpired portion of the term.
4.04. Duties. The officers shall have such powers and perform
such duties as are prescribed in these bylaws or, in the case of an
officer whose powers and duties are not so prescribed, as may be assigned
by the Board of Directors or delegated by or through the Chief Executive
Officer.
4.05. Chief Executive Officer. The Chief Executive Officer of
the corporation shall be elected by the Board of Directors. Subject to
the Board of Directors, he shall be in general and active charge, control
and supervision over the management and direction of the business,
property and affairs of the corporation. He shall keep the Board of
Directors informed, and shall freely consult it, concerning the business
of the corporation in his charge.
He shall, subject to these bylaws, have authority to:
(a) appoint or approve the appointment of employees to
various posts and positions in the corporation bearing titles designated
or approved by him and to prescribe their authority and duties, which may
include the authority to appoint subordinates to various other posts and
positions; and
(b) remove or approve the removal of employees so appointed;
and
(c) sign, execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, notes, debentures, stock
certificates, contracts, including contracts of guaranty and suretyship,
leases, reports and other documents and instruments, except where the
signing or execution thereof by some other officer or employee of the
corporation shall be expressly authorized and directed by law, or by the
Board of Directors, or by these bylaws. Unless otherwise provided by law,
or by these bylaws, or by the Board of Directors, he may authorize, in a
writing filed with the Secretary, any officer, employee, or agent of the
corporation to sign, execute and acknowledge, on behalf of the corporation
and in his place and stead, any or all such documents and instruments.
He shall have such other authority and perform such other duties
as are incident to the office of Chief Executive Officer and as may be
prescribed from time to time by the Board of Directors and these bylaws.
In the absence or disability of the Chief Executive Officer, or
in case of an unfilled vacancy in that office, until such time as the
Board of Directors shall elect his successor, his duties shall be
performed and his powers shall be exercised by other elected officers of
the corporation who are also directors (unless none are directors) in the
order in which such officers were listed in their respective elections.
4.06. Chairman of the Board, Vice Chairman of the Board and
President. The Chairman of the Board, any Vice Chairman of the Board and
the President, each acting alone, shall have authority to sign, execute
and acknowledge, on behalf of the corporation, all deeds, mortgages,
bonds, notes, debentures, stock certificates, contracts, including
contracts of guaranty and suretyship, leases, reports and other documents
and instruments, except where the signing or execution thereof by some
other officer or employee shall be expressly authorized and directed by
law, or by the Board of Directors, or by the Chief Executive Officer or by
these bylaws. Each shall have such additional powers and perform such
additional duties as may be assigned to him by the Board of Directors or
as may be delegated to him by the Chief Executive Officer.
4.07. Vice Presidents. Each Vice President shall have such
powers and perform such duties as may be assigned to him by the Board of
Directors or as may be delegated to him by the Chief Executive Officer.
Each Vice President shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds,
notes, debentures, contracts, including contracts of guaranty and
suretyship, leases, reports and other documents and instruments, except
where the signing or execution thereof by some other officer or employee
shall be expressly authorized and directed by law, the Board of Directors,
the Chief Executive Officer or these bylaws.
4.08. Chief Financial Officer. The Chief Financial Officer
shall:
(a) be the principal financial officer of the corporation and
have responsibility for all financial affairs of the corporation; and
(b) protect the cash, securities, receivables and other
financial resources of the corporation, have responsibility for
investment, receipt, custody and disbursement of such resources, and
establish policies for granting credit to customers; and
(c) maintain the creditworthiness of the corporation; and
(d) negotiate and procure capital required by the
corporation, including long-term debt and equity, maintain adequate
sources for the corporation's short-term financing requirements and
maintain banking relationships; and
(e) administer the accounting policies of the corporation and
the internal controls with respect to its financial affairs; and
(f) supervise the corporation's books of account, and have
access to all records, including the Secretary's records; and
(g) in general, have such other powers and perform such other
duties as may be assigned from time to time by the Board of Directors or
by or through the Chief Executive Officer.
In the absence of the election or appointment of a Treasurer and/or a
Controller, the Chief Financial Officer shall have the powers and duties
of the Treasurer and/or the Controller, as the case may be, unless
otherwise provided by the Board of Directors or the Chief Executive
Officer.
4.09. Controller. The Controller shall:
(a) be the principal accounting officer of the corporation;
and
(b) have custody and charge of the corporation's books of
account, and have access to all records, including the Secretary's and the
Treasurer's records, for purpose of obtaining information necessary to
verify or complete the records of the Controller's office; and
(c) implement the policies for granting credit to customers;
and
(d) implement the internal controls with respect to the
financial affairs of the corporation; and
(e) have the responsibility for processing vouchers for
payment by the Treasurer; and
(f) in general, have such other powers and perform such other
duties as may be assigned from time to time by the Board of Directors or
by or through the Chief Executive Officer.
4.10. Secretary. The Secretary shall:
(a) attend and keep the minutes of all meetings of the
shareholders, the Board of Directors and such committees as the Board of
Directors may direct; and
(b) have custody of the corporate seal and all corporate
records (including transfer books and stock ledgers), contracts, papers,
instruments, documents and books of the corporation except those required
to be kept by other officers under these bylaws; and
(c) sign on behalf of the corporation such documents and
instruments as require his signature when approved in accordance with
these bylaws, and to such documents he shall affix the corporate seal when
necessary and may do so when he deems it desirable; and
(d) see that notices are given and records and reports are
properly kept and filed by the corporation as required by these bylaws or
as required by law; and
(e) in general, have such other powers and perform such other
duties as are incident to the office of Secretary and as may be assigned
to him from time to time by the Board of Directors or by or through the
Chief Executive Officer.
4.11. Treasurer. The Treasurer shall:
(a) receive and sign receipts for all moneys paid to the
corporation and shall deposit the same in the name and to the credit of
the corporation in authorized banks or depositories; and
(b) when necessary or desirable, endorse for collection on
behalf of the corporation all checks, drafts, notes and other obligations
payable to it; and
(c) disburse the funds of the corporation only upon vouchers
duly processed and under such rules and regulations as the Board may from
time to time adopt; and
(d) keep full and accurate accounts of the transactions of
his office in books belonging to the corporation; and
(e) render as the Board of Directors may direct an account of
the transactions of his office; and
(f) in general, have such other powers and perform such other
duties as are incident to the office of Treasurer and as may be assigned
to him from time to time by the Board of Directors or by or through the
Chief Executive Officer.
4.12. Assistants and Acting Officers. The Board of Directors
and the Chief Executive Officer shall each have the power to appoint any
person to act as assistant to any officer, or as agent for the corporation
in the officer's stead, or to perform the duties of such officer whenever
for any reason it is impracticable for such officer to act personally, and
such assistant or acting officer or other agent so appointed by the Board
of Directors or Chief Executive Officer shall have the power to perform
all the duties of the office to which that person is so appointed to be
assistant, or as to which he or she is so appointed to act, except as such
power may be otherwise defined or restricted by the Board of Directors or
the Chief Executive Officer.
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares. Certificates representing
shares of the corporation shall be in such form, consistent with the
Wisconsin Business Corporation Law, as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman of the
Board, the President or a Vice-President and by the Secretary or an
Assistant Secretary. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares
and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except as provided in Section 5.07.
5.02. Uncertificated Shares. The Board of Directors hereby
authorizes the issuance of any shares of its classes or series without
certificates to the full extent that the Secretary of the corporation
determines that such issuance is allowed by applicable law and rules of
the New York Stock Exchange, any such determination to be conclusively
evidenced by the delivery to the corporation's transfer agent and
registrar by the Secretary of a certificate referring to this bylaw and
providing instructions of the Secretary to the transfer agent and
registrar to issue any such shares without certificates in accordance with
applicable law. In any event, the foregoing authorization does not affect
shares already represented by certificates until the certificates are
surrendered to the corporation.
5.03. Facsimile Signatures and Seal. The seal of the
corporation on any certificates for shares may be a facsimile. The
signatures of the Chairman of the Board, the President or any
Vice-President and the Secretary or Assistant Secretary upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent,
or registered by a registrar, other than the corporation itself or an
employee of the corporation.
5.04. Signature by Former Officers. In case any officer who
has signed or whose facsimile signature has been placed upon any
certificate for shares shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issue.
5.05. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the corporation may
treat the registered owner of such shares as the person exclusively
entitled to vote, to receive notifications and otherwise to exercise all
the rights and powers of an owner. Where a certificate for shares is
presented to the corporation with a request to register for transfer, the
corporation shall not be liable to the owner or any other person suffering
loss as a result of such registration of transfer if (a) there were on or
with the certificate the necessary endorsements, and (b) the corporation
had no duty to inquire into adverse claims or has discharged any such
duty. The corporation may require reasonable assurance that said
endorsements are genuine and effective and in compliance with such other
regulations as may be prescribed under the authority of the Board of
Directors.
5.06. Restrictions on Transfer. The face or reverse side of
each certificate representing shares shall bear a conspicuous notation of
any restriction imposed by the corporation upon the transfer of such
shares.
5.07. Lost, Destroyed or Stolen Certificates. Where the owner
claims that his certificate for shares has been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if
the owner (a) so requests before the corporation has notice that such
shares have been acquired by a bona fide purchaser, and (b) files with the
corporation a sufficient indemnity bond, and (c) satisfies such other
reasonable requirements as the Board of Directors or any transfer agent
and registrar for the shares may prescribe.
5.08. Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible
or intangible property or benefit to the corporation, including cash,
promissory notes, services performed, contracts for services to be
performed or other securities of the corporation. Before the corporation
issues shares, the Board of Directors shall determine that the
consideration received or to be received for the shares to be issued is
adequate. In the absence of a resolution adopted by the Board of
Directors expressly determining that the consideration received or to be
received is adequate, Board of Directors approval of the issuance of the
shares shall be deemed to constitute such a determination. The
determination of the Board of Directors is conclusive insofar as the
adequacy of consideration for the issuance of shares relates to whether
the shares are validly issued, fully paid and nonassessable. The
corporation may place in escrow shares issued in whole or in part for a
contract for future services or benefits, a promissory note, or other
property to be issued in the future, or make other arrangements to
restrict the transfer of the shares, and may credit distributions in
respect of the shares against their purchase price, until the services are
performed, the benefits or property are received or the promissory note is
paid. If the services are not performed, the benefits or property are not
received or the promissory note is not paid, the corporation may cancel,
in whole or in part, the shares escrowed or restricted and the
distributions credited.
5.09. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as it may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the corporation.
5.10. No Nominee Procedures. The corporation has not
established, and nothing in these bylaws shall be deemed to establish, any
procedure by which a beneficial owner of the corporation's shares that are
registered in the name of a nominee is recognized by the corporation as
the shareholder under Section 180.0723 of the Wisconsin Business
Corporation Law.
ARTICLE VI. INDEMNIFICATION
6.01. Certain Definitions. All capitalized terms used in this
Article VI and not otherwise hereinafter defined in this Section 6.01
shall have the meaning set forth in Section 180.0850 of the Statute. The
following capitalized terms (including any plural forms thereof) used in
this Article VI shall be defined as follows:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with, the Corporation.
(b) "Authority" shall mean the entity selected by the
Director or Officer to determine his or her right to indemnification
pursuant to Section 6.04.
(c) "Board" shall mean the entire then elected and serving
Board of Directors of the Corporation, including all members thereof who
are Parties to the subject Proceeding or any related Proceeding.
(d) "Breach of Duty" shall mean the Director or Officer
breached or failed to perform his or her duties to the Corporation and his
or her breach of or failure to perform those duties is determined, in
accordance with Section 6.04, to constitute misconduct under Section
180.0851 (2) (a) 1, 2, 3 or 4 of the Statute.
(e) "Corporation," as used herein and as defined in the
Statute and incorporated by reference into the definitions of certain
other capitalized terms used herein, shall mean this corporation,
including, without limitation, any successor corporation or entity to this
corporation by way of merger, consolidation or acquisition of all or
substantially all of the capital stock or assets of this corporation.
(f) "Director or Officer" shall have the meaning set forth in
the Statute; provided that, for purposes of Article VI, it shall be
conclusively presumed that any Director or Officer serving as a director,
officer, partner, trustee, member of any governing or decision-making
committee, employee or agent of an Affiliate shall be so serving at the
request of the Corporation.
(g) "Disinterested Quorum" shall mean a quorum of the Board
who are not Parties to the subject Proceeding or any related Proceeding.
(h) "Party" shall have the meaning set forth in the Statute;
provided that, for purposes of this Article VI, the term "Party" shall
also include any Director or Officer or employee who is or was a witness
in a Proceeding at a time when he or she has not otherwise been formally
named a Party thereto.
(i) "Proceeding" shall have the meaning set forth in the
Statute; provided that, for purposes of this Article VI, the term
"Proceeding" shall also include all Proceedings (i) brought under (in
whole or in part) the Securities Act of 1933, as amended, the Exchange
Act, their respective state counterparts, and/or any rule or regulation
promulgated under any of the foregoing; (ii) brought before an Authority
or otherwise to enforce rights hereunder; (iii) any appeal from a
Proceeding; and (iv) any Proceeding in which the Director or Officer is a
plaintiff or petitioner because he or she is a Director or Officer;
provided, however, that such Proceeding is authorized by a majority vote
of a Disinterested Quorum.
(j) "Statute" shall mean Sections 180.0850 through 180.0859,
inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes, as the same shall then be in effect, including any
amendments thereto, but, in the case of any such amendment, only to the
extent such amendment permits or requires the Corporation to provide
broader indemnification rights than the Statute permitted or required the
Corporation to provide prior to such amendment.
6.02. Mandatory Indemnification. To the fullest extent
permitted or required by the Statute, the Corporation shall indemnify a
Director or Officer against all Liabilities incurred by or on behalf of
such Director or Officer in connection with a Proceeding in which the
Director or Officer is a Party because he or she is a Director or Officer.
6.03. Procedural Requirements.
(a) A Director or Officer who seeks indemnification under
Section 6.02 shall make a written request therefor to the Corporation.
Subject to Section 6.03(b), within 60 days of the Corporation's receipt of
such request, the Corporation shall pay or reimburse the Director or
Officer for the entire amount of Liabilities incurred by the Director or
Officer in connection with the subject Proceeding (net of any Expenses
previously advanced pursuant to Section 6.05).
(b) No indemnification shall be required to be paid by the
Corporation pursuant to Section 6.02 if, within such 60-day period, (i) a
Disinterested Quorum, by a majority vote thereof, determines that the
Director or Officer requesting indemnification engaged in misconduct
constituting a Breach of Duty or (ii) a Disinterested Quorum cannot be
obtained.
(c) In either case of nonpayment pursuant to Section 6.03(b),
the Board shall immediately authorize by resolution that an Authority, as
provided in Section 6.04, determine whether the Director's or Officer's
conduct constituted a Breach of Duty and, therefore, whether
indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to
determine the Director's or Officer's right to indemnification hereunder
within such 60-day period and/or (ii) if indemnification of the requested
amount of Liabilities is paid by the Corporation, then it shall be
conclusively presumed for all purposes that a Disinterested Quorum has
determined that the Director or Officer did not engage in misconduct
constituting a Breach of Duty and, in the case of subsection (i) above
(but not subsection (ii)), indemnification by the Corporation of the
requested amount of Liabilities shall be paid to the Director or Officer
immediately.
6.04. Determination of Indemnification.
(a) If the Board authorizes an Authority to determine a
Director's or Officer's right to indemnification pursuant to Section 6.03,
then the Director or Officer requesting indemnification shall have the
absolute discretionary authority to select one of the following as such
Authority:
(i) An independent legal counsel; provided that such
counsel shall be mutually selected by such Director or Officer
and by a majority vote of a Disinterested Quorum or, if a
Disinterested Quorum cannot be obtained, then by a majority vote
of the Board;
(ii) A panel of three arbitrators selected from the
panels of arbitrators of the American Arbitration Association in
Milwaukee, Wisconsin; provided, that (A) one arbitrator shall be
selected by such Director or Officer, the second arbitrator
shall be selected by a majority vote of a Disinterested Quorum
or, if a Disinterested Quorum cannot be obtained, then by a
majority vote of the Board, and the third arbitrator shall be
selected by the two previously selected arbitrators, and (B) in
all other respects, such panel shall be governed by the American
Arbitration Association's then existing Commercial Arbitration
Rules; or
(iii) A court pursuant to and in accordance with Section
180.0854 of the Statute.
(b) In any such determination by the selected Authority there
shall exist a rebuttable presumption that the Director's or Officer's
conduct did not constitute a Breach of Duty and that indemnification
against the requested amount of Liabilities is required. The burden of
rebutting such a presumption by clear and convincing evidence shall be on
the Corporation or such other party asserting that such indemnification
should not be allowed.
(c) The Authority shall make its determination within 60 days
of being selected and shall submit a written opinion of its conclusion
simultaneously to both the Corporation and the Director or Officer.
(d) If the Authority determines that indemnification is
required hereunder, the Corporation shall pay the entire requested amount
of Liabilities (net of any Expenses previously advanced pursuant to
Section 6.05), including interest thereon at a reasonable rate, as
determined by the Authority, within 10 days of receipt of the Authority's
opinion; provided that, if it is determined by the Authority that a
Director or Officer is entitled to indemnification as to some claims,
issues or matters, but not as to other claims, issues or matters, involved
in the subject Proceeding, then the Corporation shall be required to pay
(as set forth above) only the amount of such requested Liabilities as the
Authority shall deem appropriate in light of all of the circumstances of
such Proceeding.
(e) The determination by the Authority that indemnification
is required hereunder shall be binding upon the Corporation regardless of
any prior determination that the Director or Officer engaged in a Breach
of Duty.
(f) All Expenses incurred in the determination process under
this Section 6.04 by either the Corporation or the Director or Officer,
including, without limitation, all Expenses of the selected Authority,
shall be paid by the Corporation.
6.05. Mandatory Allowance of Expenses.
(a) The Corporation shall pay or reimburse, within 10 days
after the receipt of the Director's or Officer's written request therefor,
the reasonable Expenses of the Director or Officer as such Expenses are
incurred; provided, the following conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation
an executed written certificate affirming his or her good faith
belief that he or she has not engaged in misconduct that
constitutes a Breach of Duty; and
(ii) The Director or Officer furnishes to the Corporation
an unsecured executed written agreement to repay any advances
made under this Section 6.05 if it is ultimately determined by
an Authority that he or she is not entitled to be indemnified by
the Corporation for such Expenses pursuant to this Section 6.04.
(b) If the Director or Officer must repay any previously
advanced Expenses pursuant to this Section 6.05, then such Director or
Officer shall not be required to pay interest on such amounts.
6.06. Indemnification and Allowance of Expenses of Certain
Others.
(a) The Corporation shall indemnify a director or officer of
an Affiliate (who is not otherwise serving as a Director or Officer)
against all Liabilities, and shall advance the reasonable Expenses,
incurred by such director or officer in a Proceeding to the same extent
hereunder as if such director or officer incurred such Liabilities because
he or she was a Director or Officer, if such director or officer is a
Party thereto because he or she is or was a director or officer of the
Affiliate.
(b) The Corporation shall indemnify an employee who is not a
Director or Officer, to the extent that he or she has been successful on
the merits or otherwise in defense of a Proceeding, for all reasonable
Expenses incurred in the Proceeding if the employee was a Party because he
or she was an employee of the Corporation.
(c) The Board may, in its sole and absolute discretion as it
deems appropriate, pursuant to a majority vote thereof, indemnify (to the
extent not otherwise provided in Section 6.06(b) hereof) against
Liabilities incurred by, and/or provide for the allowance of reasonable
Expenses of, an employee or authorized agent of the Corporation acting
within the scope of his or her duties as such and who is not otherwise a
Director or Officer.
6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of a Director or Officer or any individual who is or
was an employee or authorized agent of the Corporation against any
Liability asserted against or incurred by such individual in his or her
capacity as such or arising from his or her status as such, regardless of
whether the Corporation is required or permitted to indemnify against any
such Liability under this Article VI.
6.08. Notice to the Corporation. A Director, Officer or
employee shall promptly notify the Corporation in writing when he or she
has actual knowledge of a Proceeding that may result in a claim of
indemnification against Liabilities or allowance of Expenses hereunder,
but the failure to do so shall not relieve the Corporation of any
liability to the Director, Officer or employee hereunder unless the
Corporation shall have been irreparably prejudiced by such failure (as
determined, in the case of Directors or Officers only, by an Authority
selected pursuant to Section 6.04(a)).
6.09. Severability. If any provision of this Article VI shall
be deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Article VI contravene public
policy, then this Article VI shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and
effect, and any such provisions that are invalid or inoperative or that
contravene public policy shall be deemed, without further action or deed
by or on behalf of the Corporation, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and
enforceable.
6.10. Nonexclusivity of Article VI. The rights of a Director,
Officer or employee (or any other person) granted under this Article VI
shall not be deemed exclusive of any other rights to indemnification
against Liabilities or advancement of Expenses that the Director, Officer
or employee (or such other person) may be entitled to under any written
agreement, Board resolution, vote of shareholders of the Corporation or
otherwise, including, without limitation, under the Statute. Nothing
contained in this Article VI shall be deemed to limit the Corporation's
obligations to indemnify against Liabilities or advance Expenses to a
Director, Officer or employee under the Statute.
6.11. Contractual Nature of Article VI; Repeal or Limitation of
Rights. This Article VI shall be deemed to be a contract between the
Corporation and each Director, Officer and employee of the Corporation,
and any repeal or other limitation of this Article VI or any repeal or
limitation of the Statute or any other applicable law shall not limit any
rights of indemnification against Liabilities or allowance of Expenses
then existing or arising out of events, acts or omissions occurring prior
to such repeal or limitation, including, without limitation, the right to
indemnification against Liabilities or allowance of Expenses for
Proceedings commenced after such repeal or limitation to enforce this
Article VI with regard to acts, omissions or events arising prior to such
repeal or limitation.
ARTICLE VII. MISCELLANEOUS
7.01. Amendments. Subject to the provisions of the Amended and
Restated Articles of Incorporation, these bylaws may be altered, amended
or repealed by the shareholders or by the Board of Directors. Any action
taken or authorized by the shareholders or by the Board of Directors, that
would be inconsistent with the bylaws then in effect but is taken or
authorized by affirmative vote of not less than the number of shares or
the number of directors required to amend the bylaws so that the bylaws
would be consistent with such action shall be given the same effect as
though the bylaws had been temporarily amended or suspended so far, but
only so far, as is necessary to permit the specific action so taken or
authorized.
7.02. Seal.
The corporation shall have a seal which shall be in such form as
the Board of Directors shall approve from time to time, but the use of
such seal shall not be necessary to evidence authority for any action on
behalf of the corporation or to evidence the authenticity of any signature
on behalf of the corporation or of any officer of the corporation.
7.03. Fiscal Year
The fiscal year shall mean the 52-week or 53-week period ending
on the Saturday closest to October 31 of each year.
7.04. Emergency Provisions.
The following emergency provisions shall be operative to the
extent and under the circumstances set forth in Section 180.0207 of the
Wisconsin Business Corporation Law:
The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession
in the event that during such emergency any or all officers or agents of
the corporation shall for any reason be rendered incapable of discharging
their duties.
The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or
authorize the officers so to do.
No officer, director or employee acting in anticipation of or
during an emergency in accordance with any emergency bylaws shall be
liable for action taken in good faith to further the ordinary business
affairs of the corporation during any such emergency.
To the extent not inconsistent with any emergency bylaws so
adopted, the bylaws of the corporation shall remain in effect during any
emergency and upon its termination the emergency bylaws shall cease to be
operative.
Unless otherwise provided in emergency bylaws, notice of any
meeting of the Board of Directors during such an emergency may be given
only to such of the directors as it may be feasible to reach at the time
and by such means as may be feasible at the time, including publication or
radio.
EXHIBIT 4.5
HK SYSTEMS, INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Firstar Bank Milwaukee, N.A.
Milwaukee, Wisconsin 53202
The Northern Trust Company
Chicago, Illinois 60675
Bank One, Wisconsin
Milwaukee, Wisconsin 53201-2033
Ladies and Gentlemen:
Reference is hereby made to that certain Third Amended and Restated
Credit Agreement dated as of November 15, 1996 (the "Credit Agreement")
currently in effect by and among, HK Systems, Inc., a Wisconsin
corporation (the "Company"), and you (the "Lenders"). All capitalized
terms used herein without definition shall have the same meanings herein
as such terms have in the Credit Agreement.
The Company hereby applies to the Lenders to decrease by $10,000,000
the Revolving Credit Commitments, to extend a new term loan in the
original principal amount of $6,000,000, to extend the Revolving Credit
Termination Date, to amend certain of the financial covenants contained
therein and to make certain other amendments to the Credit Agreement, and
the Lenders are willing to do so under the terms and conditions set forth
in this Amendment.
1. DECREASE OF REVOLVING COMMITMENT AMOUNTS.
Upon the effectiveness of this Amendment, the amount of each Lender's
Commitment in respect of the Revolving Credit set forth opposite its name
in Section 1.1 of the Credit Agreement shall be amended and as so amended
shall be restated as follows:
AMOUNT OF PERCENTAGE
REVOLVING OF REVOLVING
CREDIT CREDIT
LENDER COMMITMENT COMMITMENT
Harris Trust and Savings Bank $26,666,666.72 33.3333334%
Firstar Bank Milwaukee, N.A. $17,777,777.76 22.2222222%
The Northern Trust Company $17,777,777.76 22.2222222%
Bank One, Milwaukee, N.A. $17,777,777.76 22.2222222%
------------- ----------
TOTAL $80,000,000.00 100.00%
2. WAIVER OF REDEMPTION AND DIVIDEND.
On a day in December of 1997, the Company plans to make one-time
redemption of up to 1,050,000 of its shares from Gordon Jones at a price
of not more than $6.15 per share ("Special Redemption") and pay accrued
dividends on preferred stock as of October 31, 1997 in an amount not to
exceed $4,667,507 ("Special Dividend"). The Lenders agree that (i) the
Special Redemption and the Special Dividend will not constitute a
restricted payment as prohibited by Section 8.16 of the Credit Agreement
and, therefore, an Event of Default pursuant to Section 9.1(d) of the
Credit Agreement and (ii) the Special Dividend and Special Redemption will
not be counted toward the imitation on redemptions in Section 8.16(c) or
dividends in Section 8.16(d).
3. AMENDMENTS.
Upon the effectiveness of this Amendment, the Credit Agreement shall
be and hereby is amended as follows:
3.01. Section 1.6 of the Credit Agreement is hereby amended by
adding the following immediately at the end of such Section.
Section 1.6. Term Credit. Subject to all of the terms
and conditions hereof, each Lender agrees to make a term loan to
the Company in the amount of its Term Credit Commitment. The
maximum amount of the Term Loan 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 $ 2,000,000.01 33.3333334%
Firstar Bank Milwaukee, N.A. $ 1,333,333.33 22.2222222%
The Northern Trust Company $ 1,333,333.33 22.2222222%
Bank One, Milwaukee, N.A. $ 1,333,333.33 22.2222222%
------------ ----------
TOTAL $ 6,000,000.00 100.00%
The loans from all the Lenders under the Term Credit
(collectively, the "Term Loans" and individually, as to each
Lender, its "Term Loan") shall be made concurrently and the Term
Loans shall be disbursed in a single advance made, if at all,on
or before January 15, 1998, at which time the Term Credit
Commitments shall expire. The Term Loan made by each Lender to
the Company under the Term Credit shall be evidenced by a Term
Credit note of the Company (individually a "Term Credit Note"
and collectively the "Term Credit Notes") payable to the order
of such Lender in the amount of its Term Credit Commitment, each
Term Credit Note to be in the form (with appropriate insertions)
attached hereto as Exhibit D. Each Term Credit Note shall be
expressed to mature as follows: one installment in an aggregate
amount of $600,000, to be paid on or before January 31, 1998 and
then five consecutive annual installments, the first such
installment commencing on October 31, 1998 and continuing on the
last day of each October occurring thereafter to and including
October 31, 2002 and aggregating $600,000 per installment, and a
final installment due on December 15, 2002 and aggregating the
entire remaining unpaid principal balance of the Term Credit
Notes. The amount of each installment due on the Term Credit
Note held by each Lender shall be a pro rata part (based on the
relationship which its Term Credit Commitment bears to the total
Term Credit Commitments) of each such aggregate amount. No
amount repaid on the Term Credit Notes may be reborrowed. The
Term Loans shall be used by the Company to fund its
substantially concurrent loan of like amount to the employee
stock ownership plan the Company is establishing for its
employees on or about December of 1997.
3.02. The first sentence of Section 1.3 of the Credit Agreement
shall be amended and as so amended shall be restated in its entirety to
read as follows:
Subject to the terms and conditions hereof, the Revolving
Credit may be availed of by the Company in the form of loans
(individually a "Revolving Loan" and collectively the "Revolving
Loans").
3.03. The third sentence of Section 1.3 of the Credit Agreement
shall be amended and as so amended shall be restated in its entirety to
read as follows:
Each advance made by a Lender of its pro rata share of a
revolving loan shall be evidenced by a Revolving Credit Note of
the Company (individually a "Revolving Credit Note" and
collectively the "Revolving Credit Notes") payable to the order
of such Lender in the amount of its commitment, with each
Revolving Credit Note to be in the form (with appropriate
insertions) attached hereto as Exhibit A.
3.04. The second sentence of Section 1.5(a) of the Credit
Agreement shall be amended and as so amended shall be restated in its
entirety to read as follows:
Each such notice shall specify the date of the Loan
requested (which must be a Business Day), whether such Loan is a
Revolving Loan or the Term Loan and the amount of such Loan.
3.05. Section 5.1 of the Credit Agreement shall be amended by
adding the following new definitions therein in the appropriate
alphabetical order:
"ESOP Principal" means, with reference to any period, the
aggregate amount of principal payments made during such period
on the Term Credit Notes.
"Term Credit Commitments" means the commitments of the
Lenders to extend a Term Loan in the amounts set forth opposite
their names in Section 1.6 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 thereto.
3.06. The following definitions appearing in Section 5.1 of the
Credit Agreement shall be amended and as so amended shall be restated in
their entirety to read as follows:
"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) ESOP Principal.
"Interest Coverage Ratio" means, as of any time the same is
to be determined, the ratio of (i) the sum of (x) EBITDA for the
four most recently completed fiscal quarters of the Company and
(y) ESOP Principal to (ii) Interest Expense for the same period
of four fiscal quarters.
"Loans" means the Revolving Loans and the Term Loans,
collectively, and the term "Loan" shall mean any of the
Revolving Loans or Term Loans, in each case unless the context
in which such term is used shall otherwise require; provided,
however, that the terms "Loan" and "Loans" as used in
Sections 1.2, 1.3, 1.4 and 1.5(b) hereof shall mean respectively
Revolving Loan and Revolving Loans.
"Notes" means the Revolving Credit Notes and the Term
Credit Notes, collectively, and the term "Note" shall mean any
of the Revolving Credit Notes or Term Notes, in each case unless
the context i which such term is used shall otherwise require;
provided, however, that the terms "Note" and "Notes" as used in
Sections 1.1 and 1.3 of this Agreement shall mean, respectively,
Revolving Credit Note and Revolving Credit Notes.
"Termination Date" means December 15, 2002, or such earlier
date on which the Commitments are terminated in whole pursuant
to Sections 3.3, 9.2 or 9.3 hereof.
3.07. Section 8.6 of the Credit Agreement is hereby amended and
as so amended shall be restated in its entirety to read as follows:
Section 8.6. Current Ratio. The Company will at all
times during each of the period 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 2nd fiscal quarter of the 0.90 to 1.0
Company's 1998 fiscal year
3rd fiscal quarter of the All times thereafter 1.00 to 1.0
Company's 1998 fiscal year
3.08. Schedule 6.3 to the Credit Agreement is hereby amended to
reflect the deletion of HK Taylor Industries, Inc. as a Subsidiary and as
so amended shall be restated in its entirety read as set forth on
Schedule Two attached hereto. All references to Schedule 6.3 in the
Credit Agreement shall be declared references to Schedule 6.2 as set forth
on Schedule Two attached hereto.
4. CONDITIONS PRECEDENT.
The effectiveness of this Amendment (other than Section 5 hereof),
and the obligation of the Lenders to extend the Term Loans, is subject to
the satisfaction of all of the following conditions precedent:
4.01. The Company, the Agent and the Lenders shall have executed
and delivered this Amendment.
4.02. The Company shall have executed Term Credit Notes in favor
of each Lender in the form attached hereto as Schedule One, with each Term
Credit Note to a Lender to be dated as of the date of its issuance and in
a face amount equal to the Term loan to be extended by such Lender after
giving effect to this Amendment.
4.03. No Default or Event of Default shall have occurred and be
continuing as of the date this Amendment would otherwise take effect.
4.04. Legal matters incident to the execution and delivery of
this Amendment shall be satisfactory to the Lenders and their counsel; and
the Lenders shall have received the favorable written opinion of counsel
for the Company in form and substance satisfactory to the Lenders and
their counsel.
4.05. The Company shall have delivered to the Agent a certificate
of the Secretary or Assistant Secretary of the Company certifying that the
Articles of Incorporation of the Company have not changed since
November 15, 1996.
5. POST-CLOSING ITEMS.
5.01. Certain Real Estate Collateral. The Agent shall have
received no later than 30 days from the date hereof, 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 january 21, 1997,
and recorded in the Recorder's Office of Davis County, Utah on
February 25,1997, as Document No. 1306007, at Book 2098,
Page 683 (the "Existing Utah Mortgage"), to confirm and assure
that the Existing Utah Mortgage secures the Revolving Credit and
Term Credit as amended hereby, together with any financing
statements or financing statement amendments requested by the
Agent in connection therewith;
(ii) a supplement to that certain Mortgage and Security
Agreement and Assignment of Rents dated as of January 21, 1997,
and recorded on the Recorder's Office of Montgomery County,
Alabama on August 21, 1997, as RLPY 1782, Page 0938 (the
"Existing Alabama Mortgage") to confirm and assure that the
Existing Alabama Mortgage secures the Revolving Credit and Term
Credit as amended hereby, together with any financing statements
or financing statement amendments requested by the Agent in
connection therewith;
(iii) an endorsement to the mortgagee's policy of title
insurance (or a binding commitment therefor) for the Existing
Utah Mortgage (as supplemented) creating liens on the Company's
real property in Bountiful, Utah to confirm that such policy
secures the Revolving Credit and Term Credit as amended hereby
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 new Term Credit and show no
exceptions to title or coverage other than those shown on such
policy as originally issued (except that no exception shall
appear for taxes which are now due and payable);
(iv) 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 Agent, together with
such endorsements as the Agent may require;
(v) a mortgagee's title insurance policy (or a prepaid
binding commitment therefor) insuring the lien on the Company's
real property located in Salisburg, North Carolina (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 Agent may require;
(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 North Carolina Property; and
(vii) 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
and Alabama.
Any failure of the Company to satisfy the requirements set forth in
Section 4.01 hereof by the deadlines also set forth above, whether or not
this Amendment otherwise takes effect, will constitute an Event of Default
under the Credit Agreement.
6. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders that as of the date hereof,
the representations and warranties set forth in Section 6 of the Credit
Agreement are and shall be and remain true and correct (except that for
purposes of this paragraph, the representations contained in Section 6.4
shall be deemed to refer to the most recent financial statements of the
Company delivered to the Lenders) and the Company is in full compliance
with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the
Credit Agreement or shall result after giving effect to this Amendment.
7. MISCELLANEOUS.
7.01. The Company acknowledges and agrees that all of the
Collateral Documents to which it is a party remain in full force and
effect for the benefit and security of, among other things, the Revolving
Credit Loans and Term Loans as modified hereby. The Company further
acknowledges and agrees that all references in such Collateral Documents
to the Loans shall be deemed a reference to the Revolving Credit Loans and
Term Loans as so modified. The Company further agrees to execute and
delivery any and all instruments or documents as may be required by the
Agent or Required Lenders to confirm any of the foregoing.
7.02. Except as specifically amended herein, the Credit Agreement
shall continue in full force and effect in accordance with its original
terms. Reference to this specific Amendment need not be made in the
Credit Agreement, the Notes, or any other instrument or document executed
in connection therewith, or in any certificate, letter or communication
issued or made pursuant to or with respect to the Credit Agreement, any
reference in any of such items to the Credit Agreement being sufficient to
refer to the Credit Agreement as amended hereby.
7.03. This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart
signature pages, all of which taken together shall constitute one and the
same agreement. Any of the parties hereto may execute this Amendment by
signing any such counterparts and each of such counterparts shall for all
purposes be deemed to be an original. This Amendment shall be governed by
the internal laws of the State of Illinois.
7.04. The Company agrees to pay all reasonable out-of-pocket
costs and expenses incurred by the Lenders in connection with the
preparation, execution and delivery of this Amendment and the documents
and transactions contemplated hereby, including the reasonable fees and
expenses of counsel for the Lenders with respect to the foregoing.
Dated as of December 15, 1997.
HK SYSTEMS, INC.
By /s/
Its ___________________________
Accepted and agreed to in Chicago, Illinois as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By /s/
Its ___________________________
FIRSTAR BANK MILWAUKEE, N.A.
By /s/
Its ___________________________
THE NORTHERN TRUST COMPANY
By /s/
Its ___________________________
BANK ONE, WISCONSIN
By /s/
Its ___________________________
<PAGE>
GUARANTOR'S CONSENT
Each of the undersigned has heretofore executed and delivered to the
Agent a Guaranty dated November 15, 1996 and each hereby consents to the
Amendment to the Credit Agreement as set forth above and confirms that its
Guaranty and all of the undersigned's obligations thereunder remain in
full force and effect and,without limiting the foregoing, acknowledges and
agrees that all the Loans, made before and after giving effect to this
Amendment to the Credit Agreement, constitute indebtedness which is
guaranteed by the undersigned under its Guaranty. Each of the undersigned
further agrees that the consent of each of the undersigned to any further
amendments to the Credit Agreement shall not be required as a result of
its consent having been obtained.
HEI SERVICES, INC.
By _________________________________
Its ___________________________
HISCO SYSTEMS OF CANADA LTD.
By _________________________________
Its ___________________________
<PAGE>
SCHEDULE ONE
EXHIBIT D
HK SYSTEMS, INC.
TERM NOTE
Chicago, Illinois
$__________ December __, 1997
On the Term Credit Termination Date, for value received, the
undersigned, HK SYSTEMS, INC., a Wisconsin corporation (the "Company"),
hereby promises to pay to the order of
_______________________________________ (the "Lender"), at the principal
office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of (i) _______________________________________________ and
no/100 Dollars ($__________), 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 Term Loans owing from the Company
to the Lender under the Term 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
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 Term Credit provided for under the Credit Agreement, and the Company
hereby 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 Term 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 a schedule to this Note or
recorded on the books and records of the holder hereof (provided that such
entries shall be endorsed on a schedule to this Note 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 a schedule to this Note or recorded on the books and records
of the holder hereof shall, absent manifest error, 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 by, among other things, 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.
The Company hereby promises to pay all reasonable 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. 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.
HK SYSTEMS, INC.
By _________________________________
Name: __________________________
Title: __________________________
<PAGE>
SCHEDULE TWO
SCHEDULE 6.2
SUBSIDIARIES
JURISDICTION PERCENTAGE
NAME OF INCORPORATION OWNERSHIP
HISCO Systems of Canada Ltd. Canada 100%
HEI Services, Inc. Delaware 100%
HK Systems Foreign Sales Corp. 100%
EXHIBIT 4.6
HK SYSTEMS, INC.
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Firstar Bank Milwaukee, N.A.
Milwaukee, Wisconsin 53202
The Northern Trust Company
Chicago, Illinois 60675
Bank One, Wisconsin
Milwaukee, Wisconsin 53201-2033
Ladies and Gentlemen:
Reference is hereby made to that certain Third Amended and Restated
Credit Agreement dated as of November 15, 1996 (as has been amended and as
may be amended from time to time, the "Credit Agreement") currently in
effect by and among HK Systems, Inc., a Wisconsin corporation (the
"Company"), and you (the "Lenders"). All capitalized terms used herein
without definition shall have the same meanings herein as such terms have
in the Credit Agreement.
The Company hereby applies to the Lenders to amend certain of the
financial covenants contained therein and to make certain other amendments
to the Credit Agreement, and the Lenders are willing to do so under the
terms and conditions set forth in this Amendment.
1. AMENDMENTS.
Upon the effectiveness of this Amendment and subject to the
conditions precedent set forth in Section 2 below, the Credit Agreement
shall be and hereby is amended as follows:
1.01. Section 8.7 and Section 8.8 of the Credit Agreement are
hereby amended and as so amended shall be restated in their entirety to
read as follows:
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
TO AND SHALL NOT
FROM AND INCLUDING THROUGH CLOSE OF BE GREATER THAN:
the date hereof 4th fiscal quarter of 0.95 to 1.0
the Company's 1998
fiscal year
1st fiscal quarter of 3rd fiscal quarter of 0.55 to 1.0
the Company's 1999 the 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
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
TO AND RATIO SHALL
FROM AND INCLUDING THROUGH CLOSE OF NOT BE MORE THAN:
the date hereof 4th fiscal quarter of 3.25 to 1.0
the Company's 1998
fiscal year
1st fiscal quarter of 3rd fiscal quarter of 2.50 to 1.0
the Company's 1999 the 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
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment and the obligation of the Lenders
to extend the Term Loans, is subject to the satisfaction of all of the
following conditions precedent:
2.01. The Company, the Agent and the Lenders shall have executed
and delivered this Amendment.
2.02. No Default or Event of Default shall have occurred and be
continuing as of the date this Amendment would otherwise take effect.
3. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders that as of the date
hereof,the representations and warranties set forth in Section 6 of the
Credit Agreement are and shall be and remain true and correct (except that
for purposes of this paragraph, the representations contained in
Section 6.4 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Lenders) and the Company is in
full compliance with all of the terms and conditions of the Credit
Agreement and no Default or Event of Default has occurred and is
continuing under the Credit Agreement or shall result after giving effect
to this Amendment.
4. MISCELLANEOUS.
4.01. The Company acknowledges and agrees that all of the
Collateral Documents to which it is a party remain in full force and
effect for the benefit and security of, among other things, the Revolving
Credit Loans and Term Loans. The Company further agrees to execute and
deliver any and all instruments or documents as may be required by the
Agent or Required Lenders to confirm any of the foregoing.
4.02. Except as specifically amended herein, the Credit Agreement
shall continue in full force and effect in accordance with its original
terms. Reference to this specific Amendment need not be made in the
Credit Agreement, the Notes, or any other instrument or document executed
in connection therewith, or in any certificate, letter or communication
issued or made pursuant to or with respect to the Credit Agreement, any
reference in any of such items to the Credit Agreement being sufficient to
refer to the Credit Agreement as amended hereby.
4.03. This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart
signature pages, all of which taken together shall constitute one and the
same agreement. Any of the parties hereto may execute this Amendment by
signing any such counterpart and each of such counterparts shall for all
purposes be deemed to be an original. This Amendment shall be governed by
the internal laws of the State of Illinois.
4.04. The Company agrees to pay all reasonable out-of-pocket
costs and expenses incurred by the Lenders in connection with the
preparation, execution and delivery of this Amendment and the documents
and transactions contemplated hereby, including the reasonable fees and
expenses of counsel for the Lenders with respect to the foregoing.
Dated as of January , 1998.
HK SYSTEMS, INC.
By /s/
Its ___________________________
Accepted and agreed to in Chicago, Illinois as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By /s/
Its ___________________________
FIRSTAR BANK MILWAUKEE, N.A.
By /s/
Its ___________________________
THE NORTHERN TRUST COMPANY
By /s/
Its ___________________________
BANK ONE, WISCONSIN
By /s/
Its ___________________________
<PAGE>
GUARANTOR'S CONSENT
Each of the undersigned has heretofore executed and delivered to the
Agent a Guaranty dated November 15, 1996 and each hereby consents to the
Amendment to the Credit Agreement as set forth above and confirms that its
Guaranty and all of the undersigned's obligations thereunder remain in
full force and effect and,without limiting the foregoing, acknowledges and
agrees that all the Loans, made before and after giving effect to this
Amendment to the Credit Agreement, constitute indebtedness which is
guaranteed by the undersigned under its Guaranty. Each of the undersigned
further agrees that the consent of each of the undersigned to any further
amendments to the Credit Agreement shall not be required as a result of
its consent having been obtained.
HEI SERVICES, INC.
By _________________________________
Its ___________________________
HISCO SYSTEMS OF CANADA LTD.
By _________________________________
Its ___________________________
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
(414) 297-5678
February 27, 1998
HK Systems, Inc.
2855 South 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 and no personal liability will attached to
the ownership thereof, except for debts owing to employees of the Company
for services performed, but not exceeding six months' service in any one
case, as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law as interpreted in Local 257 of Hotel and Restaurant
Employees and Bartenders International Union v. Wilson Street East Dinner
Playhouse, Inc., Case No. 82-CV-0023, Cir. Ct. Branch 1, Dane County,
Wisconsin, aff'd, 375 N.W. 2d 664 (Wis. 1979).
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 with respect to wage claims of
employees of the Company for services performed, as described above and 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,
/s/ FOLEY & LARDNER
FOLEY & LARDNER
EXHIBIT 10.1
SECOND AMENDMENT TO
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS SECOND AMENDMENT, dated as of February 19, 1998 (the
"Second Amendment"), TO THE EMPLOYMENT AND NONCOMPETITION AGREEMENT dated
as of October 28, 1993 and as amended on October 31, 1996 (the "Original
Agreement"), by and among HK SYSTEMS, INC. (formerly known as
Harnischfeger Engineers, Inc.) (the "Company") and JOHN W. SPLUDE (the
"Employee").
WHEREAS, the Company and the Employee are parties to the
Original Agreement; and
WHEREAS, the parties wish to set forth in this Second Amendment
certain agreements they have reached.
IN CONSIDERATION 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:
ARTICLE I
AMENDMENTS
1.1 Amendments. The parties hereby agree that the Original
Agreement be and it hereby is amended as follows:
(a) Section 5 of the Original Agreement is deleted in its
entirety and replaced with the following new Section 5:
5. Compensation. The Company shall pay to the Employee a base
annual salary of $364,000, 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 the Company or have been granted
options to purchase Stock of 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.
(b) Upon the effectiveness of an initial public offering of
common stock of the Company, Section 14 of the Original Agreement is
deleted in its entirety; provided that, the Company and the Employee shall
amend the Original Agreement to reinstate Section 14 if such initial
public offering is not consummated within ten (10) days after it is
effective.
ARTICLE II
MISCELLANEOUS
2.1 Continuance of Agreement. Except as specifically amended
by this Second Amendment, the Original Agreement remains in full force and
effect.
2.2 Governing Law. This Second Amendment shall be governed by
the internal laws of the State of Wisconsin.
2.3 Counterparts; Headings. This Second 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 Second Amendment
are inserted for convenience of reference only and shall not constitute a
part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
HK SYSTEMS, INC.
By: /s/__________________________
Its: ________________________
EMPLOYEE
/s/ John W. Splude
JOHN W. SPLUDE
<PAGE>
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 R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr. Secretary
HEI SYSTEMS, INC.
By: /s/ John C. Hines
John C. Hines, Vice President
Attest:
/s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr. 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
/s/ John W. Splude (SEAL)
John W. Splude
EXHIBIT 10.2
SECOND AMENDMENT TO
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS SECOND AMENDMENT, dated as of February 19, 1998 (the
"Second Amendment"), TO THE EMPLOYMENT AND NONCOMPETITION AGREEMENT dated
as of October 28, 1993 and as amended on October 31, 1996 (the "Original
Agreement"), by and among HK SYSTEMS, INC. (formerly known as
Harnischfeger Engineers, Inc.) (the "Company") and GLENN P. DAVIS (the
"Employee").
WHEREAS, the Company and the Employee are parties to the
Original Agreement; and
WHEREAS, the parties wish to set forth in this Second Amendment
certain agreements they have reached.
IN CONSIDERATION 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:
ARTICLE I
AMENDMENTS
1.1 Amendments. The parties hereby agree that the Original
Agreement be and it hereby is amended as follows:
(a) Section 5 of the Original Agreement is deleted in its
entirety and replaced with the following new Section 5:
5. Compensation. The Company shall pay to the Employee a base
annual salary of $260,000, 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 the Company or have been granted
options to purchase Stock of 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.
(b) Upon the effectiveness of an initial public offering of
common stock of the Company, Section 14 of the Original Agreement is
deleted in its entirety; provided that, the Company and the Employee shall
amend the Original Agreement to reinstate Section 14 if such initial
public offering is not consummated within ten (10) days after it is
effective.
ARTICLE II
MISCELLANEOUS
2.1 Continuance of Agreement. Except as specifically amended
by this Second Amendment, the Original Agreement remains in full force and
effect.
2.2 Governing Law. This Second Amendment shall be governed by
the internal laws of the State of Wisconsin.
2.3 Counterparts; Headings. This Second 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 Second Amendment
are inserted for convenience of reference only and shall not constitute a
part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
HK SYSTEMS, INC.
By: /s/
Its:
EMPLOYEE
/s/ Glenn P. Davis
GLENN P. DAVIS
<PAGE>
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 GLEN P. DAVIS (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: /s/ John W. Splude
John W. Splude, President
Attest:
/s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr., Secretary
HEI SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude, President
Attest:
/s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr., Secretary
/s/ Glen P. Davis (SEAL)
Glen P. Davis
<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 GLENN P. DAVIS.
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 Glenn P. Davis.
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: Glenn P. Davis
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.
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/ John W. Splude
John W. Splude, President
HEI SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude, President
/s/ Glenn P. Davis (SEAL)
Glenn P. Davis
EXHIBIT 10.3
HK SYSTEMS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this 1st day of July, 1997, by and among HK SYSTEMS, INC. (the
"Company") and David W. Bartley.
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 David W. Bartley.
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 Senior Vice President-
Integrated Systems 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 $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. 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: David W. Bartley
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: /s/ John W. Splude
John W. Splude, President
/s/ David W. Bartley
David W. Bartley, Employee
EXHIBIT 10.4
HK SYSTEMS, INC.
1997 STOCK PLAN
FOR OUTSIDE DIRECTORS
1. Establishment. HK Systems, Inc. (the "Company") hereby establishes a
plan for the members of its Board of Directors who are not officers
or employees of (i) the Company, (ii) any of its subsidiaries,
(iii) any 5% or greater shareholder of the Company, (iv) either of
the State of Wisconsin Investment Board or M&I Ventures Corporation
or (v) subject to paragraph 5, any shareholder of the Company on
December 12, 1997 ("Outside Directors"), as described herein, which
shall be known as the HK Systems 1997 STOCK PLAN FOR OUTSIDE
DIRECTORS (the "Plan").
2. Purpose. The purpose of the Plan is to advance the Company's growth
and success, and to advance its interests, by attracting and
retaining well-qualified Outside Directors upon whose judgment the
Company is largely dependent for the successful conduct of its
operations and by providing such individuals with incentives to put
forth maximum efforts for the long-term success of the Company's
business.
3. Effective Date of the Plan. The effective date of the Plan (the
"Effective Date") is the later of the date of its approval by the
shareholders of the Company and the date of the consummation of the
Company's initial public offering.
4. Stock Subject to the Plan. Subject to adjustment in accordance with
the provisions of paragraph 9, the total number of shares of common
stock of the Company ("Common Stock") available for awards during the
term of this Plan shall be 25,000 shares. Shares of Common Stock to
be delivered under the Plan shall be made available from presently
authorized but unissued Common Stock or authorized and issued shares
of Common Stock reacquired and held as treasury shares, or a
combination thereof. In no event shall the Company be required to
issue fractional shares of Common Stock under the Plan. Whenever
under the terms of the Plan a fractional share of Common Stock would
otherwise be required to be issued, there shall be paid in lieu
thereof one full share of Common Stock.
5. Administration.
(a) The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors consisting of not
less than two members of the Board of Directors appointed from
time to time by the Board of Directors.
(b) Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to the extent
provided by law.
(c) Neither the Committee nor any member thereof shall be liable for
any act, omission, interpretation, construction or determination
made in connection with the Plan in good faith, and the members
of the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys' fees) arising therefrom
to the full extent permitted by law and under any directors' and
officers' liability insurance that may be in effect from time to
time.
(d) A majority of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by the
Committee without a meeting, shall be the acts of the Committee.
(e) The Committee shall have the authority to determine that an
officer or employee of any shareholder of the Company on
December 12, 1997 may be considered an Outside Director.
6. Automatic Grants of Common Stock. Each Outside Director shall be
granted Common Stock as follows:
(a) Annual Meeting. On the date of the Company's first annual
meeting of shareholders after the effective date of the Plan,
and thereafter on the date of each succeeding annual meeting of
the shareholders of the Company ("Grant Date"), an Outside
Director, if re-elected or retained as an Outside Director at
such meeting, shall be granted shares of Common Stock with an
aggregate fair market value equal to the initial annual retainer
fee for Outside Directors of $10,000 or such other amount of the
annual retainer fee for Outside Directors as may be approved
from time to time by the Board of Directors (an "Annual Grant").
For purposes of this Plan, "fair market value" is defined as the
closing sale price of a share of Common Stock on the New York
Stock Exchange on the date for determining fair market value (or
if no sale took place on such exchange on such date, then on the
most recent preceding date on which a sale took place).
(b) Interim Election. Outside Directors elected between Grant Dates
shall be granted a proportionate share of the Annual Grant at
the time of their election.
7. Elective Grant.
(a) Share Election. Each Outside Director may elect (a "Share
Election") to receive all or any portion of his committee and
meeting fees earned in each calendar year for services on the
Board of Directors, exclusive of the annual retainer fee (the
"Other Fees"), in the form of Common Stock. A Share Election,
or a modification or revocation of a Share Election by a
subsequent Share Election, (i) must be in writing and delivered
to the Secretary of the Company, (ii) shall be effective with
respect to Other Fees earned commencing on the date the
Secretary of the Company receives the Share Election and (iii)
shall remain in effect unless modified or revoked by a
subsequent Share Election in accordance with the provisions
hereof.
(b) Transfer of Shares. Shares of Common Stock issuable to an
Outside Director with respect to a Share Election shall be
transferred to such Outside Director effective as of the last
business day of the month in which the Other Fees are earned.
The total number of shares of Common Stock to be so transferred
shall be determined by dividing the amount of Other Fees for the
applicable month by the fair market value of a share of Common
Stock on the last business day of such month.
8. Termination of Service as Outside Director. In the event an Outside
Director ceases to serve on the Board of Directors, all rights to
receive Common Stock pursuant to paragraph 6 shall terminate
immediately.
9. Adjustment Provisions. In the event of any change in the shares of
the Common Stock by reason of a declaration of a stock dividend
(other than a stock dividend declared in lieu of an ordinary cash
dividend), spin-off, merger, consolidation, recapitalization, or
split-up, combination or exchange of shares, or otherwise, the
aggregate number of shares available under this Plan and the amount
of the Annual Grant shall be appropriately adjusted by the Committee,
using the same standards and/or formulas as it uses in making
adjustments under the HK Systems, Inc. 1993 Executive Stock Option
Plan, but any such adjustment to the amount of the Annual Grant
and/or the number of Share Units shall be only such as is necessary
to maintain the proportionate interest of the Outside Director and
preserve, without exceeding, the value reflected by the Annual Grant.
10. Termination and Amendment of Plan. The Board of Directors may at any
time terminate the Plan. The Board of Directors may amend the Plan
as it shall deem advisable including (without limiting the generality
of the foregoing) any amendments deemed by the Board of Directors to
be necessary or advisable to assure conformity of the Plan with any
requirements of state and federal laws or regulations now or
hereafter in effect; provided, however, that (a) the Board of
Directors may amend the provisions of paragraph 6 not more often than
once in any six month period, (b) the Board of Directors may not,
without further approval by the shareholders of the Company, make any
modifications which, under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, require such approval and (c) no amendment
shall affect adversely any of the rights of any Outside Director,
without such Outside Director's consent, under any election
theretofore in effect under the Plan.
11. Rights as a Shareholder. An Outside Director shall have no rights as
a shareholder with respect to Common Stock granted under this Plan
until the date of issuance of the stock certificate to him. Except
as provided in paragraph 9, no adjustment will be made for dividends
or other rights for which the record date is prior to the date such
Common Stock is issued.
12. Governing Law. The Plan, all awards hereunder, and all
determinations made and actions taken pursuant to the Plan shall be
governed by the internal laws of the state of Wisconsin, to the
extent not otherwise governed by the Internal Revenue Code or the
laws of the United States.
13. Unfunded Plan. This Plan shall be unfunded. No person shall have
any rights greater than those of a general creditor of the Company.
14. Withholding. The Company shall have the right to deduct from all
payments made under the Plan any federal, state, or local income
taxes or FICA required to be withheld with respect to such
compensation. Each Outside Director shall be entitled to irrevocably
elect to have the Company withhold shares of Common Stock having an
aggregate fair market value, as of the last trading business day
immediately preceding the date such shares would otherwise be
transferred hereunder, equal to the amount required to be withheld.
15. Change of Control. Anything in this Plan to the contrary
notwithstanding, upon the occurrence of a Change of Control (as such
term is defined below), any Annual Grant and/or Other Fees earned in
respect of the calendar quarter in which the Change of Control occurs
shall be paid in cash as soon as practicable. A "Change in Control"
shall be deemed to have occurred if the event set forth in any one of
the following paragraphs shall have occurred:
(a) any "Person" (as such term is defined in section 3(a)(9) of the
Exchange Act, as modified and used in sections 13(d) and 14(d)
thereof), other than (A) the Corporation or any of its
subsidiaries, (B) a trustee or other fiduciary holding
securities under any employee benefit plan of the Corporation or
any of its subsidiaries, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities or (D) a
corporation owned, directly or indirectly, by the shareholders
of the Corporation in substantially the same proportions as
their ownership of stock in the Corporation ("Excluded
Persons"), is or becomes the "Beneficial Owner" (as defined in
rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Corporation or its Affiliates after
November 1, 1997 pursuant to express authorization by the Board
that refers to this exception) representing 25% or more of
either the then outstanding shares of Common Stock or the
combined voting power of the Corporation's then outstanding
voting securities; or
(b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on November 1, 1997, constituted the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Corporation, as
such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment or election by the Board or
nomination for election by the Corporation's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on November 1,
1997 or whose appointment, election or nomination for election
was previously so approved; or
(c) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
approve the issuance of voting securities of the Corporation in
connection with a merger or consolidation of the Corporation (or
any direct or indirect subsidiary of the Corporation) pursuant
to applicable stock exchange requirements, other than (i) a
merger or consolidation that would result in the voting
securities of the Corporation 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 50% of the combined voting power of the voting securities
of the Corporation or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar
transaction) in which no Person (other than an Excluded Person)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Corporation (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Corporation or its Affiliates after
November 1, 1997 pursuant to express authorization by the Board
that refers to this exception) representing 25% or more of
either the then outstanding shares of Common Stock or the
combined voting power of the Corporation's then outstanding
voting securities; or
(d) the shareholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or an agreement
for the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets (in one
transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or
disposition by the Corporation of all or substantially all of
the Corporation'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 Corporation immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record
holders of the Common Stock immediately prior to such transaction or
series of transactions continue to have substantially the same
proportionate ownership in an entity that owns all or substantially
all of the assets of the Corporation immediately following such
transaction or series of transactions.
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made as
of ____________ __, 1998, by and among HK Systems, Inc., a Wisconsin
corporation (the "Company"), M&I Ventures Corporation, a Wisconsin
corporation ("MIVC"), State of Wisconsin Investment Board ("SWIB," and,
together with MIVC, the "Investors"), John W. Splude, Glen P. Davis and
John C. Hines (individually a "Senior Executive" and collectively, the
"Senior Executives"). MIVC, SWIB and the Senior Executives are sometimes
hereinafter referred to individually as a "Shareholder" and collectively
as the "Shareholders."
The Company and the Shareholders wish to revise and restate the
provisions relating to the registration rights of the Investors contained
in the Second Amended and Restated Investment Agreement, dated as of
January 15, 1998, by and among the Company and the Investors to, among
other things, reflect the effects of the Company's initial public offering
of Company common stock, $.01 par value ("Common Shares") consummated on
the date hereof (the "IPO").
IN CONSIDERATION of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is hereby
agreed that:
1. Demand Registration Rights.
(a) Requests for Registration. Subject to the limitations
described herein, at any time the Investors may request registration under
the Securities Act of 1933, as amended (the "Act"), of all or part of
their Common Shares that they held on the date of this Agreement on Form
S-1 or any similar long-form registration or on Form S-2, Form S-3 or any
similar short-form registration ("Short-Form Registrations") if available.
Each such request shall specify the approximate number of Common Shares
requested to be registered. Within ten (10) days after receipt of any
such request, the Company will give written notice of such requested
registration to all other Shareholders and subject to Section 1(c) of this
Agreement will include in such registration all Common Shares held by
Investors with respect to which the Company has received written requests
for inclusion therein within fifteen (15) days after receipt of the
Company's notice. All registrations requested pursuant to this Section
1(a) are referred to herein as "Demand Registrations."
(b) Demand Registrations. The Investors will be entitled
to request two (2) Demand Registrations in the aggregate pursuant to
Section 1(a). The Company will pay all Registration Expenses (as such
term is defined herein) in connection with Demand Registrations. The
Company will use reasonable efforts to make Short-Form Registrations
available for the sale of Common Shares but shall not be obligated to do
so.
(c) Priority on Demand Registrations.
(i) If a Demand Registration is either the first
underwritten offering of Common Shares after the IPO (the "First
Subsequent Underwriting") or any other underwritten offering in which
Western Atlas, Inc., a Delaware corporation ("Western Atlas") does not
participate and the managing underwriters advise the Company in writing
that in their opinion the number of Common Shares requested to be included
in such registration exceeds the number that can be sold in an orderly
manner in such offering, then the Company will include in such Demand
Registration the number of Common Shares that, in the opinion of the
underwriters, can be sold in an orderly manner in such offering within the
price range of such offering, to include in order of priority (A) first,
the number of Common Shares requested to be included in such offering for
sale by the Shareholders (the "Shareholder Common Shares"), pro rata among
each Shareholder in proportion to the number of Common Shares then held by
each Shareholder (excluding Common Shares acquired by an Investor
subsequent to the date hereof); provided, however, that Senior Executives
shall have the right to include in any such Demand Registration, pro rata
among the participating Senior Executives on the basis of the number of
Common Shares held by each such participating Senior Executive, a number
of Common Shares not less than twenty-five percent (25%) of the total
number of Shareholder Common Shares to be included in such Demand
Registration; and (B) second, Common Shares requested to be included in
the Demand Registration by Western Atlas ("Western Atlas Common Shares"),
if any.
(ii) If a Demand Registration is any underwritten
offering of Common Shares that is not the First Subsequent Underwriting
and in which Western Atlas participates and the managing underwriters
advise the Company in writing that in their opinion the number of Common
Shares requested to be included in such registration exceeds the number
that can be sold in an orderly manner in such offering, then the Company
will include in such Demand Registration the number of Common Shares that,
in the opinion of the underwriters, can be sold in an orderly manner in
such offering, to be comprised of the Shareholder Common Shares and the
Western Atlas Common Shares in proportion to the number of Common Shares
proposed to be sold by each holder of such Common Shares; provided,
however, that Senior Executives shall have the right to include in any
such Demand Registration, pro rata among the participating Senior
Executives on the basis of the number of Common Shares held by each such
participating Senior Executive, a number of Common Shares not less than
twenty-five percent (25%) of the total number of Shareholder Common Shares
to be included in such Demand Registration.
(iv) Notwithstanding the above or Section 2 hereof,
the Chief Executive Officer of the Company shall have the right to
designate employees of the Company who may participate in any Demand
Registration or any Piggyback Registration (as such term is defined
herein) on the same terms that are applicable to the Senior Executives.
(v) In the context of any underwritten offering, the
provisions of this Section 1(d) concerning the allocation of Common Shares
among Shareholders or Shareholders and Western Atlas shall apply equally
with respect to both (A) the number of Common Shares the underwriters are
committed to purchase and (B) the number of Common Shares the underwriters
have the option to purchase pursuant to the exercise of any over-allotment
options granted to the underwriters.
(e) Limitations on Demand Registrations.
(i) The Company shall not be required to register in
any one Demand Registration an amount of Registration Shares (as such term
is defined herein) that is less than five percent (5%) of the issued and
outstanding Common Shares.
(ii) 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 to the actions of
the Investors or if, once effective, the effectiveness of a registration
statement is withdrawn because of an Investor's actions); provided, that
in any event, the Company will pay all Registration Expenses in connection
with any registration initiated as a Demand Registration whether or not it
has become effective.
(iii) The right of SWIB to request any Demand
Registration provided in Section 1(b) shall terminate at such time as
SWIB's beneficial ownership of Common Shares (taking into account only the
Common Shares that SWIB beneficially owns as of the date hereof and
continues to own at such time) constitutes less than five percent (5%) of
the then issued and outstanding Common Shares. The right of MIVC to
participate in any Demand Registration provided in Section 1(b) shall
terminate at such time as MIVC's beneficial ownership of Common Shares
(taking into account only the Common Shares that MIVC beneficially owns as
of the date hereof and continues to own at such time) constitutes less
than five percent (5%) of the then issued and outstanding Common Shares.
(iv) A Demand Registration that is an underwritten
offering, even if it has become effective, will not count as such if the
principal closing of such offering does not occur due to factors beyond
the control of the Investors. A Demand Registration that is not an
underwritten offering, even if it has become effective, will not count as
such if the Investors are unable to sell at least eighty percent (80%) of
the Common Shares included as the Investor's portion of the Shareholder
Common Shares registered in such Demand Registration due to factors beyond
the control of the Investors.
(v) The Investors shall not request a Demand
Registration until a period of six (6) months has elapsed following the
sale of any Common Shares by an Investor pursuant to the IPO or a prior
Demand Registration or Piggyback Registration.
(f) If a Demand Registration was initiated by an Investor
and the Company then wishes to offer shares of stock in connection with
such registration, then such registration will be considered a Piggyback
Registration, and the provisions of Section 2 of this Agreement (and not
this Section 1 of this Agreement) shall apply. Upon receipt of such
written demand, the Company shall expeditiously effect the registration
under the Act of the Registration Shares and use all reasonable efforts to
have such registration declared effective as soon as practicable after the
filing thereof.
(g) Notwithstanding the foregoing, the Company shall be
entitled to postpone, for up to one hundred twenty (120) days, (i) the
filing of any registration statement otherwise required prepared and filed
by it pursuant to this Section 1 of this Agreement, (ii) the effectiveness
of a registration statement theretofore filed by it or (iii) sales
pursuant to an effective registration statement if, at the time it
receives a request for the exercise of demand rights pursuant to this
Section 1, the Company would be required to prepare any financial
statements other than those it customarily prepares or if, at any time,
the Company determines in its reasonable business judgment that such
registration or offering would interfere with any then pending material
financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company and promptly
gives the Investors written notice of such determination. In any such
event, the Company shall use all reasonable efforts to minimize the length
of the postponement. If the Company shall so postpone the filing of any
registration statement, then the Investor exercising its Demand
Registration shall have the right to withdraw such Demand Registration
request by giving written notice to the Company within thirty (30) days
after the receipt of the notice of postponement and, in the event of such
a withdrawal, the demand request that was withdrawn shall not be deemed to
have been made.
(h) Subject to the consent of the Investor(s) making the
request for a Demand Registration (which consent shall not be unreasonably
withheld) and except as provided in the Warrant by and between the Company
and Western Atlas, Senior Executives shall have the right to select the
underwriters, investment bankers and managers to administer any offering
under this Section 1. Without limitation, Investor(s) shall be deemed to
have unreasonably withheld such consent if it or they refuse to consent to
the selection of any of the underwriters who participated in the IPO or
underwriters of comparable stature.
(i) The term "Registration Shares" shall mean all Common
Shares held by Shareholders that are to be registered in a Demand
Registration pursuant to this Section 1 or a Piggyback Registration
pursuant to Section 2 of this Agreement.
2. Piggyback Registration Rights.
(a) If at any time the Company proposes to register any
Common Shares 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), the Company shall give the Investors notice of such
proposed registration at least thirty (30) days prior to the filing of a
registration statement. At the written request of any Investor delivered
to the Company within fifteen (15) days after the receipt of the notice
from the Company, which request shall state the number of Common Shares
which that Investor wishes to sell or distribute publicly under the
registration statement proposed to be filed by the Company, the Company
shall use all reasonable efforts to register under the Act such Common
Shares and to cause such registration (the "Piggyback Registration") to
become and remain effective as provided in this Agreement.
(b) If a Piggyback Registration is either the First
Subsequent Underwriting or any other underwritten offering in which
Western Atlas does not participate and the managing underwriters advise
the Company in writing that in its opinion the number of Common Shares
requested to be included in such registration exceeds the number that can
be sold in an orderly manner in such offering, then the Company will
include in such Piggyback Registration the number of Common Shares that,
in the opinion of the underwriters, can be sold in an orderly manner in
such offering, to include in order of priority (A) first, the Common
Shares the Company proposes to sell, if any ("Company Common Shares"); (B)
second, the Shareholder Common Shares, pro rata among each Shareholder in
proportion to the number of Common Shares then held by each Shareholder
(excluding Common Shares acquired by an Investor subsequent to the date
hereof); provided, however, that Senior Executives shall have the right to
include in any such Piggyback Registration, pro rata among the
participating Senior Executives on the basis of the number of Common
Shares held by each such participating Senior Executive, a number of
Common Shares not less than twenty-five percent (25%) of the sum of the
number of Shareholder Common Shares to be included in such Piggback
Registration plus the number of Company Common Shares, if any, to be
included in such Piggyback Registration; and (C) third, Western Atlas
Common Shares, if any.
(c) If a Piggyback Registration is an underwritten offering
of Common Shares that is not the First Subsequent Underwriting and in
which Western Atlas participates and the managing underwriters advise the
Company in writing that in its opinion the number of Common Shares
requested to be included in such registration exceeds the number that can
be sold in an orderly manner in such offering, then the Company will
include in such Piggyback Registration the number of Common Shares that,
in the opinion of the underwriters, can be sold in an orderly manner in
such offering, to include in order of priority (A) first, the Company
Common Shares, if any; and (B) second, the Shareholder Common Shares and
Western Atlas Common Shares in proportion to the number of Common Shares
proposed to be sold by each holder of such Common Shares; provided,
however, that Senior Executives shall have the right to include in the
number of Common Shares to be included in such Piggyback Registration,
pro rata among the participating Senior Executives on the basis of the
number of Common Shares held by each such participating Senior Executive,
a number of Common Shares not less than twenty-five percent (25%) of the
sum of the number of Shareholder Common Shares to be included in such
Piggyback Registration plus the number of Company Common Shares, if any,
to be included in such Piggyback Registration.
(d) The right of SWIB to participate in any Piggyback
Registration provided in this Section 2 shall terminate at such time as
SWIB's beneficial ownership of Common Shares (taking into account only the
Common Shares that SWIB beneficially owns as of the date hereof and
continues to own at such time) constitutes less than five percent (5%) of
the then issued and outstanding Common Shares. The right of MIVC to
participate in any Piggyback Registration provided in this Section 2 shall
terminate at such time as MIVC's beneficial ownership of Common Shares
(taking into account only the Common Shares that MIVC beneficially owns as
of the date hereof and continues to own at such time) constitutes less
than five percent (5%) of the then issued and outstanding Common Shares.
(e) In the context of any underwritten offering, the
provisions of this Section 2 concerning the allocation of Common Shares
among (i) Shareholders, (ii) Shareholders and the Company or (iii)
Shareholders and Western Atlas shall apply equally with respect to both
(A) the number of Common Shares the underwriters are committed to purchase
and (B) the number of Common Shares the underwriters have the option to
purchase pursuant to the exercise of any over-allotment options granted to
the underwriters.
3. Indemnity.
(a) The Company will indemnify and hold harmless (i) the
Investors, (ii) the officers, directors and employees of the Investors,
(iii) the Senior Executives, (iv) any employee of the Company who sells
Common Shares and (v) each underwriter of Common Shares sold pursuant to
the IPO or Section 1 or Section 2 of this Agreement (and any Person who
controls an Investor, a Senior Executive or 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 of the
Company relating to the IPO or to this Agreement or from any omission or
alleged omission of the Company 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 an Investor, Senior Executive,
employee or such underwriter expressly for use therein and use in
accordance with such writing. 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.
(b) Each Shareholder, by acceptance of the registration
provisions provided herein agrees to: (i) furnish to the Company such
information concerning that Shareholder and the proposed sale or
distribution as shall, in the opinion of counsel for the Company, be
necessary in connection with any such registration or qualification of any
Common Shares proposed to be made pursuant to the IPO, Section 1 or
Section 2 of this Agreement; and (ii) indemnify and hold harmless the
Company, its officers and directors and each of its underwriters (within
the meaning of Section 15 of the Act) against all claims, losses, damages,
liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact furnished in writing to the Company by
that Shareholder pursuant to the IPO, Section 1 or Section 2 of this
Agreement expressly for use in connection with such registration or
qualification and used in accordance with such writing 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.
4. Registration Covenants of the Company. In the event that
any Common Shares are to be registered pursuant to Section 1 or Section 2
of this Agreement, the Company covenants and agrees that the Company will
use all reasonable efforts to effect the registration and cooperate in the
sale of the Registration Shares to be registered and will:
(a) promptly (within sixty (60) calendar days) prepare and
file with the Securities and Exchange Commission (the "Commission") a
registration statement with respect to the Registration Shares (and
promptly file any necessary amendments or supplements thereto) (a
"Registration Statement") which Registration Statement will state that the
holders of Registration Shares covered thereby may sell such Registration
Shares either under such Registration Statement or pursuant to Rule 144
(or any similar rule then in effect), and use all reasonable efforts to
cause such Registration Statement to become effective as soon as is
reasonably practicable;
(b) furnish to the Shareholders copies of such
Registration Statement and any amendments or supplements thereto and any
prospectus forming a part thereof prior to filing, which documents will be
subject to the review of counsel for the Shareholders;
(c) notify the Shareholders, 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;
(d) notify the Shareholders, promptly of any request by
the Commission for the amending or supplementing of such Registration
Statement or prospectus or for additional information;
(e) advise the Shareholders after the Company shall
receive notice or obtain knowledge thereof of the issuance of any order by
the Commission 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 all reasonable efforts to
prevent the issuance of any stop order or to obtain its withdrawal
promptly if such stop order should be issued;
(f) prepare and file with the Commission 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 complete
the public distribution of such Registration Shares; (ii) six (6) months;
or (iii) the maximum period of time permitted by law to keep effective a
registration statement, and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the Shareholders set forth in such Registration Statement;
(g) furnish to the Shareholders 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 Shareholders may
reasonably request in order to facilitate the disposition of the
Registration Shares owned by the Shareholders;
(h) use all reasonable 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 Shareholders and do any and all other acts and things
which may be necessary or advisable to enable the Shareholders to
consummate the disposition in such jurisdictions of the Registration
Shares;
(i) notify the Shareholders 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
Shareholders, 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;
(j) cause all Registration Shares to be listed on each
securities exchange on which similar securities issued by the Company are
then listed;
(k) provide a transfer agent and registrar for all such
Registration Shares not later than the effective date of such Registration
Statement;
(l) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions
as the Shareholders or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of the Registration
Shares;
(m) make available for inspection by the Shareholders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by the
Shareholders 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 Shareholders, underwriter, attorney,
accountant or agent in connection with such Registration Statement;
(n) use all reasonable efforts to cause 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 Shareholders to consummate the disposition of such
Registration Shares; and
(o) obtain a cold comfort letter from the Company's
independent public accountants and an opinion of counsel in customary form
and covering such matters of the type customarily covered by such
documents as the Shareholders may reasonably request.
5. Expenses.
(a) All expenses incident to the Company's performance of
or compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with
securities or "blue sky" laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and the
Senior Executives and all independent certified public accountants,
underwriters (excluding discounts and commissions) and other persons
retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne by the Company. In addition, the
Company will pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review,
the expense of any liability insurance and the expenses and fees for
listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the
NASD automated quotation system.
(b) To the extent Registration Expenses are not required
to be paid by the Company, each holder of securities included in any
registration hereunder will pay those Registration Expenses allocable to
the registration of such holder's securities so included, and any
Registration Expenses not so allocable will be borne by all sellers of
securities included in such registration in proportion to the aggregate
selling price of the securities to be so registered.
6. Registration Covenants of Investors. For a period of two
(2) years following the date hereof, (i) no Investor shall sell Common
Shares constituting five percent (5%) or more of the then issued and
outstanding Common Shares to a single buyer (other than to underwriters
pursuant to an underwritten offering) without the prior written consent of
the Company (which consent shall not be requested by either Investor more
than once during any 180-day period and which consent shall not be
unreasonably withheld by the Company), and (ii) no Investor shall sell
Common Shares constituting less than five percent (5%) of the then issued
and outstanding Common Shares to a single buyer without providing written
notice of such sale to the Company at least three (3) days prior to
entering into a commitment relating to such sale.
7. Miscellaneous.
(a) Assignability; Successors. The rights and liabilities
of the parties under this Agreement are not assignable or delegable, in
whole or in part, without the prior written consent of the Company. The
provisions of this Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of the parties.
(b) Survival. All agreements, representations and
warranties made in this Agreement or in any document delivered pursuant to
this Agreement shall survive the execution of this Agreement and the
delivery of any such document.
(c) Governing Law. This Agreement shall be governed by
the laws of the State of Wisconsin.
(d) Counterparts: Headings. This Agreement 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 Section headings in this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
(e) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof.
There are no restrictions, promises, warranties, covenants or undertakings
concerning the subject matter hereof other than those expressly set forth
in this Agreement. This Agreement supersedes all prior negotiations,
agreements and undertakings between the parties with respect to such
subject matter.
(f) Notices. All communications or notices required or
permitted by this Agreement shall be in writing and shall be deemed to
have been given at the earlier of the date when actually delivered to an
officer of a party by personal delivery or telephonic facsimile
transmission or two (2) calender days after the same is deposited in the
United States mail, certified or registered mail, postage prepaid, and
addressed as follows, unless and until any of such parties notifies the
others in accordance with this Section of a change of address:
If to the Company or the HK Systems, Inc.
Senior Executives: Attention: John W. Splude
2855 S. James Drive
New Berlin, WI 53151
Fax No.: 414-860-7011
with a copy to:
HK Systems, Inc.
Attention: John R. Kuhnmuench
2855 S. James Drive
New Berlin, WI 53151
Fax No.: 414-860-7011
If to MIVC: M&I Ventures Corporation
Attention: John T. Byrnes
770 North Water Street
Milwaukee, WI 53202
Fax No.: 414-765-7850
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, WI 53202
Fax No.: 414-271-3552
If to SWIB: State of Wisconsin Investment Board
Attention: Director of Private
Placements
121 East Wilson Street
P.O. Box 7842
Madison, WI 53707
Fax No.: 608-266-2436
(g) Amendments. Any provision of this Agreement may be amended
if such amendment is in writing and is signed by the Company and all of
the Shareholders.
(h) Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
(i) No Reliance. No third party is entitled to rely on any of
the agreements of the parties contained in this Agreement and the parties
assume no liability to any third party because of any reliance on the
agreements of the parties contained in this Agreement.
(j) Confidentiality. The Shareholders agree that they shall
use reasonable steps to keep confidential any information or documents
which they or their representatives receive from the Company in connection
with this Agreement and which is confidential or proprietary in nature,
except: (i) if disclosure is required by Law; (ii) to the extent that any
such information or document was or is in the public domain; (iii) for use
by the Shareholders and their agents and representatives in connection
with this Agreement and (d) for information or documents which were in
fact known or delivered to a Shareholder prior to disclosure or delivery
by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement on the day and year first above written.
SENIOR EXECUTIVES HK SYSTEMS, INC.
_________________________ By: ____________________________
John W. Splude
Attest:
_________________________ By: ____________________________
Glen P. Davis Secretary
M&I VENTURES CORPORATION
_________________________
John C. Hines By: ____________________________
Attest:
STATE OF WISCONSIN INVESTMENT BOARD
By: ____________________________
Title: _________________________
EXHIBIT 10.10
SECOND AMENDMENT TO
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS SECOND AMENDMENT, dated as of February 19, 1998 (the
"Second Amendment"), TO THE EMPLOYMENT AND NONCOMPETITION AGREEMENT dated
as of October 28, 1993 and as amended on October 31, 1996 (the "Original
Agreement"), by and among HK SYSTEMS, INC. (formerly known as
Harnischfeger Engineers, Inc.) (the "Company") and JOHN C. HINES (the
"Employee").
WHEREAS, the Company and the Employee are parties to the
Original Agreement; and
WHEREAS, the parties wish to set forth in this Second Amendment
certain agreements they have reached.
IN CONSIDERATION 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:
ARTICLE I
AMENDMENTS
1.1 Amendments. The parties hereby agree that the Original
Agreement be and it hereby is amended as follows:
(a) Section 5 of the Original Agreement is deleted in its
entirety and replaced with the following new Section 5:
5. Compensation. The Company shall pay to the Employee a base
annual salary of $200,000, 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 the Company or have been granted
options to purchase Stock of 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.
(b) Upon the effectiveness of an initial public offering of
common stock of the Company, Section 14 of the Original Agreement is
deleted in its entirety; provided that, the Company and the Employee shall
amend the Original Agreement to reinstate Section 14 if such initial
public offering is not consummated within ten (10) days after it is
effective.
ARTICLE II
MISCELLANEOUS
2.1 Continuance of Agreement. Except as specifically amended
by this Second Amendment, the Original Agreement remains in full force and
effect.
2.2 Governing Law. This Second Amendment shall be governed by
the internal laws of the State of Wisconsin.
2.3 Counterparts; Headings. This Second 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 Second Amendment
are inserted for convenience of reference only and shall not constitute a
part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
HK SYSTEMS, INC.
By: /s/
Its: _____________________________
EMPLOYEE
/s/ John C. Hines
JOHN C. HINES
<PAGE>
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 C. HINES (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: /s/ John W. Splude
John W. Splude, President
Attest:
/s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr., Secretary
HEI SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude, President
Attest:
/s/ John R. Kuhnmuench, Jr.
John R. Kuhnmuench, Jr., Secretary
/s/ John C. Hines (SEAL)
John C. Hines
<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 C. HINES.
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 John C. Hines.
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: John C. Hines
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.
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/ John W. Splude
John W. Splude, President
HEI SYSTEMS, INC.
By: /s/ John W. Splude
John W. Splude, President
/s/ John C. Hines (SEAL)
John C. Hines
EXHIBIT 10.11
HK SYSTEMS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this 1st day of July, 1997, by and among HK SYSTEMS, INC. (the
"Company") and Stephen S. Sadowski.
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 Stephen S. Sadowski.
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 Senior Vice President-
Customer Service and Outsourcing, 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 $150,000, 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. 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: Stephen S. Sadowski
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: /s/ John W. Splude
John W. Splude, President
/s/ Stephen S. Sadowski
Stephen S. Sadowski, Employee
EXHIBIT 10.12
HK SYSTEMS, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement is entered into as of
this 1st day of July, 1997, by and among HK SYSTEMS, INC. (the
"Company") and Larry S. Cinpinski.
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 Larry S. Cinpinski.
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 Senior Vice President-
Logistics and Software Systems, 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 $150,000, 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. 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: Larry S. Cinpinski
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: /s/ John W. Splude
John W. Splude, President
/s/ Larry S. Cinpinski
Larry S. Cinpinski, Employee
EXHIBIT 10.13
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
HK SYSTEMS, INC.
December 12, 1997
Amendment of the 1993 Stock Option Plan.
WHEREAS, the Board of Directors of HK Systems, Inc. (the "Company")
has previously adopted the HK Systems, Inc. 1993 Executive Stock Option
Plan (the "1993 Plan") for its key employees; and
WHEREAS, in anticipation of the initial public offering of the
Company, the Board of Directors has determined that it is in the best
interest of the Company to amend the 1993 Plan to allow the Compensation
Committee to administer the 1993 Plan.
NOW, THEREFORE, BE IT RESOLVED, that the 1993 Plan be and it hereby
is amended to the extent necessary to provide that the Compensation
Committee of the Board of Directors shall be designated as the body
responsible for administering the 1993 Plan.
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,
February 27, 1998.
<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> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1997
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<RECEIVABLES> 56,387
<ALLOWANCES> 517
<INVENTORY> 10,658
<CURRENT-ASSETS> 75,023
<PP&E> 320,797
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18,348
0
<COMMON> 633
<OTHER-SE> (7,493)
<TOTAL-LIABILITY-AND-EQUITY> 139,546
<SALES> 48,490
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<OTHER-EXPENSES> 8,072
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<INCOME-PRETAX> 1,938
<INCOME-TAX> 698
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<NET-INCOME> 876
<EPS-PRIMARY> 0.32
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