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As filed with the Securities and Exchange Commission on July 22, 1998.
Registration No. 333-52529
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MMH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 6719 39-1716155
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
4915 South Howell Avenue, 2nd Floor
Milwaukee, Wisconsin 53207
(414) 486-6100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MICHAEL S. ERWIN
President
MMH HOLDINGS, INC.
4915 South Howell Avenue, 2nd Floor
Milwaukee, Wisconsin 53207
(414) 486-6100
(Name, address, including zip code, and telephone number
including area code, of agent for service)
---------------------
Copies to:
Russell W. Parks, Jr., Esq.
William A. Bianco, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
---------------------
Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, 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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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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 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 JULY 22, 1998
Offer to Exchange
all outstanding
12% Series A Senior Exchangeable Preferred Stock
($57,710,000 aggregate liquidation preference outstanding)
for
12% Series A Senior Exchangeable Preferred Stock
which has been registered under the Securities Act of 1933
of
MMH Holdings, Inc.
---------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON , 1998, unless extended
MMH Holdings, Inc., a Delaware corporation ("Holdings" or the "Issuer"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 liquidation preference of its 12% Series A Senior Exchangeable
Preferred Stock, par value $.01 per share (the "New Series A Senior Preferred
Stock"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement (as defined herein)
of which this Prospectus is a part, for each $1,000 liquidation preference of
its outstanding 12% Series A Senior Exchangeable Preferred Stock, par value $.01
per share (the "Old Series A Senior Preferred Stock"), of which $57,710,000
aggregate liquidation preference is outstanding. The New Series A Senior
Preferred Stock and the Old Series A Senior Preferred Stock are together
referred to herein as the "Series A Senior Preferred Stock."
Holdings will accept for exchange any and all shares of Old Series A
Senior Preferred Stock that are validly tendered on or prior to 5:00 p.m. New
York City time, on the date the Exchange Offer expires, which will be ,
1998, unless the Exchange Offer is extended (the "Expiration Date"). The
exchange of shares of Old Series A Senior Preferred Stock for shares of New
Series A Senior Preferred Stock will be made (i) with respect to all shares of
Old Series A Senior Preferred Stock validly tendered and not withdrawn on or
prior to 5:00 p.m. New York City time, on (the "Early Exchange Date"),
within two business days following the Early Exchange Date, and (ii) with
respect to all shares of Old Series A Senior Preferred Stock validly tendered
and not withdrawn after the Early Exchange Date and on or prior to the
Expiration Date, within two business days following the Expiration Date. Tenders
of shares of Old Series A Senior Preferred Stock may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange. The Exchange Offer is not conditioned upon any
minimum number of shares of Old Series A Senior Preferred Stock being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by Holdings. See "The Exchange Offer." Holdings has agreed to pay
the expenses of the Exchange Offer.
For a discussion of certain risks associated with an investment in the New
Series A Senior Preferred Stock, see "Risk Factors," beginning on page 15 of
this Prospectus.
(Continued on next page)
---------------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ___________
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The shares of New Series A Senior Preferred Stock will be obligations of
Holdings governed by the Restated Certificate (as defined herein). The form and
terms of the shares of New Series A Senior Preferred Stock are identical in all
material respects to the form and terms of the shares of Old Series A Senior
Preferred Stock except (i) that the shares of New Series A Senior Preferred
Stock have been registered under the Securities Act, (ii) that the shares of New
Series A Senior Preferred Stock are not entitled to certain registration rights
which are applicable to the shares of Old Series A Senior Preferred Stock under
a registration rights agreement (the "Exchange Offer Registration Rights
Agreement") between Holdings and CIBC Oppenheimer Corp., the initial purchaser
of the shares of Old Series A Senior Preferred Stock (the "Initial Purchaser")
and (iii) for certain contingent dividend rate provisions. See "The Exchange
Offer."
Dividends on the New Series A Senior Preferred Stock will accrue from
March 30, 1998, the date of issuance of the Old Series A Senior Preferred Stock,
and will be payable semi-annually on each April 1 and October 1, commencing
October 1, 1998, at a rate per annum of 12% of the liquidation preference per
share. Dividends may be paid, at Holdings' option, on any dividend payment date
occurring on or prior to April 1, 2003, either in cash or by the issuance of
additional shares of New Series A Senior Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends (and, at Holdings'
option, payment of cash in lieu of fractional shares). The liquidation
preference of the New Series A Senior Preferred Stock will be $1,000 per share.
Holders of shares of Old Series A Senior Preferred Stock whose shares of Old
Series A Senior Preferred Stock are accepted for exchange will be deemed to have
waived the right to receive any dividend payment in respect of Old Series A
Senior Preferred Stock accrued from March 30, 1998 to the date of issuance
of the New Series A Senior Preferred Stock.
The New Series A Senior Preferred Stock will be redeemable, at the
option of Holdings, in whole or in part, at any time on or after April 1,
2003, at the redemption prices set forth herein, plus accumulated and unpaid
dividends to the date of redemption. Holdings will be required, subject to
certain limitations, to redeem all of the New Series A Senior Preferred Stock
outstanding on April 1, 2009, at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption. Upon the occurrence of a Change of Control (as defined
herein), Holdings will, subject to certain conditions, be required to offer
to purchase all of the outstanding shares of New Series A Senior Preferred
Stock at a price equal to 101% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of purchase. There can be no
assurance, however, that in the event of a Change of Control, Holdings will
have or be able to acquire sufficient funds to purchase the New Series A
Senior Preferred Stock. Holdings may redeem all, but not less than all, of
the outstanding shares of New Series A Senior Preferred Stock at any time
prior to April 1, 2001 at a redemption price equal to 112% of the aggregate
liquidation price thereof, plus accumulated and unpaid dividends thereon to
the redemption date, with the Net Proceeds (as defined herein) of one or more
Public Equity Offerings (as defined herein); provided that any such
redemption occurs within 90 days following the closing of any such Public
Equity Offering.
Subject to certain conditions, the New Series A Senior Preferred Stock
will be exchangeable, in whole but not in part, at the option of Holdings, on
any dividend payment date, for Holdings' 12% Exchange Debentures due 2009 (the
"Exchange Debentures"). Interest on the Exchange Debentures will be payable at a
rate of 12% per annum and will accrue from the date of issuance thereof.
Interest on the Exchange Debentures will be payable semi-annually in cash or, at
the option of Holdings, on or prior to April 1, 2003, in additional Exchange
Debentures, in arrears on each April 1 and October 1, commencing on the first
such date after the exchange of the New Series A Senior Preferred Stock for
Exchange Debentures. The Exchange Debentures mature on April 1, 2009. The
Exchange Debentures will be redeemable, at the option of Holdings, in whole or
in part, on or after April 1, 2003, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of redemption. Upon a Change of
Control, Holdings will be required to make an offer to purchase all outstanding
Exchange Debentures at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon to the date of purchase.
Holdings may redeem all, but not less than all, of the Exchange Debentures at
any time prior to April 1, 2001, at a redemption price equal to 112% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon to
the redemption date, with the Net Proceeds of one or more Public Equity
Offerings; provided that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering. In addition, Holdings will be
obligated in certain instances to make an offer to purchase the Exchange
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Debentures at a purchase price equal to 100% of the principal amount thereof
plus accrued and unpaid interest with the net cash proceeds of certain asset
sales.
The New Series A Senior Preferred Stock will rank junior in right of
payment to all existing and future liabilities and obligations (whether or
not for borrowed money) of Holdings and senior to all other capital stock of
Holdings. The Exchange Debentures will be subordinated in right of payment to
all existing and
future Senior Indebtedness (as defined herein) of Holdings and will rank pari
passu with or senior to all future Indebtedness (as defined herein) of
Holdings that expressly provides that it ranks pari passu with or junior to
the Exchange Debentures, as the case may be. As of April 30, 1998, Holdings
had $33.7 million liquidation preference (and approximately $0.3 million of
accrued dividends) of junior preferred stock outstanding and had no
Indebtedness outstanding. In addition, as of April 30, 1998, Holdings'
subsidiaries had an aggregate of $261.1 million of Indebtedness outstanding
(including $200.0 million principal amount of the Senior Notes (as defined
herein) issued by Morris Material Handling, Inc. ("MMH" or the "Company"), a
wholly-owned subsidiary of Holdings, and $58.3 million of borrowings under
the New Credit Facility (as defined herein)), in respect of which the New
Series A Senior Preferred Stock and the Exchange Debentures will be
effectively subordinated. Borrowings under the New Credit Facility are
guaranteed by Holdings and are secured by substantially all of the assets of
the Company and its subsidiaries located in the United States and the United
Kingdom, certain of the assets of the Company's subsidiaries located in
Canada and a pledge of substantially all of the capital stock of the Company
and its subsidiaries.
Shares of Old Series A Senior Preferred Stock initially sold to qualified
institutional buyers were initially represented by a global certificate in fully
registered form, without coupons, deposited with a custodian for the Depository
Trust Company ("DTC") and registered in the name of DTC or a nominee of DTC.
Beneficial interests in the global certificate representing the Old Series A
Senior Preferred Stock were shown on, and transfers thereof were effected only
through, records maintained by DTC and its participants. Except as described
herein, shares of New Series A Senior Preferred Stock exchanged for shares of
Old Series A Senior Preferred Stock represented by the global certificate will
be represented by one or more global certificates of New Series A Senior
Preferred Stock in fully registered form, without coupons, registered in the
name of the nominee of DTC. New Series A Senior Preferred Stock in global form
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in such New Series A Senior Preferred Stock will therefore
settle in immediately available funds. See "Book-Entry, Deliver and Form." New
Series A Senior Preferred Stock issued to non-qualified institutional buyers in
exchange for Old Series A Senior Preferred Stock held by such investors will be
issued only in certificated, fully registered, definitive form.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to unrelated
third parties, Holdings believes that shares of New Series A Senior Preferred
Stock issued Exchange Offer in exchange for shares of Old Series
A Senior Preferred Stock may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a "Restricted Holder," being (i) a
broker-dealer who purchases such shares of Old Series A Senior Preferred Stock
directly from Holdings to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of
Holdings within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring shares of New Series A
Senior Preferred Stock in the ordinary course of its business and is not
participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of the New
Series A Senior Preferred Stock. Eligible holders wishing to accept the Exchange
Offer must represent to Holdings that such conditions have been met. Each
broker-dealer that receives shares of New Series A Senior Preferred Stock for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Series A Senior
Preferred Stock. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of shares of New Series A Senior
Preferred Stock received in exchange for shares of Old Series A Senior Preferred
Stock only where such shares of Old Series A Senior Preferred Stock were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. Holdings has agreed that it will make this Prospectus
available to any broker-dealer for use
iii
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in connection with any such resale for a period from the date of this
Prospectus until 180 days after the consummation of the Exchange Offer, or
such shorter period as will terminate when all shares of Old Series A Senior
Preferred Stock acquired by broker-dealers for their own accounts as a result
of market-making activities or other trading activities have been exchanged
for shares of New Series A Senior Preferred Stock and resold by such
broker-dealers. See "The Exchange Offer" and "Plan of Distribution."
Holdings will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL HOLDINGS ACCEPT
SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF SHARES OF OLD SERIES A SENIOR PREFERRED STOCK
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF
WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION.
Prior to the Exchange Offer, there has previously been only a limited
secondary market and no public market for the Old Series A Senior Preferred
Stock. If a market for the New Series A Senior Preferred Stock should develop,
the shares of New Series A Senior Preferred Stock could trade at a discount from
their liquidation preference. Holdings does not intend to list the shares of New
Series A Senior Preferred Stock on a national securities exchange or to apply
for quotation of the shares of New Series A Senior Preferred Stock through the
National Association of Securities Dealers Automated Quotation System. There can
be no assurance that an active public market for the New Series A Senior
Preferred Stock will develop.
This Prospectus includes "forward-looking statements," including
statements containing the words "believes," "anticipates," "expects" and
words of similar import. All statements other than statements of historical
fact included in this Prospectus, including, without limitation, the
statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere herein, regarding Holdings, the Company or any of
the transactions described herein, including the timing, financing,
strategies and effects of such transactions, are forward-looking statements.
Although Holdings believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from expectations are disclosed in
this Prospectus, including, without limitation, in conjunction with the
forward-looking statements in this Prospectus and/or under "Risk Factors."
Holdings does not intend to update these forward-looking statements.
iv
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AVAILABLE INFORMATION
Holdings has filed with the Commission a Registration Statement (which
term shall include any amendment, exhibit, schedule and supplement thereto)
on Form S-4 under the Securities Act for the registration of the shares of
New Series A Senior Preferred Stock and Exchange Debentures offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are omitted as permitted by the rules and regulations
of the Commission. For further information with respect to Holdings and such
securities, reference is hereby made to the Registration Statement, including
the exhibits and schedules thereto. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document referred
to herein include fair summaries of the terms material to investors. With
respect to each such contract, agreement or other document filed with the
Commission as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed by Holdings with the Commission may be inspected and copied at the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
information can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site that contains reports, proxy and
other information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. The
Web site can be accessed at http://www.sec.gov.
Holdings has agreed that if it is not subject to the informational
requirements of Sections 13 or 15(d) of the Exchange Act at any time while the
New Series A Senior Preferred Stock or Exchange Debentures constitute
"restricted securities" within the meaning of the Securities Act, it will
furnish to holders and beneficial owners of such securities and to prospective
purchasers designated by such holders the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with
Rule 144A in connection with resales of such securities.
v
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TABLE OF CONTENTS
Page
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Available Information................................................... v
Prospectus Summary...................................................... 1
Risk Factors............................................................ 15
The Exchange Offer...................................................... 23
The Transactions........................................................ 31
Dividend Policy......................................................... 33
Use of Proceeds......................................................... 34
Capitalization.......................................................... 35
Unaudited Pro Forma Combined Financial Information...................... 36
Selected Historical and Pro Forma Combined Financial Data............... 41
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 44
Business................................................................ 52
Management.............................................................. 63
Security Ownership of Certain Beneficial Owners and Management.......... 71
Certain Relationships and Related Transactions.......................... 72
Description of New Credit Facility...................................... 76
Description of the Surety Arrangement................................... 77
The Senior Note Offering................................................ 78
Description of New Series A Senior Preferred Stock and Exchange
Debentures............................................................. 80
Preferred Stock Exchange Offer; Registration Rights..................... 122
Description of the Other Capital Stock.................................. 124
Book-Entry, Delivery and Form........................................... 129
U.S. Federal Income Tax Consequences.................................... 132
Plan of Distribution.................................................... 141
Experts................................................................. 142
Legal Matters........................................................... 142
Index to Financial Statements........................................... F-1
Until ___________ 1998, all dealers effecting transactions in the New
Series A Senior Preferred Stock, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
vi
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and combined financial
statements, including notes thereto, appearing elsewhere in this Prospectus. The
"Transactions," which closed on March 30, 1998, consist of the Recapitalization,
the Financings and the October 1997 Drop Down (each as defined herein). Holdings
is a holding company, with no material operating assets, that conducts its
business operations through its direct wholly-owned subsidiary Morris Material
Handling, Inc. ("MMH"). For purposes of this Prospectus, unless the context
requires otherwise, references to the "Company" are to MMH, its subsidiaries and
their predecessors. For periods prior to March 30, 1998, references to the
Company are to the "through-the-air" material handling equipment business (the
"MHE Business") of Harnischfeger Corporation ("HarnCo") and those subsidiaries
and affiliates of HarnCo that were engaged therein. For purposes of this
Prospectus, it is assumed that Holdings has historically owned the capital stock
of MMH, that all of the assets of the MHE Business were owned by subsidiaries
thereof and that, immediately prior to the consummation of the Recapitalization,
the historical combined financial statements of Holdings were identical to those
of the Company which are presented herein. The Company's fiscal year ends
October 31. Consequently, any reference to any particular fiscal year means the
fiscal year ended October 31 of such year.
The Company
The Company is a leading international provider of "through-the-air"
material handling products and services used in most manufacturing industries.
The Company's original equipment operations design and manufacture a
comprehensive line of industrial cranes, hoists and other component products,
sold principally under the P&H and Morris brand names. Through its aftermarket
operations, the Company provides a variety of related products and services,
including replacement parts, repair and maintenance services and product
modernizations. In recent years, the Company has shifted its orientation from an
original equipment-focused United States manufacturer to an international full
service provider with a significant emphasis on the high margin aftermarket
business.
During the past three years, the Company has grown significantly, both
internally and through acquisitions. From fiscal 1994 through fiscal 1997,
the Company's net sales grew from $109.4 million to $353.4 million and EBITDA
(as defined herein) increased from $15.1 million to $45.9 million, although
net sales and EBITDA decreased 11.2% and 20.0%, respectively, for the six
months ended April 30, 1998 as compared to the six months ended April 30,
1997. Management believes that the Company's growth from 1994 to 1997 is
largely attributable to (i) strengthening and broadening its product line,
(ii) building a network of Company-owned distribution and service centers
("DSCs") which provides a local presence for product support and a platform
for growth and (iii) expanding into attractive domestic and international
markets through internal growth and a disciplined acquisition strategy.
The Company's core business was founded in 1884 and material handling
machinery and related equipment have been sold under the well-recognized P&H and
Morris brand names since the 1890s. The Company has developed a large global
installed base of equipment, having sold an aggregate of over half a million
cranes and hoists according to management estimates. Management believes that
the Company is one of the leading suppliers of industrial overhead cranes in
North America, the United Kingdom and South Africa. Management also believes
that the Company is one of the largest global providers of aftermarket products
and services to the industrial crane industry. Sales outside of North America
accounted for 39% of fiscal 1997 net sales, with Western Europe representing 22%
and the Pacific Rim representing 8% of net sales.
Industrial cranes and hoists are critical to the operations of most
businesses that require the movement of large or heavy objects. The steel,
aluminum, paper and forest products, aerospace, foundry, and automotive
industries, among others, rely on cranes and hoists as one of the most flexible
and efficient methods of transporting materials within a plant while maximizing
the use of available space. Industrial cranes, which typically last 20 to 50
years, require significant aftermarket support in the form of replacement parts,
machine modernizations and upgrades, repairs, and inspection and maintenance
services.
The current management team has implemented a strategy to capitalize on
the Company's significant global installed base of equipment to generate high
margin aftermarket opportunities. The Company has built its aftermarket
operations in order to become a full service provider and capture additional
revenue. In addition, management believes that the diversified earnings
created by this strategy help to lessen the effect of economic
1
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cycles on the Company. In fiscal 1997, aftermarket sales accounted for
approximately 40% of net sales and 65% of gross profit on a consolidated
basis, while in North America, where the Company has pursued its full service
strategy for a longer period of time, the aftermarket business accounted for
51% of net sales and 72% of gross profit.
The Transactions
Historically, the Company operated as one of several operating units of
Harnischfeger Industries, Inc., the direct parent of HarnCo. On January 28,
1998, HarnCo and certain of HarnCo's affiliates (together with HarnCo, the
"HarnCo Parties") reached an agreement (the "Recapitalization Agreement") with
MHE Investments, Inc. ("MHE Investments"), a newly formed affiliate of
Chartwell Investments Inc., for the sale of an approximately 80 percent
common ownership interest in the MHE business.
Pursuant to the Recapitalization Agreement, the HarnCo Parties effected
a number of transactions that resulted in Holdings, a pre-existing company
within the MHE Business, owning, directly or indirectly, all of the equity
interests of the entities engaged in the MHE Business that were previously
owned by the HarnCo Parties. Holdings in turn formed MMH as a wholly owned
subsidiary to directly or indirectly hold the various operating entities of
the MHE Business. Holdings was recapitalized (the "Recapitalization") in
order to effect the redemption of certain shares of capital stock of Holdings
held by HarnCo.
On March 30, 1998, in conjunction with the consummation of the
Recapitalization (the "Recapitalization Closing"), Holdings sold 57,710 Units
(the "Series A Units"), each consisting of one share of Old Series A Senior
Preferred Stock and 0.012476 shares of non-voting common stock (the "Unit
Common Stock"), to certain institutional investors (the "Offering"). In
addition, MHE Investments and HarnCo invested new and continuing equity
capital of $66.0 million in Holdings (together with the proceeds of the sale
of Series A Units (the "Equity Investment").
The proceeds of the Equity Investment, together with approximately
$55.0 million of aggregate borrowings under a senior secured credit facility
(the "New Credit Facility"), which the Company entered into at the
Recapitalization Closing and approximately $200.0 million in aggregate
proceeds from the Senior Note Offering (as defined herein, and together with
the Equity Investment and the New Credit Facility, the "Financings"), were
used (i) to finance the Recapitalization, (ii) to make loans to senior
management to acquire indirect equity interests in Holdings, (iii) for
general corporate purposes and (iv) to pay approximately $24.0 million of
fees and expenses. See "Use of Proceeds."
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0
million in cash for approximately 72.6% of the common stock of Holdings (the
"Common Stock") (after giving effect to the Transactions) and approximately
$28.9 million liquidation preference of the 12 1/2% Series C Junior Voting
Exchangeable Preferred Stock of Holdings (the "Series C Junior Voting
Preferred Stock"), (ii) Holdings redeemed certain shares of Common Stock and
Series C Junior Voting Preferred Stock held by HarnCo for $282.0 million in
cash (subject to potential post-Recapitalization Closing adjustments as to
which an additional $5.0 million was provided to HarnCo at the
Recapitalization Closing) and approximately $4.8 million liquidation
preference of the 12 1/4% Series B Junior Exchangeable Preferred Stock of
Holdings (the "Series B Junior Preferred Stock"), and (iii) and HarnCo
retained approximately 20.8% of the Common Stock (after giving effect to the
Transactions). The Series A Units constitute the remaining equity interests
of Holdings and consist of non-voting stock representing approximately 6.6%
of the Common Stock (after giving effect to the Transactions) and
approximately $57.7 million liquidation preference of the Old Series A Senior
Preferred Stock. See "The Transactions" and "Capitalization."
In connection with the Recapitalization, the Company entered into a
Trademark License Agreement with an affiliate of HarnCo, pursuant to which
the Company has the right to use the P&H trademark with respect to all MHE
Business products on a worldwide exclusive basis from the date of the
Recapitalization Closing until 15 years after the earlier to occur of a sale
of Holdings to a third party or a public offering of the common stock of
Holdings, the Company or their parents or successors (and for an additional
seven years thereafter for aftermarket products and services). The royalty
fee for use of the trademark is 0.75% of the aggregate net sales of the MHE
Business for the ten year period commencing March 30, 1999. There will be no
royalty fee for the remainder of the term. The Company also entered into a
number of agreements pursuant to which HarnCo will continue to provide, on an
interim basis, certain supplies, products and services to the Company and its
subsidiaries located in the United States
2
<PAGE>
on substantially similar terms and conditions to those historically provided.
See "Certain Relationships and Related Transactions."
---------------------
Holdings' principal executive offices are located at 4915 South Howell
Avenue, 2nd Floor, Milwaukee, Wisconsin 53207, telephone number (414) 486-6100.
3
<PAGE>
Summary of Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $57,710,000 aggregate
liquidation preference of Old Series A Senior Preferred Stock for up to an equal
aggregate liquidation preference of New Series A Senior Preferred Stock. The
shares of New Series A Senior Preferred Stock will be obligations of Holdings
governed by the Restated Certificate. The form and terms of the shares of New
Series A Senior Preferred Stock are identical in all material respects to the
form and terms of the shares of Old Series A Senior Preferred Stock except (i)
that the shares of New Series A Senior Preferred Stock have been registered
under the Securities Act, (ii) that the shares of New Series A Senior Preferred
Stock are not entitled to certain registration rights which are applicable to
the shares of Old Series A Senior Preferred Stock under the Exchange Offer
Registration Rights Agreement and (iii) for certain contingent interest rate
provisions. The shares of Old Series A Senior Preferred Stock and the shares of
New Series A Senior Preferred Stock are together referred to herein as the
"Series A Senior Preferred Stock." See "Description of New Series A Senior
Preferred Stock and Exchange Debentures."
The Exchange Offer .............. $1,000 liquidation preference of New Series A
Senior Preferred Stock will be issued in
exchange for each $1,000 liquidation
preference of Old Series A Senior Preferred
Stock validly tendered pursuant to the
Exchange Offer. As of the date hereof,
$57,710,000 in aggregate liquidation
preference of Old Series A Senior Preferred
Stock is outstanding. The exchange of New
Series A Senior Preferred Stock for Old
Series A Senior Preferred Stock will be made
(i) with respect to all Old Series A Senior
Preferred Stock validly tendered and not
withdrawn on or prior to the Early Exchange
Date, within two business days following the
Early Exchange Date, and (ii) with respect to
all Old Series A Senior Preferred Stock
validly tendered and not withdrawn on or
prior to the Expiration Date, within two
business days following the Expiration Date.
The Old Series A Senior Preferred Stock was
originally issued in a private placement. As
a condition to the purchase of the Old Series
A Senior Preferred Stock, the Initial
Purchaser required that Holdings make a
registered offer to exchange the Old Series A
Senior Preferred Stock for other securities
substantially similar to the Old Series A
Senior Preferred Stock. The Exchange Offer is
being made to satisfy this contractual
obligation of Holdings.
Resale .......................... Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to unrelated third parties,
Holdings believes that shares of New
Series A Senior Preferred Stock issued
pursuant to the Exchange Offer in exchange
for shares of Old Series A Senior
Preferred Stock may be offered for resale
and resold or otherwise transferred by
holders thereof (other than any Restricted
Holder) without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such shares of New Series A Senior
Preferred Stock are acquired in the
ordinary course of such holders' business
and such holders are not participating, do
not intend to participate and have no
arrangement or understanding with any
person to participate, in the distribution
of such shares of New Series A Senior
Preferred Stock. See "K-III Communications
Corporation," SEC No Action Letter
(available May 14, 1993); "Mary Kay
Cosmetics, Inc.," SEC No-Action Letter
(available June 5, 1991); "Morgan Stanley
& Co., Incorporated," SEC No-Action Letter
(available June 5, 1991); and "Exxon
Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1988).
Each broker-dealer that receives shares of
New Series A Senior Preferred Stock for
its own account in exchange for shares of
Old Series A Senior Preferred Stock, where
such shares of Old Series A Senior
Preferred Stock were
4
<PAGE>
acquired by such broker-dealer as a result
of market-making activities or other
trading activities, must acknowledge that
it will deliver a prospectus in connection
with any resale of such shares of New
Series A Senior Preferred Stock. See "Plan
of Distribution."
If any person were to participate in the
Exchange Offer for the purpose of
distributing securities in a manner not
permitted by the preceding paragraph, such
person (i) could not rely on the position of
the staff of the Commission enunciated in
"Exxon Capital Holdings Corporation" and (ii)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. Therefore, each holder of
shares of Old Series A Senior Preferred Stock
who accepts the Exchange Offer must represent
in the Letter of Transmittal that it meets
the conditions described above. See "The
Exchange Offer--Terms of the Exchange Offer."
Early Exchange Date ............. All shares of Old Series A Senior Preferred
Stock validly tendered and not withdrawn on
or prior to 5:00 p.m. New York City time, on
, 1998 (the "Early Exchange
Date") will be exchanged for shares of New
Series A Senior Preferred Stock within two
business days following the Early Exchange
Date.
Expiration Date ................. 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended,
in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended. See "The Exchange
Offer--Terms of the Exchange
Offer--Expiration Date; Extensions;
Amendments."
Accrued Dividends on the New
Series A Senior Preferred Stock
and the Old Series A Senior
Preferred Stock ................. The shares of New Series A Senior Preferred
Stock will accrue dividends from March 30,
1998, the date of issuance of the Old Series
A Senior Preferred Stock. Holders of shares
of Old Series A Senior Preferred Stock whose
shares of Old Series A Senior Preferred Stock
are accepted for exchange will be deemed to
have waived the right to receive any payment
in respect of interest on such shares of Old
Series A Senior Preferred Stock accrued from
March 30, 1998 until the date of the issuance
of the shares of New Series A Senior
Preferred Stock. See "The Exchange
Offer--Accrual of Dividends on the New Series
A Senior Preferred Stock."
Conditions to the Exchange
Offer ........................... Holdings will not be obligated to consummate
the Exchange Offer if the shares of New
Series A Senior Preferred Stock to be
received will not be tradeable by the holder,
other than in the case of Restricted Holders,
without restriction under the Securities Act
and the Exchange Act and without material
restrictions under the blue sky or securities
laws of substantially all of the states of
the United States. This condition may be
waived by Holdings. See "The Exchange
Offer--Conditions."
No federal or state regulatory requirements
must be complied with or approvals obtained
in connection with the Exchange Offer, other
than the registration provisions of the
Securities Act and any applicable
registration or qualification provisions of
state securities laws.
5
<PAGE>
Procedure for Tendering
Shares of Old Series A Senior
Preferred Stock ................. Each holder of shares of Old Series A Senior
Preferred Stock wishing to accept the
Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with the shares
of Old Series A Senior Preferred Stock
(unless such tender is being effected
pursuant to the procedures for book-entry
transfer described below) to be exchanged and
any other required documentation to the
Exchange Agent (as defined herein) at the
address set forth herein and therein. See
"The Exchange Offer--Procedure for
Tendering."
Special Procedures for
Beneficial Holders .............. Any beneficial holder whose shares of Old
Series A Senior Preferred Stock are
registered in the name of his broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on his behalf. If such
beneficial holder wishes to tender on his own
behalf, such beneficial holder must, prior to
completing and executing the Letter of
Transmittal and delivering his shares of Old
Series A Senior Preferred Stock, either make
appropriate arrangements to register
ownership of the shares of Old Series A
Senior Preferred Stock in such holder's name
or obtain a properly completed bond power
from the registered holder. The transfer of
record ownership may take considerable time.
See "The Exchange Offer--Procedure for
Tendering."
Guaranteed Delivery Procedures .. Holders of shares of Old Series A Senior
Preferred Stock who wish to tender their
shares of Old Series A Senior Preferred Stock
and whose shares of Old Series A Senior
Preferred Stock are not immediately available
or who cannot deliver their shares of Old
Series A Senior Preferred Stock (or who
cannot complete the procedures for book-entry
transfer on a timely basis) and a properly
completed Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Early Exchange Date or the Expiration
Date, as the case may be, may tender their
shares of Old Series A Senior Preferred Stock
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights ............... Tenders of shares of Old Series A Senior
Preferred Stock may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
the Expiration Date, unless previously
accepted for exchange. See "The Exchange
Offer--Withdrawal of Tenders."
Acceptance of Old Series
A Senior Preferred Stock and
Delivery of New Series A
Senior Preferred Stock .......... Subject to certain conditions (as summarized
above in "Conditions to the Exchange
Offer" and described more fully in "The
Exchange Offer-- Conditions"), Holdings
will accept for exchange any and all
shares of Old Series A Senior Preferred
Stock which are validly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on each of the Early
Exchange Date and the Expiration Date. The
shares of New Series A Senior Preferred
Stock issued pursuant to the Exchange
Offer will be delivered promptly following
each of the
6
<PAGE>
Early Exchange Date and the Expiration
Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Tax Considerations .............. The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See
"U.S. Federal Income Tax Consequences."
Exchange Agent .................. United States Trust Company of New York, the
Transfer Agent for the Series A Senior
Preferred Stock, is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The address of the Exchange
Agent is: United States Trust Company of New
York, 114 West 47th Street, New York, New
York 10036, Attention: Corporate Trust
Administration. For information with respect
to the Exchange Offer, call 1-800-548-6565.
Use of Proceeds ................. Holdings will not receive any proceeds from
the exchange of the New Series A Senior
Preferred Stock for the Old Series A Senior
Preferred Stock pursuant to the Exchange
Offer. The net proceeds from the sale of the
Old Series A Senior Preferred Stock and the
remaining portion of the Equity Investment,
together with the proceeds of the Senior Note
Offering and borrowings under the New Credit
Facility, were used by Holdings and the
Company (i) to finance the Recapitalization,
(ii) to make loans to management to acquire
indirect equity interests in Holdings, (iii)
for general corporate purposes and (iv) to
pay fees and expenses associated with the
Transactions. See "Use of Proceeds."
Summary Description of the Securities to be Registered
The Series A Senior Preferred Stock
Issuer .......................... MMH Holdings, Inc.
Securities Offered .............. 57,710 shares of 12% Series A Senior
Exchangeable Preferred Stock, par value $.01
per share.
Issue Price ..................... $1,000 per share, plus accumulated and unpaid
dividends.
Liquidation Preference .......... $1,000 per share.
Dividends ....................... The New Series A Senior Preferred Stock will
accumulate dividends from March 30, 1998, the
date of issuance of the Old Series A Senior
Preferred Stock (the "Issue Date"), at an
annual rate of 12% of the liquidation
preference per share, payable semi-annually
in arrears. Dividends may be paid, at
Holdings' option, on any dividend date
occurring on or prior to April 1, 2003,
either in cash or additional shares of New
Series A Senior Preferred Stock having an
aggregate liquidation preference equal to the
amount of such dividend (and, at Holdings'
option, payment of cash in lieu of fractional
shares); thereafter, dividends are payable
only in cash. It is contemplated that
Holdings' sole source of funds to pay
dividends will be cash generated by the
Company. The New Credit Facility and the Note
Indenture (as defined herein) will limit the
ability of the Company to advance funds to
Holdings for the purpose of paying dividends
and the ability of Holdings to pay dividends.
No dividends may be paid in cash on any
preferred stock ranking junior to the New
Series A Senior Preferred Stock, unless cash
dividends
7
<PAGE>
on the New Series A Senior referred Stock
required to be paid have been so paid. In
addition, no dividends may be paid in cash
on any preferred stock ranking junior to
the New Series A Senior Preferred Stock
during any period when cash dividends
(whether or not required to be so paid)
are not paid on the New Series A Senior
Preferred Stock.
Dividend Payment Dates .......... April 1 and October 1, commencing October 1,
1998.
Optional Redemption ............. The New Series A Senior Preferred Stock will
be redeemable at the option of Holdings, in
whole or in part, at any time on or after
April 1, 2003 at the redemption prices set
forth herein, plus accumulated and unpaid
dividends thereon to the redemption date. In
addition, Holdings may redeem all, but not
less than all, of the New Series A Senior
Preferred Stock at any time and from time to
time prior to April 1, 2001, at a redemption
price equal to 112.0% of the aggregate
liquidation preference thereof, plus
accumulated and unpaid dividends thereon to
the redemption date, with the Net Proceeds of
one or more Public Equity Offerings; provided
that such redemption occurs within 90 days
following the closing of any such Public
Equity Offering.
Mandatory Redemption ............ Holdings is required, subject to certain
conditions, to redeem all of the New Series A
Senior Preferred Stock outstanding on April
1, 2009 at a redemption price equal to 100%
of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date
of redemption.
Voting .......................... The New Series A Senior Preferred Stock will
be non-voting, except as otherwise required
by law and except in certain circumstances
described herein, including (i) amending
certain rights of the holders of New Series A
Senior Preferred Stock and (ii) the issuance
of any class or series of capital stock that
ranks on a parity with or senior to the New
Series A Senior Preferred Stock. Upon the
occurrence of a Voting Rights Triggering
Event (as defined herein), the holders of a
majority of the aggregate outstanding shares
of Series A Senior Preferred Stock and Series
B Junior Preferred Stock (to the extent there
exists a Voting Rights Triggering Event with
respect thereto), voting as a single class,
will be entitled to elect the lesser of two
directors and that number of directors
constituting 25% of the members of the board
of directors of Holdings until such time, in
the case of a dividend default, as all
accumulated and unpaid dividends on the
Series A Senior Preferred Stock have been
fully paid in cash, and in all other cases,
any failure, breach or default giving rise to
such voting rights is remedied, cured or
waived by the holders of at least a majority
of the then outstanding shares of Series A
Senior Preferred Stock and Series B Junior
Preferred Stock. A Voting Rights Triggering
Event shall mean: (i) a failure to pay cash
dividends for two or more semi-annual
dividend periods after April 1, 2003; (ii) a
failure to redeem the outstanding shares of
Series A Senior Preferred Stock on or before
April 1, 2009; (iii) a failure to make or
consummate a Change of Control Offer (as
defined herein); or (iv) a breach or
violation of any of the covenants contained
in the Restated Certificate which breach or
violation continues after the expiration of
applicable grace periods.
8
<PAGE>
Exchange Provisions ............. The New Series A Senior Preferred Stock will
be exchangeable for Exchange Debentures, at
Holdings' option, subject to certain
conditions, in whole but not in part, on any
scheduled dividend payment date. The New
Credit Facility will restrict the ability of
Holdings to incur Indebtedness, including the
Exchange Debentures.
Ranking ......................... The New Series A Senior Preferred Stock will,
with respect to dividend rights and rights
upon liquidation, winding-up and dissolution
of Holdings, rank senior to all other classes
or series of capital stock of Holdings.
As of April 30, 1998, Holdings had $33.7
liquidation preference of junior preferred
stock outstanding and had no Indebtedness
outstanding. In addition, as of April 30,
1998, the Company had $261.1 million of
Indebtedness outstanding, in respect of
which the Series A Senior Preferred Stock
were effectively subordinated.
Change of Control ............... Upon a Change of Control, Holdings will,
subject to certain conditions, be required
to make an offer to purchase all
outstanding shares of New Series A Senior
Preferred Stock at a price equal to 101%
of the liquidation preference thereof,
plus accumulated and unpaid dividends
thereon to the purchase date. There can be
no assurance that Holdings will have
sufficient funds to purchase all of the
New Series A Senior Preferred Stock in the
event of a Change of Control or that
Holdings would be able to obtain financing
for such purpose on favorable terms, if at
all. If Holdings fails to make or
consummate a Change of Control Offer, the
dividend rate on the New Series A Senior
Preferred Stock will increase by 400 basis
points until such time as the Holdings
makes or consummates a Change of Control
Offer.
Certain Restrictive Provisions .. The Restated Certificate contains restrictive
provisions that, among other things, restrict
the ability of Holdings and its Restricted
Subsidiaries (as defined herein) to: (i)
incur additional indebtedness; (ii) pay
dividends and make certain other restricted
payments; (iii) enter into transactions with
affiliates; (iv) issue preferred stock of
subsidiaries; or (v) merge or consolidate, or
otherwise engage, in a transaction involving
all or substantially all of the assets of
Holdings and its Restricted Subsidiaries,
taken as a whole. These restrictive
provisions are subject to a number of
important exceptions.
The Exchange Debentures
Issue ........................... 12% Exchange Debentures due 2009, issuable,
at Holdings' option, in exchange for the New
Series A Senior Preferred Stock in an
aggregate principal amount equal to the
liquidation preference of the New Series A
Senior Preferred Stock so exchanged, plus
accumulated and unpaid dividends to the date
fixed for the exchange thereof (the "Exchange
Date"), plus any additional Exchange
Debentures issued from time to time in lieu
of cash interest.
Maturity ........................ April 1, 2009.
9
<PAGE>
Interest Rate and Payment Dates . The Exchange Debentures will bear interest at
a rate of 12% per annum. Interest will accrue
from the most recent interest payment date to
which interest has been paid or provided for
or, if no interest has been paid or provided
for, from the Exchange Date. Interest will be
payable semi-annually in cash (or, at the
option of Holdings, on or prior to April 1,
2003, in additional Exchange Debentures) in
arrears on each April 1 and October 1,
commencing with the first such date after the
Exchange Date.
Optional Redemption ............. The Exchange Debentures will be redeemable at
the option of Holdings, in whole or in part,
at any time on or after April 1, 2003 at the
redemption prices set forth herein, plus
accrued and unpaid interest thereon to the
redemption date. In addition, Holdings may
redeem all, but not less than all, of the
Exchange Debentures at any time and from time
to time prior to April 1, 2001, at a
redemption price equal to 112% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the
redemption date with the Net Proceeds of one
or more Public Equity Offerings; provided
that such redemption occurs within 90 days
following the closing of any such Public
Equity Offering.
Ranking ......................... The Exchange Debentures will be subordinated
in right of payment to all existing and
future Senior Indebtedness of Holdings and
will rank pari passu with or senior to all
future Indebtedness of Holdings that
expressly provides that it ranks pari passu
with or junior to the Exchange Debentures, as
the case may be. As of April 30, 1998,
Holdings had no Indebtedness outstanding but
its subsidiaries had an aggregate of $261.1
million of Indebtedness outstanding
(including the Company's $200.0 million
principal amount Senior Notes and $58.3
million of borrowings under the New Credit
Facility) in respect of which the Exchange
Debentures will be effectively subordinated.
Borrowings under the New Credit Facility are
guaranteed by Holdings and are secured by
substantially all of the assets of the
Company and its subsidiaries located in the
United States and the United Kingdom, certain
of the assets of the Company's subsidiaries
located in Canada and a pledge of
substantially all of the capital stock of the
Company and its subsidiaries. In addition,
obligations incurred under the Surety
Arrangement are secured by certain assets of
the Company. See "Risk Factors--Substantial
Leverage," "--Ranking of New Series A Senior
Preferred Stock; Subordination of Exchange
Debentures; Pledge of Assets," "--Restrictive
Covenants in the New Credit Facility and Note
Indenture."
Change of Control ............... Upon a Change of Control, Holdings will,
subject to certain conditions, be required to
make an offer to purchase all outstanding
Exchange Debentures at a price equal to 101%
of the principal amount thereof, plus accrued
and unpaid interest thereon to the purchase
date. There can be no assurance that Holdings
will have sufficient funds to purchase all of
the Exchange Debentures in the event of a
Change of Control or that Holdings would be
able to obtain financing for such purpose on
favorable terms, if at all.
10
<PAGE>
Certain Covenants ............... The Exchange Indenture (as defined herein)
will contain covenants that, among other
things, restrict the ability of Holdings and
its Restricted Subsidiaries to: (i) incur
additional indebtedness, including senior
subordinated indebtedness; (ii) pay dividends
and make certain other restricted payments;
(iii) enter into transactions with
affiliates; (iv) transfer or sell assets; (v)
issue stock (including preferred stock) of
subsidiaries; (vi) create dividend or other
payment restrictions affecting Restricted
Subsidiaries; and (vii) merge or consolidate,
or otherwise engage, in a transaction
involving all or substantially all of the
assets of Holdings and its Restricted
Subsidiaries, taken as a whole. These
covenants are subject to a number of
important exceptions.
Asset Sales Proceeds ............ Holdings will be obligated in certain
instances to make offers to purchase the
Exchange Debentures at a purchase price in
cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest to
the date of purchase with the net cash
proceeds of certain asset sales. There can
be no assurance, however, that in the
event of a Change of Control or mandatory
redemption, Holdings will have or be able
to acquire sufficient funds to purchase
the Exchange Debentures.
For more complete information regarding the New Series A Senior Preferred
Stock and Exchange Debentures, including the definitions of certain capitalized
terms used above, see "Description of New Series A Senior Preferred Stock and
Exchange Debentures."
Risk Factors
Prospective purchasers of the Series A Units should consider carefully the
information set forth under the caption "Risk Factors," and all other
information set forth in this Prospectus, in evaluating an investment in the
Series A Units.
11
<PAGE>
Summary Historical and Pro Forma Combined Financial Data
The summary historical combined financial data as of and for the years
ended October 31, 1997, 1996 and 1995 have been derived from the audited
combined financial statements of the Company. The summary historical combined
financial data as of and for the six months ended April 30, 1998 and 1997
have been derived from the unaudited financial statements of the Company. The
summary historical combined financial data as of and for the years ended
October 31, 1994 and 1993 have been derived from unaudited internal records
of the Company. The Company's operations for 1994 and 1993 were integrated
with other Harnischfeger Industries, Inc. ("HII") operations and, therefore,
the financial data for these periods represent management's best estimate of
their operating performance. The Transactions are accounted for as a
recapitalization for financial reporting purposes. Accordingly the historical
basis of Holdings' assets and liabilities was not impacted by the
Transactions. The unaudited financial data presented herein, in the opinion
of management, includes all necessary adjustments required for the fair
presentation of such data.
The summary pro forma combined financial data of Holdings for the six
months ended April 30, 1998 and for the year ended October 31, 1997 have been
prepared to reflect the consummation of the Transactions. The unaudited pro
forma combined statements of operations of Holdings have been prepared as if
such Transactions had occurred on November 1, 1996. The unaudited pro forma
combined statements of operations of Holdings are not necessarily indicative
of the results of operations of Holdings had the Transactions reflected
therein actually been consummated on the date assumed and are not necessarily
indicative of the results of operations of Holdings that may be expected for
any future period. The unaudited balance sheet data of Holdings, which are
presented as of April 30, 1998, incorporate the closing of the Transactions
on March 30, 1998.
The summary combined financial data should be read in conjunction with
"Unaudited Pro Forma Combined Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of the Company and notes thereto appearing elsewhere
herein.
12
<PAGE>
Summary Historical and Pro Forma Combined Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, Six Months Ended April 30,
----------------------------------------------------------- ----------------------------------
Pro Forma Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1997 1998 1998
----------- ----------- ------- -------- --------- ---------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Net sales.............. $ 117,032 $ 109,429 $ 243,169 $323,735 $ 353,350 $ 353,350 $ 177,054 $ 157,249 $ 157,249
Gross profit........... N/A N/A 56,765 76,176 92,556 92,556 43,422 42,077 42,077
Other income-net...... N/A N/A 3,766 1,149 2,649 2,649 1,501 726 726
Selling, general and
administrative
expenses........... N/A N/A 36,931 44,968 56,806 57,806 27,272 29,514 31,110
Management fee(b)..... N/A N/A 1,878 2,341 2,862 1,000 1,434 1,155 500
Nonrecurring employee
benefit costs(c) .. N/A N/A 0 0 0 0 0 1,906 690
Direct expenses(d).... 110,279 97,335
----------- ----------- ------- -------- --------- ---------- ----------- ----------- -----------
Operating income....... 21,722 30,016 35,537 36,399 16,217 10,228 10,503
Excess of revenues
over direct
expenses........... $ 6,753 $ 12,094
Net income/(loss)..... N/A N/A $13,476 $ 18,446 $ 20,853 $ 5,861 $ 9,602 $ 3,669 $ (1,836)
----------- ----------- ------- -------- --------- ----------- -----------
----------- ----------- ------- -------- --------- ----------- -----------
Dividends on
preferred stock.... (11,460) (927) (6,258)
---------- ----------- -----------
Net income/(loss)
attributable to
Common Stock....... $ (5,599) $ 2,742 $ (8,094)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
As of October 31, As of April 30,
-------------------------------------------------- ----------------------
1993(a) 1994(a) 1995 1996 1997 1997 1998
----------- ----------- -------- ------- --------- ----------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital........ N/A N/A $ 17,483 $ 34,523 $ 51,243 $ 42,526 $ 57,139
Total assets........... 151,168 189,058 199,600 200,655 289,845
Divisional
assets(e)........... $ 66,667 $ 128,465
Total debt............. N/A N/A 4,704 2,044 6,088 2,089 261,069
Mandatorily redeemable
preferred stock..... 89,443
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, Six Months Ended April 30,
----------------------------------------------------------- ----------------------------------
Pro Forma Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1997 1998 1998
----------- ----------- ------- -------- --------- ---------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other data:
EBITDA(f).............. $ 28,045 $ 38,220 $ 45,859 $ 43,859 $ 21,098 $ 16,871 $ 14,775
Depreciation and
amortization(g)..... $ 2,588 $ 2,981 3,800 5,292 6,736 8,536 3,085 3,408 4,226
Capital expenditures... 1,419 3,935 3,725 6,752 6,498 6,498 2,486 2,446 2,446
Cash interest expense.. 24,841 12,701
Ratio of earnings to
fixed charges and
preferred
dividends(h)........ N/A N/A 23.21x 23.11x 16.46x -- 17.72x 2.25x --
Cash flow data
Net cash provided by
(used in) operating
activities.............. N/A N/A 3,753 23,456 12,899 12,523 (2,054)
Net cash used for
investing and other
transactions.......... N/A N/A (2,496) (21,158) (14,947) (13,487) (3,593)
Net cash provided by
(used for) financing
activities.............. N/A N/A -- -- (254) (713) 7,041
Adjusted data:
Ratio of EBITDA to
cash interest 1.77x 1.55x (i)
expense.............
Ratio of pro forma
debt to EBITDA...... 5.95x 6.77x (i)
</TABLE>
(a) Prior to 1995, the Company did not determine its financial position or
results of operations on a stand alone basis as its financial and
management reporting information was commingled with other operating
divisions of
13
<PAGE>
HII. As a result, the Company's summary data as of and for the years ended
October 31, 1994 and 1993 is limited and certain historical financial data
is not available.
(b) Represents, for historical periods, the allocation of certain HII
corporate overhead charges (the "HII Management Fee"), and for pro forma
periods, the Chartwell Investments Inc. management consulting fee.
(c) Represents severance costs associated with restructuring the Company's
United Kingdom manufacturing operation of $690 and incentives to certain
members of management of $1,216. While the cost of the incentive
payments appears on the Company's income statements, HII, the Company's
former parent, not the Company, is responsible for paying these
incentives.
(d) Direct expenses are those costs of goods sold, selling expenses and general
and administrative expenses associated with the division.
(e) Divisional assets include property, plant and equipment, cash, accounts
receivable, unbilled receivables, inventories and intangible assets.
(f) EBITDA represents operating income before depreciation, amortization,
the HII Management Fee, nonrecurring employee benefit costs and charges
related to certain depreciation expenses for HarnCo assets. For Fiscal
1997 and the six months ended April 30, 1998, the HII Management Fee was
$2,862 and $1,155 respectively, the nonrecurring employee benefit costs
were $0 and $1,906, respectively, and the charges related to certain
depreciation expenses for HarnCo assets were $724 and $256,
respectively. Pro forma EBITDA represents operating income before
depreciation, amortization, nonrecurring employee benefit costs and the
charges related to certain depreciation expenses for HarnCo assets. On a
pro forma basis, for fiscal 1997 and the six months ended April 30,
1998, the nonrecurring employee benefit costs were $0 and $690,
respectively. EBITDA and Pro forma EBITDA are commonly used by certain
investors to provide additional information with respect to the ability
of the Company to meet its debt service, capital expenditures and
working capital requirements. EBITDA and Pro forma EBITDA are not
measures of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as an
alternative to operating income, net income, cash flows from operations,
or other statements of operations or cash flows prepared in conformity
with generally accepted accounting principles, or as a measure of
profitability or liquidity. The items excluded from EBITDA may be
significant in understanding and assessing Holdings' financial
performance. In addition, EBITDA and Pro forma EBITDA may not be
comparable to similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
(g) Pro forma includes $1,800 and $818 of amortization of debt issuance costs
for fiscal 1997 and the six months ended April 30, 1998, respectively.
(h) For purposes of calculating the ratio of earnings to fixed charges and
preferred dividends, earnings are defined as net income before tax plus
fixed charges. Fixed charges consist of interest expense (including
amortization of debt issuance costs) and the portion of rental expense that
is representative of the interest factor (deemed to be one third of annual
rent expense). Preferred dividends, for purposes of the ratio, reflect
earnings before tax required to pay preferred stock dividends and assume
that such dividends are paid in kind. For the year ended October 31, 1997
and for the six months ended April 30, 1998, Holdings had a deficiency of
pro forma earnings to fixed charges of $9,342 and $13,530, respectively.
(i) Reflects a pro forma calculation for the twelve months ended April 30,
1998.
14
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating Holdings and its
business before making an investment in the New Series A Senior Preferred Stock.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. Holdings' actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
Substantial Leverage; Ability of Holdings and the Company to Meet Their Cash
Requirements
Holdings and its subsidiaries have incurred significant debt in
connection with the Transactions. As of April 30, 1998, Holdings and its
subsidiaries had an aggregate of approximately $261.1 million of outstanding
Indebtedness (all of which will be direct obligations of substantially all of
its subsidiaries). As of April 30, 1998, the New Credit Facility, which is
guaranteed by Holdings, also permitted additional Indebtedness by the Company
of up to $93.6 million thereunder (including $63.6 million under the
Revolving Credit Facility (as defined herein)). In addition, the Surety
Arrangement provides a surety line of $60.0 million to the Company. See
"Description of the New Credit Facility" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." In addition, subject to certain restrictions in the New
Credit Agreement and the indenture governing the Senior Notes (the "Note
Indenture"), the Company and its subsidiaries may incur additional
indebtedness from time to time to finance acquisitions, provide for working
capital or capital expenditures or other purposes.
The level of Holdings' consolidated indebtedness (including the
Indebtedness of the Company and its subsidiaries) could have important
consequences to holders of the New Series A Senior Preferred Stock,
including, but not limited to, the following: (i) the ability of the Company
to obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes, if necessary, may be impaired or such
financing may not be available on terms favorable to the Company; (ii) the
Company will have significant cash requirements for debt service; (iii)
financial and other covenants and operating restrictions imposed by the terms
of the Note Indenture and by the New Credit Facility will limit, among other
things, its ability to borrow additional funds or to dispose of assets; (iv)
the Company may be at a competitive disadvantage because it will be more
highly leveraged than some of its competitors; and (v) a downturn in the
Company's businesses will have a more significant impact on its results of
operations and cash flows.
The ability of the Company to satisfy its obligations, including
payment obligations under the New Credit Facility, as to which principal
payments commenced on June 30, 1998, the Senior Notes and any payments to
Holdings to satisfy its cash needs, will be primarily dependent upon the
future financial and operating performance of the Company's subsidiaries and,
if needed, upon the Company's ability to renew or refinance borrowings or to
raise additional equity capital. The Company's annual debt service
requirements under the Senior Notes and the New Credit Facility will be $12.5
million in 1998, $25.6 million in 1999, $26.9 million in 2000, $28.1 million
in 2001, $29.1 million in 2002, $33.9 million in 2003, $37.2 million in 2004,
$27.6 million in 2005, $19.0 million in 2006, $19.0 million in 2007, and
$209.5 million in 2008. Holdings' cash requirements with respect to the
payment of dividends on preferred stock will be $9.8 million in 2003, $19.6
million in 2004, $19.6 million in 2005, $19.6 million in 2006, $19.6 million
in 2007, $19.6 million in 2008 and $9.8 million in 2009. The Company's
historic cash flows (EBITA minus capital expenditures) in 1996 and 1997 would
have been sufficient to meet the Company's debt service requirements through
2002. In addition, although the New Credit Facility includes the Revolving
Credit Facility, future borrowings thereunder are subject to satisfaction of
certain conditions, including a borrowing base test. Each of these
alternatives is dependent upon financial, business and other general economic
factors affecting the Company and its subsidiaries and the Company's
businesses in particular, many of which are beyond their control. If the
Company and its subsidiaries are unable to generate sufficient cash flow to
meet their debt service obligations and satisfy Holdings' cash requirements,
including any future cash dividend requirements to the holders of its
preferred stock, they will have to pursue one or more alternatives, such as
reducing or delaying capital expenditures, refinancing debt or selling
assets. There can be no assurance that any such alternatives could be
accomplished on satisfactory terms or that such actions would yield
sufficient funds to meet the Company's cash requirements. While management
believes that cash flow from operations will provide an adequate source of
long-term liquidity, a decrease in operating cash flow resulting from
economic conditions, competition or other
15
<PAGE>
uncertainties beyond the Company's control would increase the need for
alternative sources of liquidity. The Company's historic cash flow would have
been insufficient to satisfy the Company's current debt obligations and
Holdings' cash requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Holding Company Structure; Reliance and Restrictions on Subsidiaries for Cash
Flow
As a holding company that conducts all of its operations through
subsidiaries, Holdings is dependent on dividends or other payments from its
subsidiaries to satisfy its cash needs, including to pay cash dividends on
the New Series A Senior Preferred Stock, to service any debt including the
Exchange Debentures (if issued) and to redeem the New Series A Senior
Preferred Stock or retire the Exchange Debentures at maturity. Because the
subsidiaries are separate legal entities that have no obligation in respect
of the New Series A Senior Preferred Stock or the Exchange Debentures, in
order to pay cash dividends on the New Series A Senior Preferred Stock, to
service the Exchange Debentures and to redeem the New Series A Senior
Preferred Stock or retire the Exchange Debentures at maturity, Holdings will
be required to obtain dividends, distributions or loans from its
subsidiaries, or obtain funds in a public or private equity or debt offering
or enter into a credit facility. However, the New Credit Facility and the
Note Indenture contain restrictions on the ability of the Company to pay
dividends or make other restricted payments to Holdings. Moreover, the terms
of the Series A Senior Preferred Stock limit Holdings' ability to enter into
transactions with affiliates and the New Credit Facility and the Note
Indenture limit the ability of Holdings to incur Indebtedness. There are no
current material restrictions on the ability of the Company's subsidiaries to
pay dividends or otherwise make payments to the Company. In addition, the
Company anticipates that there will not be any material economic restrictions
or adverse tax effects with respect to the Company's ability to repatriate
foreign assets. There can be no assurance, however, that such limitations
will not exist in the future. Any rights of Holdings (and thus the holders
of the New Series A Senior Preferred Stock) and its creditors (including the
holders of Exchange Debentures, if issued) to participate in the assets of
any of Holdings' subsidiaries upon any liquidation or reorganization of any
such subsidiary will be subject to the prior claims of the subsidiary's
creditors, including trade creditors.
Maturity; Risk of Inability to Redeem or Repay Holdings' and Its
Subsidiaries' Obligations
The $200.0 million principal amount due under the Senior Notes and the
then outstanding borrowings under the New Credit Facility ($58.3 million as
of April 30, 1998) will mature and become due on April 1, 2008 and April 1,
2005, respectively. Holdings is required, subject to certain conditions, to
redeem the New Series A Senior Preferred Stock on April 1, 2009, and the
Exchange Debentures (if issued) mature on April 1, 2009. Many factors,
certain of which are beyond Holdings' control, will affect its and its
subsidiaries' performance, and, therefore, the ability of Holdings and its
subsidiaries to meet its ongoing obligations to redeem or repay such
obligations.
Ranking of New Series A Senior Preferred Stock; Subordination of Exchange
Debentures; Pledge of Assets
The New Series A Senior Preferred Stock will rank junior in right of
payment to all existing and future liabilities and obligations (whether or
not for borrowed money) of Holdings and senior in right of payment to each
other existing and future classes and series of capital stock issued by
Holdings. The holders of the New Series A Senior Preferred Stock will have no
voting rights, except as otherwise required by law and in certain
circumstances described herein. See "Description of New Series A Senior
Preferred Stock and Exchange Debentures."
The Exchange Debentures will be unsecured obligations of Holdings and
will be subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Exchange Indenture) of Holdings. The Exchange
Debentures will also be structurally subordinated to all indebtedness and
other liabilities of Holdings' subsidiaries, including the obligations of the
Company under the New Credit Facility and the Senior Notes. As of April 30,
1998, the aggregate principal amount of Indebtedness which would have been
structurally senior to the New Series A Senior Preferred Stock and the
Exchange Debentures was $261.1 million. See "--Holding Company Structure;
Reliance and Restrictions on Subsidiaries for Cash Flow."
Restrictive Covenants; Limited Remedies
The Restated Certificate and the Exchange Indenture contain certain
covenants (some of which in the Exchange Indenture may be more restrictive
than those contained in the Restated Certificate) that, among other
16
<PAGE>
things, limit the ability of Holdings, the Company and its subsidiaries to
incur additional indebtedness, pay dividends and make certain other
restricted payments, make investments, repurchase stock, enter into certain
transactions with affiliates, issue capital stock of their subsidiaries,
consolidate or merge with any person in a transaction involving all or
substantially all of the consolidated assets of Holdings, or transfer or sell
all or substantially all of the consolidated assets of Holdings. In addition,
the Exchange Indenture limits the ability of Holdings and its subsidiaries to
consummate certain asset sales and create dividend or other payment
restrictions affecting their subsidiaries. However, in the case of the Series
A Senior Preferred Stock, the only remedies of a holder thereof for any
violation of any of the above covenants will be to elect, voting with the
Series B Junior Preferred Stock as one class, the lesser of two directors and
25% of the board of directors of Holdings. Holders of the New Series A Senior
Preferred Stock will have no rights to enjoin, accelerate the redemption of
the New Series A Senior Preferred Stock or recover damages arising from, any
such breach. MHE Investments will retain control of Holdings notwithstanding
such breach and the voting rights of the New Series A Senior Preferred Stock
arising therefrom. See "Description of New Series A Senior Preferred Stock
and Exchange Debentures--Certain Covenants."
Restrictive Covenants in the New Credit Facility and Note Indenture
The New Credit Facility and the Note Indenture contain a number of
covenants that, among other things, limit Holdings' and its subsidiaries'
ability to prepay subordinated indebtedness, dispose of certain assets,
create liens, make capital expenditures, make certain investments or
acquisitions and otherwise restrict corporate activities. In addition, the
New Credit Facility limits Holdings' and its subsidiaries' ability to incur
indebtedness and the Note Indenture will limit the Company's and its
subsidiaries' ability to incur indebtedness. The New Credit Facility also
requires Holdings and its subsidiaries to comply with certain financial
ratios and tests, under which Holdings and its subsidiaries are required to
achieve and maintain certain financial and operating results. The ability of
Holdings and its subsidiaries to comply with such provisions may be affected
by events beyond Holdings' control. A breach of any of these covenants would
result in a default under the Note Indenture or the New Credit Facility, or
both. In the event of any such default, the lenders under the New Credit
Facility and/or the holders of the Senior Notes could elect to declare all
amounts borrowed under the New Credit Facility and/or the Senior Notes, as
applicable, together with accrued interest thereon, to be due and payable
which would be an event of default under the Surety Arrangement. There can be
no assurance that the Company would have sufficient assets to pay
indebtedness then outstanding under the New Credit Facility, the Senior Notes
and obligations under the Surety Arrangement and have funds remaining to
satisfy any of the dividend payments on, or to redeem, the New Series A
Senior Preferred Stock. Any future refinancing of the New Credit Facility,
the Senior Notes or any future Indebtedness is likely to contain similar
restrictive covenants. See "Description of the New Credit Facility" and "The
Senior Note Offering."
Termination of Relationship with Harnischfeger
Historically, the MHE Business operated as one of several operating
units of HII, the owner of all of the capital stock of HarnCo, and accounted
for 11% of net sales and 12% of operating income of HII in fiscal 1997. There
can be no assurance that the change of the relationship with HII will not
adversely affect the Company's ability to attract or retain customers.
Additionally, the Company has been able to draw on the financial, managerial,
and administrative resources of HarnCo and HII, and there can be no assurance
that the future unavailability of such resources will not adversely affect
operations of the Company. There can be no assurance that the Company will
not encounter unanticipated problems or expenses operating as an independent
company or that the Company will be able to achieve results comparable to
those achieved by the MHE Business in the past.
HarnCo and its affiliates historically supplied the Company, among
other things, with information services, accounting services, human
resources, warehouse and order processing services. In connection with the
Recapitalization, the Company entered into a Transition Services Agreement,
pursuant to which HarnCo and its affiliates will provide such services to the
Company and its subsidiaries located in the United States for a period of up
to 24 months. The Company also entered into a Component and Manufactured
Products Supply Agreement, pursuant to which HarnCo and its affiliates will
supply the Company and its subsidiaries located in the United States with
their requirements for certain manufactured products for a period of up to
two years after the Recapitalization Closing. When these agreements
terminate, there can be no assurance that the Company will be able to enter
into new arrangements on substantially the same terms as those in effect
during the operation of the MHE Business by
17
<PAGE>
HarnCo or that the Company will be able to perform or obtain such services at
costs comparable to those currently anticipated by the Company. See "The
Transactions" and "Certain Relationships and Related Transactions."
Historically, benefits for the Company's employees have been provided
by HII at expense levels lower than expense levels at which the Company would
be able to provide comparable benefits as an independent entity. The Company
may be required to either provide lower benefits to certain segments of its
employee population or incur additional costs to maintain benefit levels, or
both. A reduction in benefits could adversely affect the Company's ability to
attract and retain employees.
The Company also was provided with various forms of credit support by
HII and its affiliates. There can be no assurance that the termination of its
relationship with HarnCo will not adversely affect the Company's ability to
obtain or maintain credit support. See "--Risk of Inability to Obtain
Sufficient Credit Support."
Risk of Inability to Obtain Sufficient Credit Support
Historically, HarnCo and certain affiliates of HarnCo not engaged in
the MHE Business (the "Non-MHE HarnCo Affiliates"), including HII, provided
credit support for the MHE Business. This credit support included HarnCo and
the Non-MHE HarnCo Affiliates: (i) providing working capital; (ii)
guaranteeing financial and performance obligations with respect to customer
and supply contracts and relationships; (iii) providing collateral and credit
support with respect to letters of credit, surety bonds or other arrangements
of the MHE Business; and (iv) otherwise being directly or contingently liable
for the MHE Business's obligations (collectively, the "Credit Support
Obligations"). In addition, prior to the October 1997 Drop Down, a
significant portion of the MHE Business was conducted directly by HarnCo,
including the execution of certain contracts. For the fiscal year ended
October 31, 1997, HII had total revenues of approximately $3.1 billion and
operating income of $319.3 million.
HII and the Company have entered into a credit indemnification
agreement (the "Credit Indemnification Agreement") pursuant to which HII will
maintain in place the Credit Support Obligations in existence at the
Recapitalization Closing but have no further duty to extend, renew or enter
into any new Credit Support Obligations (except as to the MHE Business
obligations existing at the Recapitalization Closing). The Company also has
entered into a surety arrangement to provide credit support for the MHE
Business (the "Surety Arrangement"). The Surety Arrangement provides a surety
line of $60.0 million, in the aggregate, with a limit of $20.0 million for
any single obligation. See "Description of the Surety Arrangement."
There can be no assurance that the Surety Arrangement will be
sufficient or that the lack of Credit Support Obligations in the future from
HII and its affiliates will not adversely affect the MHE Business's
relationships with existing or potential customers and, consequently,
adversely impact its business plan and operating strategy. If the Surety
Arrangement were to provide insufficient credit support, the Company's
ability to bid on certain large contracts could be restricted or curtailed.
The inability of the Company, or limitations on its ability, to bid on large
contracts could have a material adverse effect on the Company's operations
and financial performance.
Labor Relations
As of April 30, 1998, the Company had 2,040 employees. Of the Company's
772 hourly employees, approximately 79% are represented by unions, including
approximately 156 employees in the United States. Until the October 1997 Drop
Down, the Company's unionized employees in the United States were represented
under a collective bargaining agreement between HarnCo and the United
Steelworkers of America, Local 1114 ("Local 1114"), which expires August 31,
1998. In conjunction with the restructuring of the MHE Business in
anticipation of its sale, these employees became employees of a newly created
subsidiary of the Company. The Company will honor the collective bargaining
agreement as to its employees through the remainder of its term. Negotiations
with respect to a new collective bargaining agreement have begun and the
Company is seeking changes in benefit programs. In addition, the Company is a
party to several other agreements with unions representing its international
employees, all of which have one year terms. There can be no assurance that
the Company will be able to successfully negotiate a new collective
bargaining agreement with Local 1114 or any other collective bargaining
agreements upon their expiration without work stoppages. Management believes
that its current relations with its employees are good, and none of the
Company's businesses has experienced a significant strike, slowdown, or
lockout within the last ten years. There can be no assurance, however, that
the Company's
18
<PAGE>
relations with its employees will continue to be good or that the Company
will not experience significant work stoppages in the future. See
"Business--Employees."
Product Liability
The Company is periodically subject to product liability claims relative
to its products, which, if successful, could have a material adverse impact on
the Company. The Company has obtained liability insurance coverage that it
believes will be adequate to satisfy claims with respect to events occurring
after the Recapitalization Closing, but there can be no assurance that the
Company will be able to maintain such coverage or obtain alternate coverage in
the future at a reasonable cost, or that such coverage will be sufficient to
satisfy such future claims, if any. Current limits for the Company's product
liability coverage for occurrences since the Recapitalization Closing is
$76.5 million. The Company's product liability coverage is underwritten under
an occurrence format and is subject to a $500,000 self-insured retention.
In connection with the October 1997 Drop Down, except as noted below,
the Company assumed all liabilities with respect to product liability claims
of the MHE Business incurred prior to the Recapitalization Closing. The
Company believes that the ultimate liability costs for all open product
liability losses will not be material. There can be no assurance, however,
that the ultimate liability costs for such claims will in fact not be
material. While the Company believes that it will be able to avail itself of
HII's third party insurance (with its significant insurance limits) with
respect to any such product liability damages that exceed the self insured
thresholds, historically (and until the Recapitalization Closing), a
significant level of MHE Business product liability damages (other than with
respect to asbestos damages) has been self insured by HII.
In addition, until the 1980s, HarnCo manufactured brakes that included
lining materials, and used other non-brake components, that contained
asbestos, making it a secondary source target for asbestos related
litigation. HarnCo has been and is currently a defendant in a number of
asbestos related lawsuits and will likely be named in future such actions.
Most suits involve multiple defendants including asbestos manufacturers. The
Company has agreed to indemnify HarnCo and its affiliates with respect to any
liabilities in excess of insurance arising in connection with past and future
asbestos litigation relating to the MHE Business. HII's insurance program
included coverage for asbestos related claim activity through 1986, when
coverage for asbestos related claims ceased to be available. HII's insurer
has provided first dollar coverage for policy periods through 1976. During
the 1977 to 1985 policy periods, HII had a variety of policies, with
retention levels ranging from $100,000 to $15.0 million and total coverage
limits ranging from $12.5 million to $50.0 million. To date, HII's insurer
has paid all liabilities relating to asbestos claims (which amounts have not
been material to the MHE Business) but there can be no assurance such
insurers will continue to do so in the future or that there will be insurance
coverage for such claims. In addition, policy primary aggregate levels were
exhausted in certain years, which would require the participation of excess
insurers for future claim activity. Given its experience to date with such
claims, the Company believes that its exposure to asbestos related claims is
not material, but there can be no assurance that such liability will in fact
not be material.
Implementation of Business Strategy; Future Acquisitions
The Company intends to pursue a business strategy of attempting to
increase revenues and cash flow through a combination of expanding its
participation in aftermarket opportunities, expanding its distribution network,
reducing costs and making strategic acquisitions. No assurance can be given that
the Company will be successful in implementing this strategy. See
"Business--Business Strategy." There can be no assurance that the Company will
be able to make acquisitions on terms favorable to the Company. If the Company
completes any such future acquisitions, it may encounter various associated
risks, including the possible inability to integrate an acquired business into
the Company's operations, diversion of management's attention and unanticipated
problems or liabilities, some or all of which could have a material adverse
effect on the Company's operations and financial performance.
Financing of Expansion Program; Capital Expenditures
The Company intends to fund its expansion and other capital expenditures
through a combination of internally generated funds and borrowings under the New
Credit Facility. The Company's expansion may also require
19
<PAGE>
additional funds. There can be no assurance that the Company will be able to
obtain such additional funding. Additionally, the New Credit Facility, the
Note Indenture, the Restated Certificate and the Exchange Indenture (if
applicable) contain certain restrictions on the Company's ability to borrow
under the Acquisition Facility (as defined herein) and the Revolving Credit
Facility. If the Company were unable to borrow under the New Credit Facility
or obtain additional financing, it might have to curtail or halt its
expansion program. See "--Substantial
Leverage," "--Restrictive Covenants in the New Credit Facility and Note
Indenture," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of the
New Credit Facility."
Risks Related to International Markets
The Company has operations and assets located in Canada, Mexico, the
United Kingdom, South Africa, and Singapore and is establishing joint
ventures in Malaysia and Saudi Arabia. The Company also sells its products
through distributors and agents in over 50 countries, some of which are
merely ad hoc arrangements and may be terminated at any time. The Company's
international operations (including Canada, Mexico, South Africa and the
United Kingdom) accounted for 41.8%, 36.1% and 39.3% of the Company's
aggregate net sales in 1997, 1996 and 1995, respectively. Although
historically, exchange rate fluctuations and other international factors have
not had a material impact on the Company's business, financial condition or
results of operations, international operations expose the Company to a
number of risks, including currency exchange rate fluctuations, trade
barriers, exchange controls, risk of governmental expropriation, political
and legal risks and restrictions, foreign ownership restrictions and risks of
increases in taxes. The inability of the Company, or limitations on its
ability, to conduct its foreign operations or distribute its products
internationally could adversely affect the Company's operations and financial
performance.
Competition
The markets in which the Company operates are highly competitive. Both
domestically and internationally, the Company faces competition from a number of
different manufacturers in each of its product lines, some of which have greater
financial and other resources than the Company. The principal competitive
factors affecting the Company include performance, functionality, price, brand
recognition, customer service and support, financial strength and stability, and
product availability. There can be no assurance that the Company will be able to
compete successfully with its existing competitors or with new competitors.
Failure to compete successfully could have a material adverse effect on the
Company's financial condition, liquidity and results of operations. See
"Business--Competition."
Sensitivity to Economic Cycles
The Company's business is affected by the state of the United States and
global economy in general, and by the varying economic cycles of the industries
in which its products are used. There can be no assurance that any future
condition of the United States economy or the economies of the other countries
in which the Company does business will not have an adverse effect on the
Company's business, operations or financial performance.
Control by Chartwell
An affiliate ("Chartwell") of Chartwell Investments Inc. controls
approximately 88.2% of the voting stock of Holdings. As a result, Chartwell has
the power to appoint all but one of the members of the Board of Directors of
Holdings and has sufficient voting power to determine (without consent of
Holdings' other stockholders) the outcome of any corporate transaction or other
matter submitted to the stockholders for approval, including any public
offering, merger, consolidation or sale of substantially all of Holdings'
assets. Consequently, circumstances could arise in which the interests of
Chartwell, as an equity holder, could be in conflict with the interests of the
holders of the New Series A Senior Preferred Stock and, if issued, the Exchange
Debentures.
Dependence on Key Personnel
The Company's future success depends to a significant extent on the
efforts and abilities of members of the Company's senior management team. While
members of the senior management team have signed employment
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contracts, the loss of the services of these individuals could have a material
adverse effect on the Company's business, financial condition, and results of
operations. The Company believes that its future success will also depend
significantly upon its ability to attract, motivate, and retain additional
highly skilled managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting,
assimilating, and retaining the personnel it requires to grow and operate
profitably.
Dependence on Principal Facilities
The Company's principal operations are conducted at certain key
facilities, some of which are the only producers of certain components for the
Company. The Company has not experienced any material disruption of operations
at its key facilities (other than a fire in 1994 at its principal United Kingdom
manufacturing facility in Loughborough, England), but if operations at any of
such facilities were disrupted as a result of equipment failures, natural
disasters, work stoppages or other reasons, the Company's business and results
of operations could be adversely affected. Although the Company believes its
property damage insurance and business interruption insurance is adequate to
provide for reconstruction of its facilities and equipment or mitigate losses
resulting from any production shutdown caused by an insured loss, as necessary,
there can be no assurance that such insurance will be adequate to cover losses
that may occur.
Environmental Matters
The Company is subject to various laws and regulations relating to the
protection of the environment in each of the countries in which it operates.
These laws and regulations often mandate compliance with increasingly stringent
and costly requirements. The Company is not aware of any environmental matters
currently relevant to its business, individually or in the aggregate, that could
be expected to have a material adverse effect upon its financial condition,
except that the Company is awaiting the results of tests to determine compliance
with emission limits for air quality at its Loughborough, England facility,
which became effective in April 1998. The risk of environmental costs and
liabilities, however, is inherent in the Company's past and present operations,
and there can be no assurance that continued compliance with existing or future
requirements, the cost of such compliance and claims for damages to property and
person resulting from the Company's operations will not have a material adverse
effect upon the Company's financial condition or results of operations. See
"Business--Governmental Regulation."
Risk of Inability to Finance a Change of Control
Upon a Change of Control, Holdings is required to offer to repurchase
all outstanding New Series A Senior Preferred Stock at 101% of the
liquidation preference thereof, plus accumulated and unpaid dividends to the
date of repurchase, and all of the outstanding Exchange Debentures (if
issued) at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon to date of purchase, and the Company is required to offer to
repurchase all Senior Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase. A Change of Control
will trigger an event of default under the New Credit Facility which would
permit the lenders thereto and the lenders under any agreement containing
cross-default or similar provisions, including the Surety Arrangement, to
accelerate the debt thereunder. Therefore, upon the occurrence of a Change of
Control, the Company may be required to repay such other outstanding
indebtedness and to repurchase the Senior Notes and any other indebtedness
and preferred stock of the Company containing similar change of control
provisions, which payments must be made prior to making any distributions to
Holdings. Consequently, there can be no assurance that sufficient funds will
be available at the time of any Change of Control for the Company to pay such
other obligations and to make available to Holdings funds for any required
repurchases of New Series A Senior Preferred Stock or Exchange Debentures (if
issued) tendered. Further, the provisions of the Restated Certificate may not
afford holders of the New Series A Senior Preferred Stock, and the Exchange
Indenture may not afford holders of the Exchange Debentures (if issued),
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving Holdings that may
adversely affect holders of the New Series A Senior Preferred Stock or
Exchange Debentures (if issued), if the transaction does not result in a
Change of Control.
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Absence of Public Market; No Assurance of Active, Liquid Trading Market
There is no existing trading market for the Old Series A Senior
Preferred Stock, and there can be no assurance regarding the future
development of a market for the New Series A Senior Preferred Stock, or the
ability of holders thereof to sell the same or the price at which such
holders may be able to sell the New Series A Senior Preferred Stock. If such
a market were to develop, the New Series A Senior Preferred Stock or Exchange
Debentures, if issued, could trade at prices that may be higher or lower than
the initial offering price depending on many factors, including prevailing
interest rates, Holdings' operating results and the market for similar
securities. The Initial Purchaser has advised Holdings that it is making a
market in the Old Series A Preferred Stock and that it currently intends to
make a market in the New Series A Senior Preferred Stock and, if issued, in
the Exchange Debentures. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to such securities may be
discontinued at any time without notice. Therefore, there can be no assurance
as to the liquidity of any trading market for such securities, or that a
market therefor will develop. Holdings does not intend to apply for listing
or quotation of the securities on any securities exchange or stock market.
Consequences of the Exchange Offer on Non-Tendering Holders of the Old Series A
Senior Preferred Stock
Holdings intends for the Exchange Offer to satisfy its registration
obligations under the Exchange Offer Registration Rights Agreement. If the
Exchange Offer is consummated, Holdings does not intend to file further
registration statements for the sale of other disposition of Old Series A Senior
Preferred Stock. Consequently, following completion of the Exchange Offer,
holders of shares of Old Series A Senior Preferred Stock seeking liquidity in
their investment would have to rely on an exemption to the registration
requirements under applicable securities laws, including the Securities Act,
with respect to any sale or other disposition of the shares of Old Series A
Senior Preferred Stock.
Year 2000 Compliance
The Year 2000 issue arises as a result of computer programs having been
written, and systems having been designed, using two digits rather than four
to define the applicable year. Consequently, such software has the potential
to recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. The Company is currently in the process of identifying those
programs and systems that are not Year 2000 compliant. At this time, the
Company does not anticipate that the costs of ensuring that its systems will
be Year 2000 compliant will have a material adverse effect on its business,
financial condition and results of operations. Because the Company has not
yet completed the analysis of its software applications, however, there can
be no assurance that at the year 2000 such systems will in fact be compliant.
If the systems of the Company or other companies on whose services the
Company depends, or with whom the Company's systems interface are not Year
2000 compliant, there could be a material adverse effect on the Company's
financial condition or results of operations.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
General
The shares of Old Series A Senior Preferred Stock were sold by Holdings on
March 30, 1998, in a private placement in reliance on Regulation D under the
Securities Act and/or on Section 4(2) of the Securities Act. The shares of Old
Series A Senior Preferred Stock were sold to the Initial Purchaser who resold
the shares of Old Series A Senior Preferred Stock to "qualified institutional
buyers" within the meaning of Rule 144A under the Securities Act. The Initial
Purchaser required as a condition to the purchase of the shares of Old Series A
Senior Preferred Stock that Holdings grant the purchasers of the shares of Old
Series A Senior Preferred Stock certain registration rights pursuant to the
Exchange Offer Registration Rights Agreement. The Exchange Offer Registration
Rights Agreement required Holdings to file with the Commission following the
closing of the Offering of the shares of Old Series A Senior Preferred Stock on
March 30, 1998 (the "Closing"), a registration statement relating to an exchange
offer pursuant to which shares which are substantially identical to the shares
of Old Series A Senior Preferred Stock would be offered in exchange for the then
outstanding shares of Old Series A Senior Preferred Stock tendered at the option
of the holders thereof. The form and terms of the shares of New Series A Senior
Preferred Stock are identical in all material respects to the form and terms of
the shares of Old Series A Senior Preferred Stock except (i) that the shares of
New Series A Senior Preferred Stock have been registered under the Securities
Act, (ii) that the shares of New Series A Senior Preferred Stock are not
entitled to certain registration rights which are applicable to the shares of
Old Series A Senior Preferred Stock under the Exchange Offer Registration Rights
Agreement, and (iii) certain contingent dividend rate provisions applicable to
the shares of Old Series A Senior Preferred Stock are generally not applicable
to the shares of New Series A Senior Preferred Stock. Exchange Debentures
issuable in exchange for shares of New Series A Senior Preferred Stock will have
the same terms as Exchange Debentures issuable in exchange for shares of Old
Series A Senior Preferred Stock. In the event that the applicable
interpretations of the staff of the Commission do not permit Holdings to effect
the Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 180 days of the Exchange Offer Registration Rights Agreement,
Holdings agreed to use its best efforts to cause to become effective a shelf
registration statement with respect to the resale of the shares of Old Series A
Senior Preferred Stock and to keep such shelf registration statement effective
for a period of up to two years. The Exchange Offer is being made to satisfy the
contractual obligations of Holdings under the Exchange Offer Registration Rights
Agreement.
Holdings has agreed that if (i) Holdings fails to file the registration
statement relating to the Exchange Offer within 60 days following the Issue
Date, (ii) such registration statement (or, if applicable, the shelf
registration statement) is not declared effective within 135 days following the
Issue Date, (iii) Holdings has not exchanged the New Series A Senior Preferred
Stock for all Old Series A Senior Preferred Stock validly tendered in accordance
with the terms of the Exchange Offer on or prior to 45 days after the date on
which such registration statement was declared effective or (iv) certain other
specified events relating to the effectiveness of such registration statement or
shelf registration statement occur, then the per annum dividend rate on the
shares of Old Series A Senior Preferred Stock will increase by 50 basis points
for the period from the occurrence of such default and the per annum dividend
rate will increase by an additional 25 basis points for each subsequent 90 day
period during which such default remains uncured, up to a maximum of 200 basis
points per annum in excess of the initial dividend rate borne by the Old Series
A Senior Preferred Stock, until such time as no default is in effect (at which
time the dividend rate will revert to its initial rate).
The holders of any shares of Old Series A Senior Preferred Stock not
tendered in the Exchange Offer will not be entitled to require Holdings to file
a shelf registration statement, and the dividend rate on such shares of Old
Series A Senior Preferred Stock will remain at its initial level. See "Preferred
Stock Exchange Offer; Registration Rights."
An exchange offer shall be deemed to have been consummated upon the
earlier to occur of (i) Holdings having exchanged shares of New Series A Senior
Preferred Stock for all outstanding shares of Old Series A Senior Preferred
Stock (other than shares of Old Series A Senior Preferred Stock held by a
Restricted Holder) pursuant to
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<PAGE>
such exchange offer and (ii) Holdings having exchanged, pursuant to such
exchange offer, shares of New Series A Senior Preferred Stock for all shares of
Old Series A Senior Preferred Stock that have been validly tendered and not
withdrawn on the Expiration Date. In such event, holders of shares of Old Series
A Senior Preferred Stock seeking liquidity in their investment would have to
rely on exemptions to registration requirements under applicable securities
laws, including the Securities Act.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Holdings will accept all shares
of Old Series A Senior Preferred Stock validly tendered prior to 5:00 p.m., New
York City time, on the Expiration Date. The exchange of New Series A Senior
Preferred Stock for shares of Old Series A Senior Preferred Stock will be made
(i) with respect to all shares of Old Series A Senior Preferred Stock validly
tendered and not withdrawn on or prior to the Early Exchange Date, within two
business days following the Early Exchange Date, and (ii) with respect to all
shares of Old Series A Senior Preferred Stock validly tendered and not withdrawn
after the Early Exchange Date but on or prior to the Expiration Date, within two
business days following the Expiration Date. The shares of New Series A Senior
Preferred Stock issued pursuant to the Exchange Offer will be delivered promptly
following each of the Early Exchange Date and the Expiration Date. Holdings will
issue $1,000 liquidation preference of New Series A Senior Preferred Stock in
exchange for each $1,000 liquidation preference of outstanding Old Series A
Senior Preferred Stock accepted in the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in SEC
no-action letters issued to unrelated third parties, Holdings believes that
shares of New Series A Senior Preferred Stock issued pursuant to the Exchange
Offer in exchange for shares of Old Series A Senior Preferred Stock may be
offered for resale, resold and otherwise transferred by the holders thereof
(other than a Restricted Holder) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such shares
of New Series A Senior Preferred Stock are acquired in the ordinary course of
such holders' business and such holders are not participating, do not intend to
participate and have no arrangement or understanding with any person to
participate in the distribution of such shares of New Series A Senior Preferred
Stock. See "KC-III Communications Corporation," SEC No-Action Letter (available
May 14, 1993); "Mary Kay Cosmetics, Inc.," SEC No-Action Letter (available June
5, 1991); "Morgan Stanley & Co., Incorporated," SEC No-Action Letter (available
June 5, 1991); and "Exxon Capital Holdings Corporation," SEC No-Action Letter
(available May 13, 1988). Each broker-dealer that receives shares of New Series
A Senior Preferred Stock for its own account in exchange for shares of Old
Series A Senior Preferred Stock, where such shares of Old Series A Senior
Preferred Stock were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such shares of New Series A Senior
Preferred Stock. See "Plan of Distribution."
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the Commission's
interpretation, such person (i) could not rely on the position of the staff of
the Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Accordingly, each eligible holder wishing to accept the
Exchange Offer must represent to Holdings in the Letter of Transmittal that the
conditions described above have been met.
In connection with the issuance of the shares of Old Series A Senior
Preferred Stock, Holdings arranged for the inclusion of the Old Series A Senior
Preferred Stock initially purchased by qualified institutional buyers on the
Private Offerings, Resales and Trading through Automated Linkages (PORTAL)
Market of the National Association of Securities Dealers, Inc. Holdings also
arranged for the shares of Old Series A Senior Preferred Stock initially
purchased by qualified institutional buyers to be issued and transferable in
book-entry form through the facilities of DTC, acting as depository, and in
DTC's Same-Day Funds Settlement System. The shares of New Series A Senior
Preferred Stock will also be issuable and transferable in book-entry form
through DTC in the Same-Day Funds Settlement System.
As of the date of this Prospectus, $57,710,000 in aggregate liquidation
preference of the Old Series A Senior Preferred Stock is outstanding.
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<PAGE>
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of shares of Old Series A Senior Preferred Stock as of
, 1998 (the "Record Date").
Holdings shall be deemed to have accepted validly tendered shares of Old
Series A Senior Preferred Stock when, as and if Holdings has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders of shares of Old Series A Senior Preferred Stock
for the purpose of receiving shares of New Series A Senior Preferred Stock from
Holdings and delivering shares of New Series A Senior Preferred Stock to such
holders.
If any tendered shares of Old Series A Senior Preferred Stock are not
accepted for exchange because of an invalid tender or the occurrence of certain
other events set forth herein, certificates for any such unaccepted shares of
Old Series A Senior Preferred Stock will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by Holdings. Holdings has agreed to pay,
subject to the instructions in the Letter of Transmittal, all transfer taxes, if
any, relating to the sale or disposition of such holder's shares of Old Series A
Senior Preferred Stock pursuant to the Exchange Offer. See "--Fees and
Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean , 1998, unless
Holdings, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, Holdings will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of shares of Old Series A Senior Preferred Stock an announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Such announcement may state that
Holdings is extending the Exchange Offer for a specified period of time.
Holdings reserves the right (i) to delay acceptance of any shares of Old
Series A Senior Preferred Stock, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept shares of Old Series A Senior
Preferred Stock not previously accepted, if any of the conditions set forth
herein under "--Conditions" shall have occurred and shall not have been waived
by Holdings, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the shares
of Old Series A Senior Preferred Stock. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof. If the Exchange Offer is amended in a manner determined
by Holdings to constitute a material change, Holdings will promptly disclose
such amendment in a manner reasonably calculated to inform the holders of the
shares of Old Series A Senior Preferred Stock of such amendment.
Without limiting the manner in which Holdings may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, Holdings shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
Accrual of Dividends on the New Series A Senior Preferred Stock
The New Series A Senior Preferred Stock will accrue dividends from March
30, 1998, the date of issuance of the Old Series A Senior Preferred Stock,
payable semi-annually in arrears on April 1 and October 1 of each year
commencing on October 1, 1998, at the rate per annum equal to 12% of the
liquidation preference per share of the New Series A Senior Preferred Stock.
Holders of shares of Old Series A Senior Preferred Stock whose shares of
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<PAGE>
Old Series A Senior Preferred Stock are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of dividends on such
shares of Old Series A Senior Preferred Stock accrued from March 30, 1998 until
the date of the issuance of the New Series A Senior Preferred Stock.
Procedure for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Old Series A Senior
Preferred Stock (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below) and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another eligible institution (an "Eligible Institution") unless
the shares of Old Series A Senior Preferred Stock tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the shares of Old
Series A Senior Preferred Stock by causing DTC to transfer such shares of Old
Series A Senior Preferred Stock into the Exchange Agent's account in accordance
with DTC's procedure for such transfer. Although delivery of shares of Old
Series A Senior Preferred Stock may be effected through book-entry transfer into
the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received or confirmed by the
Exchange Agent at its addresses set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of shares of Old Series A Senior Preferred Stock
will constitute an agreement between such holder and Holdings in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders.
The method of delivery of shares of Old Series A Senior Preferred Stock
and the Letter of Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the holders. Instead of delivery by mail,
it is recommended that holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or shares of Old Series A Senior Preferred Stock should be sent to
Holdings.
Only a holder of shares of Old Series A Senior Preferred Stock may tender
such shares of Old Series A Senior Preferred Stock in the Exchange Offer. The
term "holder" with respect to the Exchange Offer means any person in whose name
shares of Old Series A Senior Preferred Stock are registered on the books of
Holdings or any other person who has obtained a properly completed bond power
from the registered holder or any person whose shares of Old Series A Senior
Preferred Stock are held of record by DTC who desires to deliver such shares of
Old Series A Senior Preferred Stock at DTC.
Any beneficial holder whose shares of Old Series A Senior Preferred Stock
are registered in the name of his broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender his shares of Old Series A Senior
Preferred Stock should contact the registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his shares of Old Series A
Senior Preferred
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Stock, either make appropriate arrangements to register ownership of the shares
of Old Series A Senior Preferred Stock in such holder's name or obtain a
properly completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any shares of Old Series A Senior Preferred Stock listed
therein, such shares of Old Series A Senior Preferred Stock must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender the
shares of Old Series A Senior Preferred Stock on behalf of the registered
holder, in either case signed as the name of the registered holder or holders
appears on the shares of Old Series A Senior Preferred Stock.
If the Letter of Transmittal or any shares of Old Series A Senior
Preferred Stock or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by Holdings, evidence satisfactory to
Holdings of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered shares of Old Series A
Senior Preferred Stock will be determined by Holdings in its sole discretion,
which determination will be final and binding. Holdings reserves the absolute
right to reject any and all shares of Old Series A Senior Preferred Stock not
validly tendered or any shares of Old Series A Senior Preferred Stock Holdings'
acceptance of which would, in the opinion of counsel for Holdings, be unlawful.
Holdings also reserves the absolute right to waive any irregularities or
conditions of tender as to particular shares of Old Series A Senior Preferred
Stock. Holdings' interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of shares of Old Series A Senior Preferred Stock must be
cured within such time as Holdings shall determine. Neither Holdings, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of shares of Old Series A
Senior Preferred Stock nor shall any of them incur any liability for failure to
give such notification. Tenders of shares of Old Series A Senior Preferred Stock
will not be deemed to have been made until such irregularities have been cured
or waived. Any shares of Old Series A Senior Preferred Stock received by the
Exchange Agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent without cost to the tendering holder of such shares of Old Series A Senior
Preferred Stock unless otherwise provided in the Letter of Transmittal, as soon
as practicable following the Expiration Date.
By tendering, each holder will represent to Holdings that, among other
things (i) the shares of New Series A Senior Preferred Stock acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate, in a
distribution of such shares of New Series A Senior Preferred Stock, (iii) such
holder is not an "affiliate," as defined under Rule 405 of the Securities Act,
of Holdings and (iv) such holder is not a broker-dealer who acquired shares of
Old Series A Senior Preferred Stock directly from Holdings to resell pursuant to
Rule 144A or any other available exemption under the Securities Act.
Guaranteed Delivery Procedures
Holders who wish to tender their shares of Old Series A Senior Preferred
Stock and (i) whose shares of Old Series A Senior Preferred Stock are not
immediately available or (ii) who cannot deliver their shares of Old Series A
Senior Preferred Stock, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Early Exchange Date or the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Early Exchange Date or the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by telegram, telex, facsimile
transmission, mail, overnight courier or hand delivery) setting forth the name
and address of the holder of the shares of Old Series A Senior Preferred Stock,
the certificate number or numbers of such shares of Old Series A
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<PAGE>
Senior Preferred Stock and the principal amount of Old Series A Senior Preferred
Stock tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the date of execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the shares of Old Series A Senior Preferred
Stock to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all tendered
shares of Old Series A Senior Preferred Stock in proper form for transfer (or
confirmation of a book-entry transfer into the Exchange Agent's account at DTC
of shares of Old Series A Senior Preferred Stock delivered electronically) and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three business days after the date of execution of the
Notice of Guaranteed Delivery.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Series A Senior
Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of shares of Old Series A Senior Preferred Stock
in the Exchange Offer, a written or facsimile transmission notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date and
prior to acceptance for exchange thereof by Holdings. Any such notice of
withdrawal must (i) specify the name of the person having deposited the
shares of Old Series A Senior Preferred Stock to be withdrawn (the
"Depositor"), (ii) identify the shares of Old Series A Senior Preferred Stock
to be withdrawn (including the certificate number or numbers and principal
amount of such shares of Old Series A Senior Preferred Stock), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such shares of Old Series A Senior Preferred
Stock were tendered (including required signature guarantees) or be
accompanied by documents of transfer sufficient to permit the transfer agent
with respect to the Old Series A Senior Preferred Stock to register the
transfer of such shares of Old Series A Senior Preferred Stock into the name
of the Depositor withdrawing the tender and (iv) specify the name in which
any such shares of Old Series A Senior Preferred Stock are to be registered,
if different from that of the Depositor. All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices
will be determined by Holdings, whose determination shall be final and
binding on all parties. Any shares of Old Series A Senior Preferred Stock so
withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no shares of New Series A Senior Preferred Stock will
be issued with respect thereto unless the shares of Old Series A Senior
Preferred Stock so withdrawn are validly retendered. Any shares of Old Series
A Senior Preferred Stock which have been tendered but which are not accepted
for exchange will be returned by the Exchange Agent to the holder thereof
without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
shares of Old Series A Senior Preferred Stock may be retendered by following
one of the procedures described above under "--Procedure for Tendering" at
any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Holdings will not be
obligated to consummate the Exchange Offer if the shares of New Series A Senior
Preferred Stock to be received will not be tradeable by the holder, other than
in the case of Restricted Holders, without restriction under the Securities Act
and the Exchange Act and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States. Such
condition will be deemed to be satisfied unless a holder provides Holdings with
an opinion of counsel reasonably satisfactory to Holdings to the effect that the
shares of New Series A Senior Preferred Stock received by such holder will not
be tradeable without restriction under the Securities Act and the Exchange Act
and without material restrictions under the blue sky laws of substantially all
of the states of the United States. Holdings may waive this condition.
28
<PAGE>
If the condition described above exists, Holdings will be entitled to
refuse to accept any shares of Old Series A Senior Preferred Stock and, in the
case of such refusal, will return all tendered shares of Old Series A Senior
Preferred Stock to exchanging holders of the shares of Old Series A Senior
Preferred Stock. See "Preferred Stock Exchange Offer; Registration Rights."
Exchange Agent
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Hand Delivery: United States Trust Company of New York
111 Broadway
Lower Level Corporate Trust Window
New York, New York 10006
Attn: Corporate Trust Services
By Registered or
Certified Mail: United States Trust Company of New York
P.O. Box 843 Cooper Station
New York, New York 10276
Attn: Corporate Trust Services
By Overnight Courier
(or by Hand Delivery
After 4:30 p.m. on the
Expiration Date Only): United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Services
Facsimile Transmission:
(Eligible Institutions and
Withdrawal Notices Only) (212) 780-0592
Attn: Customer Service
Confirm: 1-800-548-6565
For Information Call: 1-800-548-6565
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Holdings. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of Holdings and its affiliates in person, by
telegraph or telephone.
Holdings will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and the transfer agent
and accounting and legal fees, will be paid by Holdings.
Holdings will pay all transfer taxes, if any, applicable to the exchange
of shares of Old Series A Senior Preferred Stock pursuant to the Exchange Offer.
If, however, certificates representing shares of New Series A
29
<PAGE>
Senior Preferred Stock or shares of Old Series A Senior Preferred Stock for
principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than
the registered holder of the shares of Old Series A Senior Preferred Stock
tendered, or if tendered shares of Old Series A Senior Preferred Stock are
registered in the name of any person other than the person signing the Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of shares of Old Series A Senior Preferred Stock pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
Accounting Treatment
No gain or loss for accounting purposes will be recognized by Holdings
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized as a reduction of stockholders' equity over the term of the
New Series A Senior Preferred Stock under generally accepted accounting
principles.
30
<PAGE>
THE TRANSACTIONS
The Recapitalization
Historically, the Company operated as one of the several operating
units of HII. On January 28, 1998, the HarnCo Parties reached an agreement
with MHE Investments, a newly formed affiliate of Chartwell Investments Inc.,
for the sale of an approximately 80 percent common ownership interest in the
MHE Business.
Pursuant to the Recapitalization Agreement, the HarnCo Parties effected
a number of transactions that resulted in Holdings, a pre-existing company
within the MHE Business, owning, directly or indirectly, all of the equity
interest of the entities engaged in the MHE Business that were previously
owned by the HarnCo Parties. Holdings in turn formed the Company as a wholly
owned subsidiary to directly or indirectly hold the various operating
entities of the MHE Business. Holdings was recapitalized in order to effect
the redemption of certain shares of capital stock held by HarnCo.
The Offering was consummated on March 30, 1998 in conjunction with the
Recapitalization Closing. In addition, MHE Investments and HarnCo invested
new and continuing equity capital of $66.0 million in Holdings. Concurrently
with the Offering, the Company entered into the New Credit Facility and MMH
sold (the "Senior Note Offering") $200.0 million aggregate principal amount
of its 9 1/2% Senior Notes Due 2008 (the "Senior Notes"). See "Description of
New Credit Facility" and "The Senior Note Offering."
The proceeds of the Equity Investment, together with approximately
$55.0 million of aggregate borrowings under the New Credit Facility and
approximately $200.0 million in aggregate proceeds from the Senior Note
Offering, were used (i) to finance the Recapitalization, (ii) to make loans
to senior management to acquire indirect equity interests in Holdings, (iii)
for general corporate purposes and (iv) to pay approximately $24.0 million of
fees and expenses. See "Use of Proceeds." A portion of the proceeds from the
Senior Note Offering and the borrowings under the New Credit Facility was
used by MMH to repurchase a portion of its common stock from Holdings.
Holdings, in turn, used the proceeds from this repurchase, together with the
proceeds of this Offering, to finance its portion of the cash
Recapitalization consideration.
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0
million in cash for approximately 72.6% of the Common Stock (after giving
effect to the Transactions) and approximately $28.9 million liquidation
preference of the Series C Junior Voting Preferred Stock, (ii) Holdings
redeemed certain shares of Common Stock and Series C Junior Voting Preferred
Stock held by HarnCo for $282.0 million in cash (subject to potential
post-Recapitalization Closing adjustments as to which an additional $5.0
million was provided to HarnCo at the Recapitalization Closing) and
approximately $4.8 million liquidation preference of the Series B Junior
Preferred Stock, and (iii) and HarnCo retained approximately 20.8% of the
Common Stock (after giving effect to the Transactions). The Series A Units
constitute the remaining equity interests of Holdings and consist of
non-voting stock representing approximately 6.6% of the Common Stock (after
giving effect to the Transactions) and approximately $57.7 million
liquidation preference of the Old Series A Senior Preferred Stock. See
"Capitalization."
In connection with the Recapitalization, the Company entered into a
Trademark License Agreement with an affiliate of HarnCo, pursuant to which
the Company has the right to use the P&H trademark with respect to all MHE
Business products on a worldwide exclusive basis from the date of the
Recapitalization Closing until 15 years after the earlier to occur of a sale
of Holdings to a third party or a public offering of the common stock of
Holdings, the Company or their parents or successors (and for an additional
seven years thereafter for aftermarket products and services). The royalty
fee for use of the trademark is 0.75% of the aggregate net sales of the MHE
Business for the ten year period commencing March 30, 1999. There will be no
royalty fee for the remainder of the term. The Company entered into a number
of agreements pursuant to which HarnCo will continue to provide, on an
interim basis, certain supplies, products and services to the Company and its
subsidiaries located in the United States on substantially similar terms and
conditions to those historically provided. See "Certain Relationships and
Related Transactions."
The Equity Investment consisted of: (i) $60.0 million of Series A Units,
which consists of $57.7 million liquidation value of Old Series A Senior
Preferred Stock and $2.3 million of Unit Common Stock, (ii) $12.0 million
31
<PAGE>
of continuing equity capital retained by HarnCo which consists of $4.8
million liquidation value of Series B Junior Preferred Stock and $7.2 million
of Common Stock and (iii) $54.0 million of equity acquired by MHE Investments
which consists of $28.9 million liquidation value of Series C Junior Voting
Preferred Stock and $25.1 million of Common Stock.
The Pre-Closing Transactions
Immediately prior to the Recapitalization Closing, the HarnCo Parties
effected a number of transactions that resulted in Holdings owning, directly or
indirectly, the equity interests of all of the entities engaged in the MHE
Business that were previously owned by the HarnCo Parties. In connection
therewith, Holdings transferred all of its assets and liabilities, including its
operating assets, to the Company in the form of a capital contribution.
The October 1997 Drop Down
The organizational structure of Holdings and its subsidiaries was
substantially reorganized in connection with the anticipated sale of the
Company. In connection therewith, in October 1997, HarnCo transferred the assets
of its Material Handling Equipment Division (the "MHE Division") to Material
Handling, LLC ("MHLLC"), a newly-created wholly-owned subsidiary of the Company
(the "October 1997 Drop Down"). All non-cash assets held by HarnCo and used
exclusively by the MHE Division were transferred or, in the case of leased
personal property, subleased to MHLLC or to one of its affiliates. In return,
MHLLC assumed substantially all of the liabilities of HarnCo and the Non-MHE
HarnCo Affiliates relating to the MHE Business (other than as described below).
As of the Recapitalization Closing, HarnCo has retained certain income and
other tax liabilities relating to the MHE Business, all environmental
liabilities relating to the ownership or operation of any shared facilities and
of HarnCo's Orchard Street facility, any liabilities for which HarnCo or its
affiliates have been named as potentially responsible parties with respect to
two Superfund sites, and any liabilities arising in connection with claims
alleging exposure to asbestos (to the extent there is insurance coverage
therefor) in connection with the MHE Business prior to the Recapitalization
Closing. In addition, among other matters, the HarnCo Parties have retained all
liability for medical and disability benefit claims for current United States
employees made prior to the Recapitalization Closing, all claims by United
States employees who are on short-term or long-term disability as of the
Recapitalization Closing and all claims with respect to any of the HII benefit
plans for former United States employees of the Company.
New Credit Facility
The Company has entered into the New Credit Facility which consists of a
$70.0 million revolving credit facility (the "Revolving Credit Facility"), a
$30.0 million acquisition facility (the "Acquisition Facility"), a $20.0 million
term loan ("Term Loan A") and a $35.0 million term loan ("Term Loan B" and,
together with Term Loan A, the "Term Loans").
The Revolving Credit Facility permits, subject to compliance with
certain conditions, the Company to borrow, repay and reborrow up to $70.0
million (of which $15.0 million is required under the Note Indenture to be
reserved for issuance of letters of credit) at any time until the fifth
anniversary of the Recapitalization Closing, the proceeds of which may be
used for working capital and other corporate purposes. The Acquisition
Facility, the proceeds of which may be used for acquisitions, permits,
subject to compliance with certain conditions, the Company to borrow up to
$30.0 million at any time until the third anniversary, and to repay the same
in installments on or prior to the seventh anniversary, of the
Recapitalization Closing. Term Loan A is repayable in 20 quarterly
installments, commencing on June 30, 1998 and Term Loan B is repayable in 28
quarterly installments commencing on June 30, 1998.
Borrowings under the New Credit Facility bear interest at various interest
rates based on certain floating reference rates, as selected by the Company,
plus a margin. The New Credit Facility contains customary affirmative and
restrictive covenants on the part of the Company and its subsidiaries.
Borrowings under the New Credit Facility are (i) secured by substantially all of
the present and future assets of the Company and its subsidiaries located in the
United States and the United Kingdom, certain of the Company's subsidiaries'
present and future assets located in Canada and by a pledge of substantially all
of the issued and outstanding shares of capital stock of the Company and
32
<PAGE>
its current and future subsidiaries and (ii) guaranteed by Holdings and
substantially all of the Company's subsidiaries. See "Description of the New
Credit Facility."
Credit Support
Historically, HarnCo and the Non-MHE HarnCo Affiliates, including HII,
provided credit support for the MHE Business. This credit support included: (i)
providing working capital; (ii) guaranteeing financial and performance
obligations with respect to customer and supply contracts and relationships;
(iii) providing collateral and credit support with respect to letters of credit,
surety bonds or other arrangements of the MHE Business; and (iv) otherwise being
directly and contingently liable for the MHE Business's obligations. In
addition, prior to the October 1997 Drop Down, a significant portion of the MHE
Business was conducted directly by HarnCo, including the execution of certain
contracts. For the fiscal year ended October 31, 1997, HII had net sales of
approximately $3.1 billion and operating income of $319.3 million.
HII and the Company have entered into a Credit Indemnification Agreement
pursuant to which HII will maintain in place the Credit Support Obligations in
existence at the Recapitalization Closing but have no further duty to extend,
renew or enter into any new Credit Support Obligations (except as to the MHE
Business Obligations existing at the Recapitalization Closing). The Company will
pay HII an annual fee equal to 1% of the amounts still outstanding under each
letter of credit and bond provided by HarnCo and the Non-MHE HarnCo Affiliates
(approximately $34.7 million as of April 30, 1998), and reimburse HII for
certain future fees and expenses. The Credit Indemnification Agreement also
provides that the Company will reimburse HII on demand for any payment made by
HII or its affiliates under any of the Credit Support Obligations.
The Company entered into the Surety Arrangement to provide credit support
for the MHE Business. The Surety Arrangement provides a surety line of $60.0
million, in the aggregate, with a limit of $20.0 million for any single
obligation. Collateral for the surety line will be letters of credit provided
under the Revolving Credit Facility in the amount of up to 20% of outstanding
surety obligations and a pledge of certain assets of the Company. See
"Description of the Surety Arrangement."
DIVIDEND POLICY
Holdings does not expect to pay any cash dividends on its preferred stock
for the foreseeable future. The ability of Holdings to obtain cash resources to
pay cash dividends on its capital stock is restricted by the terms of the New
Credit Facility and the Note Indenture. See "Risk Factors -- Holding Company
Structure; Reliance and Restrictions on Subsidiaries for Cash Flow; --
Restrictive Covenants; Limited Remedies" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
33
<PAGE>
USE OF PROCEEDS
(dollars in thousands)
Holdings will not receive any cash proceeds from the issuance of the New
Series A Senior Preferred Stock offered hereby. In consideration for issuing the
New Series A Senior Preferred Stock offered hereby, Holdings will receive, in
exchange, Old Series A Senior Preferred Stock in like liquidation preference.
The net proceeds of the Offering and the remaining portion of the Equity
Investment, together with the proceeds of the Senior Note Offering and
borrowings under the New Credit Facility, were used by Holdings and the Company
(i) to finance the Recapitalization, (ii) to make loans to management to acquire
indirect equity interests in Holdings, (iii) for general corporate purposes and
(iv) to pay fees and expenses associated with the Transactions. See
"Capitalization."
The sources and uses of the Recapitalization were as follows:
<TABLE>
<CAPTION>
<S> <C>
Sources:
New Credit Facility:
Term Loans ............................................... $ 55,000
Senior Notes .............................................. 200,000
Equity Investment:
Series A Units ........................................... 60,000
HarnCo's Common Stock at its implied
value and Series B Junior Preferred
Stock ................................................... 12,000
MHE Investments' Common Stock and
Series C Junior Voting Preferred
Stock ................................................... 54,000
---------
Total sources .......................................... $ 381,000
=========
Uses:
Cash portion of the Recapitalization consideration ........ $ 336,000
Stock portion of the Recapitalization consideration ....... 12,000
Prepayment of purchase price adjustment ................... 5,000
Prepayment of credit support fee to HII ................... 290
Short-term loan to management to finance purchase
of equity interests ...................................... 900
General corporate purposes ................................ 2,790
Fees and expenses ......................................... 24,020
---------
Total uses ............................................. $ 381,000
=========
</TABLE>
34
<PAGE>
CAPITALIZATION
(dollars in thousands)
The following table sets forth the combined capitalization of Holdings at
April 30, 1998. This table should be read in conjunction with "Unaudited Pro
Forma Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Financial Statements of
the Company and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of April 30,
1998
---------------
<S> <C>
Cash..................................................................................... $ 2,825
-----------
-----------
New Credit Facility: (a)
Term Loans..................................................................... 55,000 (b)
Revolving Credit Facility........................................................... 3,316
Senior Notes 200,000 (c)
Other long term debt................................................................ 2,753 (d)
-----------
Total debt................................................................ $ 261,069
Mandatorily redeemable preferred stock stated at liquidation value:
Series A Senior Preferred Stock................................................ 55,429 (e)
Series B Junior Preferred Stock................................................ 4,858 (f)
Series C Junior Voting Preferred Stock......................................... 29,156 (g)
-----------
Total preferred stock..................................................... 89,443
Shareholders' equity (h)............................................................ (121,152)
-----------
Total capitalization...................................................... $ 229,360
-----------
-----------
</TABLE>
(a) The New Credit Facility consists of the Revolving Credit Facility, the
Acquisition Facility and the Term Loans. A portion of the Revolving Credit
Facility may be used to provide letters of credit in connection with the
Surety Arrangement. See "Description of the Surety Arrangement."
(b) The Term Loans consist of a $20.0 million five year term loan and a $35.0
million seven year term loan.
(c) The Senior Notes have a ten year maturity.
(d) Other long term debt of $2.8 million consists of a $1.2 million bank
overdraft, $0.4 million of short-term debt, a $0.7 million mortgage, $0.4
million of industrial revenue bonds and $0.1 million of capital leases.
(e) Represents the Old Series A Senior Preferred Stock acquired in the
Recapitalization, net of $2.9 million of fees and the accrual of preferred
stock dividends paid in kind.
(f) Represents the Series B Junior Preferred Stock received by HarnCo in
exchange for certain Common Stock and the accrual of preferred stock
dividends paid in kind.
(g) Represents the Series C Junior Voting Preferred Stock acquired by MHE
Investments from HarnCo and the accrual of preferred stock dividends paid
in kind.
(h) Reflects Holdings' equity at historical book value of $121.2 million. The
Equity Investment in connection with the Recapitalization totaled $126.0
million and consisted of the following preferred stock and Common Stock:
<TABLE>
<CAPTION>
Preferred Common Equity
Stock Stock Investments
--------- -------- -----------
<S> <C> <C> <C>
Purchasers in the Offering.............................. $ 57,710 $ 2,290 $ 60,000
MHE Investments......................................... 28,855 25,145 54,000
HarnCo.................................................. 4,809 7,191 12,000
--------- -------- -----------
$ 91,374 $ 34,626 $ 126,000
--------- -------- -----------
--------- -------- -----------
</TABLE>
MHE Investments acquired preferred stock and Common Stock directly from
HarnCo for $54.0 million as part of the Recapitalization consideration. The
net proceeds of the Senior Note Offering and borrowings under the New
Credit Facility were used by the Company to repurchase a portion of its
common stock from Holdings. The proceeds from such repurchase together with
the proceeds of this Offering were used by Holdings to finance its portion
of the cash Recapitalization consideration. HarnCo's retained interest
consists of $7.2 million of Common Stock, based on the implied value of the
redemption price, and Series B Junior Preferred Stock of $4.8 million.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statements of Operations of
Holdings for the six months ended April 30, 1998 and for the year ended
October 31, 1997 have been prepared to reflect the consummation of the
Transactions as if they had occurred on November 1, 1996. The Unaudited
Combined Pro Forma Statements of Operations of Holdings do not purport to be
indicative of the operating results of Holdings that actually would have been
obtained for the periods presented had the Transactions actually been
consummated on the date assumed and are not necessarily indicative of the
results of operations that may be obtained in the future. The unaudited pro
forma adjustments, as described in the Notes to the Unaudited Pro Forma
Combined Statements of Operations of Holdings, are based on available
information and upon certain assumptions that management believes are
reasonable. The Unaudited Balance Sheet of Holdings as of April 30, 1998 as
set out in the Financial Statements of Holdings appearing elsewhere herein
and the notes thereto reflect the consummation of the Transactions. The
Transactions are accounted for as a recapitalization for financial reporting
purposes. Accordingly, the historical basis of Holdings' assets and
liabilities was not impacted by the Transactions. The Unaudited Pro Forma
Combined Financial Information should be read in conjunction with the
"Transactions" and the Financial Statements of Holdings and notes thereto
appearing elsewhere herein.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended October 31, 1997
--------------------------------------------
Historical Adjustments Pro Forma(a)
---------- ----------- ------------
<S> <C> <C> <C>
Revenues
Net sales ......................... $ 353,350 $ $ 353,350
Other income--net ................. 2,649 2,649
--------- --------- ---------
355,999 355,999
Cost of sales ...................... 260,794 260,794
Selling, general and
administrative expenses ........... 56,806 1,000(b) 57,806
Management fee ..................... 2,862 (1,862)(c) 1,000
--------- --------- ---------
Operating income .................. 35,537 862 36,399
Interest expense--net
Affiliates ........................ (394) 394(d) --
Third party ....................... (398) (26,243)(e) (26,641)
--------- --------- ---------
Income before income taxes and
minority interest ................. 34,745 (24,987) 9,758
Provision for income tax benefit ... (13,874) 9,995(f) (3,879)
Minority interest .................. (18) (18)
--------- --------- ---------
Net income ........................ 20,853 (14,992) 5,861
Dividends on preferred stock ....... (11,460)(g) (11,460)
--------- --------- ---------
Net income/(loss) attributable
to Common Stock .................. $ 20,853 $ (26,452) $ (5,599)
========= ========= =========
Other Financial Data:
EBITDA(h) .......................... $ 45,859 $ 43,859
Depreciation and amortization ...... 6,736 8,536
Capital expenditures ............... 6,498 6,498
Cash interest expense .............. 792 24,841
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1998
---------------------------------------
Historical Adjustments Pro Forma (a)
---------- ----------- -------------
<S> <C> <C> <C>
Revenues
Net sales.............................................. $ 157,249 $ $ 157,249
Other income--net....................................... 726 726
------------ ------------- ------------
157,975 157,975
Cost of sales............................................... 115,172 115,172
Selling, general and administrative expenses................ 29,514 1,596 (b) 31,110
Management fee.............................................. 1,155 (655) (c) 500
Non-recurring employee benefit costs 1,906 (1,216) (d) 690
------------ ------------- ------------
Operating income.................................. 10,228 275 10,503
Interest expense--net
Affiliates............................................. (1,448) 1,448 (e) --
Third party............................................ (2,703) (10,898) (f) (13,601)
------------ ------------- ------------
Income/(loss) before income taxes and minority interest..... 6,077 (9,175) (3,098)
(Provision for income taxes)/ income tax benefit............ (2,446) 3,670 (g) 1,224
Minority interest........................................... 38 38
------------ ------------- ------------
Net income/(loss)................................. 3,669 (5,505) (1,836)
Dividends on preferred stock................................ (927) (5,331) (h) (6,258)
------------ ------------- ------------
Net income/(loss) attributable to Common
Stock.......................................... $ 2,742 $ (10,836) $ (8,094)
------------ ------------- ------------
------------ ------------- ------------
Other Financial Data:
EBITDA (i) $ 16,871 $ 14,775
Depreciation and amortization............................... 3,408 4,226
Capital expenditures........................................ 2,446 2,446
Cash interest expense....................................... 4,151 12,701
</TABLE>
38
<PAGE>
Notes to the Unaudited Pro Forma Combined Statements of Operations
<TABLE>
<CAPTION>
Pro Forma
Pro Forma for for the Six
the Year Months
Ended Ended
October 31, April 30,
1997 1998
-------------- -------------
<S> <C> <C>
(a) Pro forma gives effect to the Transactions as if they had occurred on
November 1, 1996.
(b) Reflects the following:
Management's estimate of the incremental costs attributable to stand
alone operations, including remuneration for additional management
(tax, treasury and audit), external reporting costs and incremental
employee benefit costs................................................ $ 1,000 $ 500
Royalty payment under the Trademark License Agreement with an
affiliate of HarnCo. The royalty fee, calculated as 0.75% of the
annual aggregate net sales of the MHE Business, will be incurred
for the ten year period commencing March 30, 1999...................... -- 1,179
Less the Chartwell Investments Inc. management consulting fee
recorded subsequent to the Recapitalization Closing.................... -- (83)
-------------- -------------
$ 1,000 $ 1,596
-------------- -------------
-------------- -------------
(c) Reflects the following:
Elimination of HII Management Fee...................................... $ (2,862) $ (1,155)
Chartwell Investments Inc.'s management consulting fee................. 1,000 500
-------------- -------------
$ (1,862) $ (655)
-------------- -------------
-------------- -------------
(d) Reflects elimination of incentives payable to certain members of management
in connection with the Transactions. While the costs of the incentive payments
appear on the Company's income statements, HII, the Company's former parent,
not the Company, is responsible for paying these incentives
(e) Reflects elimination of interest expense paid to affiliates of HII.
(f) Reflects the following:
Estimated change in cash interest expense on debt...................... $ (24,144) $ (9,930)
Estimated fee paid to HII for outstanding credit support............... (299) (150)
Estimated amortization of debt financing costs (net of $82 recorded
subsequent to the Recapitalization Closing)............................ (1,800) (818)
-------------- -------------
$ (26,243) $ (10,898)
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Cost Interest Cost
--------- ------------- -------------
<S> <C> <C> <C>
Estimated cash interest expense on debt:
Revolving Credit Facility at LIBOR plus 2.25%(i)........ $ -- $ 350 $ 146
Acquisition Facility at LIBOR plus 2.75%(i)............. -- 150 62
Term Loan A at LIBOR plus 2.25%......................... 20,000 1,625 813
Term Loan B at LIBOR plus 2.75%......................... 35,000 3,019 1,509
Senior Notes at 9.50%................................... 200,000 19,000 9,500
Less interest expense recorded subsequent to the
Recapitalization Closing................................ -- (2,100)
-------------- -------------
$ 24,144 $ 9,930
-------------- -------------
-------------- -------------
</TABLE>
(i) Reflects a 0.50% fee for undrawn commitments under these facilities.
For the purposes of the above, LIBOR is 5.875%, consistent with the
Company's interest rate swap agreement.
39
<PAGE>
A 1/8th percentage point increase or decrease in the assumed average
interest rate on the debt issued in connection with the
Recapitalization would change the annual pro forma interest expense
for the year ended October 31, 1997 by approximately $0.3 million and
the pro forma net income for the year ended October 31, 1997 by
approximately $0.2 million. A 1/8th percentage point increase or
decrease in the assumed average interest rate on the debt issued in
connection with the Recapitalization would change the pro forma
interest expense for the six months ended April 30, 1998 by
approximately $0.2 million and the pro forma net income for the six
months ended April 30, 1998 by approximately $0.1 million.
(g) Reflects the tax effect of all adjustments at an assumed effective tax rate
of 40%.
(h) Reflects the following:
<TABLE>
<CAPTION>
Dividends (i)
-------------------------------
Liquidation Pro Forma for Pro Forma for
Preference at The Year Ended the Six Months
Recapitalization October 31, Ended April 30,
Coupon Closing 1997 1998
-------- ---------------- -------------- ----------------
<S> <C> <C> <C>
Preferred stock dividends:
Series A Senior Preferred Stock........... 12.00% $ 57,710 $ 7,133 $ 3,890
Series B Junior Preferred Stock........... 12.25 4,809 607 332
Series C Junior Voting Preferred
Stock.................................. 12.50 28,855 3,720 2,036
Less preferred stock dividends accrued
subsequent to the Recapitalization Closing... -- (927)
-------- ---------------- -------------- ----------------
$ 11,460 $ 5,331
-------- ---------------- -------------- ----------------
</TABLE>
(i) Holdings has the option of paying the cumulative dividends on the
mandatorily redeemable preferred stock either in cash or in kind until
2003; thereafter, the payments must be in cash. Dividends are payable
semi-annually in arrears. The above noted dividend amounts assume that
the dividends are paid in kind.
(i) EBITDA represents operating income before depreciation, amortization,
the HII Management Fee, nonrecurring employee benefit costs and charges
related to certain depreciation expenses for HarnCo assets. For Fiscal
1997 and the six months ended April 30, 1998, the HII Management Fee
was $2,862 and $1,155 respectively, the nonrecurring employee benefit
costs were $0 and $1,906, respectively, and the charges related to
certain depreciation expenses for HarnCo assets were $724 and $256
respectively. Pro forma EBITDA represents operating income before
depreciation, amortization, nonrecurring employee benefit costs and the
charges related to certain depreciation expenses for HarnCo assets. On
a pro forma basis, for fiscal 1997 and the six months ended April 30,
1998, the nonrecurring employee benefit costs were $0 and $690,
respectively. EBITDA and Pro forma EBITDA are commonly used by certain
investors to provide additional information with respect to the ability
of the Company to meet its debt service, capital expenditures and
working capital requirements. EBITDA and Pro forma EBITDA are not
measures of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as an
alternative to operating income, net income, cash flows from
operations, or other statements of operations or cash flows prepared in
conformity with generally accepted accounting principles, or as a
measure of profitability or liquidity. The items excluded from EBITDA
may be significant in understanding and assessing the Company's
financial performance. In addition, EBITDA and Pro forma EBITDA may not
be comparable to similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
40
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The selected historical combined financial data as of and for the years
ended October 31, 1997, 1996 and 1995 have been derived from the audited
combined financial statements of the Company. The selected historical
combined financial data as of and for the six months ended April 30, 1998 and
1997 have been derived from the unaudited combined financial statements of
the Company. The selected historical combined financial data as of and for
the years ended October 31, 1994 and 1993 have been derived from unaudited
internal records of the Company. The Company's operations for 1994 and 1993
were integrated with other HII operations and, therefore, the financial data
for these periods represent management's best estimate of their operating
performance. The Transactions are accounted for as a recapitalization for
financial reporting purposes. Accordingly, the historical basis of Holdings'
assets and liabilities was not impacted by the Transactions. The unaudited
financial data presented herein, in the opinion of management, includes all
necessary adjustments required for the fair presentation of such data.
The selected pro forma combined financial data of Holdings for the six
months ended April 30, 1998 and for the year ended October 31, 1997 have been
prepared to reflect the consummation of the Transactions. The unaudited pro
forma combined statements of operations of Holdings have been prepared as if
such transactions had occurred on November 1, 1996. The unaudited pro forma
combined statements of operations of Holdings are not necessarily indicative
of the results of operations of Holdings had the Transactions reflected
therein actually been consummated on the date assumed and are not necessarily
indicative of the results of operations of Holdings that may be expected for
any future periods. The unaudited balance sheet data of Holdings, which are
presented as of April 30, 1998, incorporate the closing of the Transactions
on March 30, 1998.
The selected combined financial data should be read in conjunction with
"Unaudited Pro Forma Combined Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of Holdings and notes thereto appearing elsewhere
herein.
41
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, Six Months Ended April 30,
------------------------------------------------------------- ---------------------------------
Pro Forma Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1997 1998 1998
----------- --------- -------- -------- --------- ---------- ---------- ---------- ------------
(unaudited) (unaudited) (unaudited)(unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Net sales.............. $ 117,032 $ 109,429 $ 243,169 $323,735 $ 353,350 $ 353,350 $177,054 $157,249 $157,249
Gross profit........... N/A N/A 56,765 76,176 92,556 92,556 43,422 42,077 42,077
Other income-net...... N/A N/A 3,766 1,149 2,649 2,649 1,501 726 726
Selling, general and
administrative
expenses........... N/A N/A 36,931 44,968 56,806 57,806 27,272 29,514 31,110
Management fee(b)..... N/A N/A 1,878 2,341 2,862 1,000 1,434 1,155 500
Nonrecurring employee
benefit costs(c)... N/A N/A 0 0 0 0 0 1,906 690
Direct expenses(d).... 110,279 97,335
----------- --------- -------- -------- --------- ---------- ---------- ---------- ------------
Operating income....... N/A N/A 21,722 30,016 35,537 36,399 16,217 10,228 10,503
Excess of revenues
over direct
expenses............ $ 6,753 $ 12,094
Net income/(loss)..... N/A N/A $ 13,476 $ 18,446 $ 20,853 $ 5,861 $ 9,602 $ 3,669 $ (1,836)
----------- --------- -------- -------- --------- ---------- ------------
----------
Dividends on
preferred stock.... (11,460) (927) (6,258)
---------- ---------- -----------
Net income/(loss)
attributable to
Common Stock....... $ (5,599) $ 2,742 $ (8,094)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
As of October 31, As of April 30,
-------------------------------------------------- ---------------------
1993(a) 1994(a) 1995 1996 1997 1997 1998
--------- ---------- -------- ------- ---------- ---------- ----------
(unaudited)(unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital........ N/A N/A $ 17,483 $ 34,523 $ 51,243 $ 42,526 $ 57,139
Total assets........... 151,168 189,058 199,600 200,655 289,845
Divisional assets(e)... $ 66,667 $ 128,465
Total debt............. N/A N/A 4,704 2,044 6,088 2,089 261,069
Mandatorily redeemable
preferred stock..... 89,443
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, Six Months Ended April 30,
------------------------------------------------------------- ---------------------------------
Pro Forma Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1997 1998 1998
----------- --------- -------- -------- --------- ---------- ---------- ---------- ------------
(unaudited) (unaudited) (unaudited)(unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other data:
EBITDA(f).............. $ 28,045 $ 38,220 $ 45,859 $ 43,859 $ 21,098 $ 16,871 $ 14,775
Depreciation and
amortization(g)..... $ 2,588 $ 2,981 3,800 5,292 6,736 8,536 3,085 3,408 4,226
Capital expenditures... 1,419 3,935 3,725 6,752 6,498 6,498 2,486 2,446 2,446
Cash interest expense.. 24,841 12,701
Ratio of earnings to
fixed charges and
preferred
dividends(h)........ N/A N/A 23.21x 23.11x 16.46x -- 17.72x 2.25x --
Cash flow data
Net cash provided by
(used in) operating
activities.............. N/A N/A 3,753 23,456 12,899 12,523 (2,054)
Net cash used for
investing and other
transactions............ N/A N/A (2,496) (21,158) (14,947) (13,487) (3,593)
Net cash provided by
(used for) financing
activities.............. N/A N/A -- -- (254) (713) 7,041
Adjusted data:
Ratio of EBITDA to
cash interest 1.77x 1.55x(i)
expense.............
Ratio of pro forma
debt to EBITDA...... 5.95x 6.77x(i)
</TABLE>
(a) Prior to 1995, the Company did not determine its financial position or
results of operations on a stand alone basis as its financial and
management reporting information was commingled with other operating
divisions of
42
<PAGE>
HII. As a result, the Company's summary data as of and for the years
ended October 31, 1994 and 1993 is limited and certain historical
financial data is not available.
(b) Represents, for historical periods, the HII Management Fee, and for pro
forma periods, the Chartwell Investments Inc. management consulting fee.
(c) Represents severance costs associated with restructuring the Company's
United Kingdom manufacturing operation of $690 and incentives to certain
members of management of $1,216. While the cost of the incentive payments
appear on the Company's income statements, HII, the Company's former
parent, not the Company, is responsible for paying these incentives.
(d) Direct expenses are those costs of goods sold, selling expenses and general
and administrative expenses associated with the division.
(e) Divisional assets include property, plant and equipment, cash, accounts
receivable, unbilled receivables, inventories and intangible assets.
(f) EBITDA represents operating income before depreciation, amortization,
the HII Management Fee, nonrecurring employee benefit costs and charges
related to certain depreciation expenses for HarnCo assets. For Fiscal
1997 and the six months ended April 30, 1998, the HII Management Fee was
$2,862 and $1,155 respectively, the nonrecurring employee benefit costs
were $0 and $1,906, respectively, and the charges related to certain
depreciation expenses for HarnCo assets were $724 and $256,
respectively. Pro forma EBITDA represents operating income before
depreciation, amortization, nonrecurring employee benefit costs and the
charges related to certain depreciation expenses for HarnCo assets. On a
pro forma basis, for fiscal 1997 and the six months ended April 30,
1998, the nonrecurring employee benefit costs were $0 and $690,
respectively. EBITDA and Pro forma EBITDA are commonly used by certain
investors to provide additional information with respect to the ability
of the Company to meet its debt service, capital expenditures and
working capital requirements. EBITDA and Pro forma EBITDA are not
measures of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as an
alternative to operating income, net income, cash flows from operations,
or other statements of operations or cash flows prepared in conformity
with generally accepted accounting principles, or as a measure of
profitability or liquidity. The items excluded from EBITDA may be
significant in understanding and assessing Holdings' financial
performance. In addition, EBITDA and Pro forma EBITDA may not be
comparable to similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
(g) Pro forma includes $1,800 and $818 of amortization of debt issuance costs
for fiscal 1997 and the six months ended April 30, 1998, respectively.
(h) For purposes of calculating the ratio of earnings to fixed charges and
preferred dividends, earnings are defined as net income before tax plus
fixed charges. Fixed charges consist of interest expense (including
amortization of debt issuance costs) and the portion of rental expense that
is representative of the interest factor (deemed to be one third of annual
rent expense). Preferred dividends, for purposes of the ratio, reflect
earnings before tax required to pay preferred stock dividends and assume
that such dividends are paid in kind. For the year ended October 31, 1997
and for the six months ended April 30, 1998, Holdings had a deficiency of
pro forma earnings to fixed charges of $9,342 and $13,530, respectively.
(i) Reflects a pro forma calculation for the twelve months ended April 30, 1998.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus. The Company's fiscal year ends October 31.
Consequently, for purposes of this section, unless otherwise specified herein,
references to a particular year are to the fiscal year of the Company ended
October 31 of such year.
General
The Company is a leading international provider of "through-the-air"
material handling products and services used in most manufacturing
industries. The Company's original equipment operations design and
manufacture a comprehensive line of industrial cranes, hoists and other
component products. Through its aftermarket operations, the Company provides
a variety of related products and services, including replacement parts,
repair and maintenance services and product modernizations. In recent years,
the Company has shifted its orientation from an original equipment-focused
United States manufacturer to an international full service provider with a
significant emphasis on the high margin aftermarket business. The Company's
revenues are derived principally from the sale of industrial overhead cranes,
component products and aftermarket products and services. The percentage of
net sales attributable to the sale of industrial overhead cranes in fiscal
1997, 1996 and 1995 was 47%, 47% and 52%, respectively. The percentage
attributable to component products in those same years was 13%, 11% and 8%,
respectively, and the percentage attributable to aftermarket products and
services was 40%, 42% and 40%, respectively.
Recapitalization. Historically, the Company conducted its business as
one of several operating units of HII. Until the October 1997 Drop Down, the
core United States operations of the Company were conducted directly by
HarnCo, while the remainder of the Company's operations (including Morris
Mechanical Handling Ltd. ("Morris Ltd.") since its acquisition in 1994) were
conducted through a number of entities owned, directly or indirectly, by HII
and its affiliates.
On January 28, 1998, HII reached an agreement with MHE Investments, a
newly formed affiliate of Chartwell Investments Inc., for the sale of an
approximately 80 percent common ownership interest in the Company. Pursuant
to this agreement, HarnCo and other HII affiliates effected a number of
transactions that resulted in Holdings, a preexisting company within the MHE
Business, owning directly or indirectly the equity interests of all of the
operating entities engaged in the MHE Business. Holdings, in turn, formed the
Company as a wholly owned subsidiary to directly or indirectly hold the
various operating entities of the MHE Business. As a result of the
reorganization of MHE Business' legal entities, Holdings and the Company
became the successor companies to the MHE Business. The Transactions are
accounted for as a recapitalization for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities was
not impacted by the Transactions.
In conjunction with the Recapitalization, which closed on March 30,
1998, Holdings sold $60.0 million of Series A Units to institutional
investors. In addition, the Company sold $200.0 million aggregate principal
amount of its Senior Notes and entered into the New Credit Facility.
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0
million for 72.6% of the Common Stock (after giving effect to the
Transactions) and approximately $28.9 million liquidation preference of the
Series C Junior Voting Preferred Stock, (ii) Holdings redeemed certain shares
of Common Stock and Series C Junior Voting Preferred Stock from HarnCo for
$282.0 million in cash (subject to potential post-Recapitalization
adjustments as to which an additional $5.0 million was provided to HarnCo)
and approximately $4.8 million liquidation preference of Series B Junior
Preferred Stock, and (iii) HarnCo retained approximately 20.8% of the Common
Stock (after giving effect to the Transactions). See "The Transactions."
Until the Recapitalization Closing, HII and HarnCo performed a number of
functions necessary to the operations of the Company, in accordance with past
practices, including manufacturing certain products and providing certain
information systems, administrative services and credit support. The
Company's historical financial statements include charges allocated to the
Company by HII for these products and services. Because the
44
<PAGE>
Company operates independently of HII since the Recapitalization Closing,
however, the Company's historical performance may not be indicative of future
results.
At the Recapitalization Closing, the Company entered into a number of
agreements pursuant to which HII and its affiliates will continue to provide to
the Company and to its subsidiaries located in the United States, on an interim
basis and under substantially similar terms and conditions, certain products and
services. See "Certain Relationships and Related Transactions." In addition, HII
and the Company entered into a Credit Indemnification Agreement pursuant to
which HII will maintain in place the Credit Support Obligations in existence at
the Recapitalization Closing but have no further duty to extend, renew or enter
into any new Credit Support Obligations (except as to the MHE Business
Obligations existing at the Recapitalization Closing). The Company will pay HII
an annual fee equal to 1% of the amounts still outstanding under each letter of
credit and bond provided by HarnCo and the Non-MHE HarnCo Affiliates
(approximately $34.7 million as of April 30, 1998), and reimburse HII for
certain future fees and expenses. The Company also entered into the Surety
Arrangement to provide credit support for the future operations of the MHE
Business. See "Description of the Surety Arrangement."
In connection with the Recapitalization, the Company also entered into a
Trademark License Agreement with an affiliate of HarnCo, pursuant to which the
Company has the right to use the P&H trademark with respect to all MHE Business
products on a worldwide exclusive basis from the date of the Recapitalization
Closing until 15 years after the earlier to occur of a sale of Holdings to a
third party or a public offering of the common stock of Holdings, the Company or
their parents or successors (and for an additional seven years thereafter for
aftermarket products and services). The royalty fee for use of the trademark is
0.75% of the aggregate net sales of the MHE Business for the ten year period
commencing March 30, 1999.
For income tax purposes, Holdings and the Company were deemed to
acquire the assets of the MHE Business pursuant to Code Section 338(h)(10) in
connection with the Transactions. Accordingly, this transaction increased the
tax basis of certain assets and created deductible goodwill, which will
generate significant future tax deductions to reduce taxable income.
Acquisitions. The Company consummated ten acquisitions during the fiscal
years ended October 31, 1995, 1996 and 1997. These acquisitions have had a
significant impact on the Company's financial position and results of
operations. The combined purchase price for these ten acquisitions was $30.9
million. The 1997 net sales and EBITDA associated with these acquisitions
were $79.0 million and $8.6 million, respectively. The most significant of
these acquisitions, involving a DSC in Ohio, occurred in February 1997 and
accordingly was not included for a full year in fiscal 1997.
Results of Operations
The following table sets forth certain financial data for the periods
indicated:
Supplemental Data
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
--------------------------------------- ---------------------------------------------
1998 1997 1997 1998
--------------------------------------- ---------------------------------------------
Percent of Percent of Percent of Percent of
$ net sales $ net sales $ net sales $ net sales
------ ---------- ------ ---------- ------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 80.8 100.0% $ 97.1 100.0% $157.2 100.0% $171.1 100.0%
Other income - net 0.4 0.5% 0.2 0.3% 0.7 0.5% 1.5 0.8%
Cost of sales 58.5 72.5% 72.8 75.0% 115.2 73.2% 113.6 75.5%
Selling, General and
administrative
expenses 15.2 18.8% 14.0 14.4% 29.5 18.8% 27.3 15.4%
HII management fee 0.5 0.6% 0.8 0.8% 1.2 0.7% 1.4 0.8%
Nonrecurring employee
benefit costs (1) 1.8 2.2% -- 0.0% 1.9 1.2% -- 0.0%
Operating income 5.3 6.5% 9.7 10.0% 10.2 6.5% 16.2 9.2%
Net income 1.5 1.9% 5.6 5.8% 3.7 2.3% 9.6 5.4%
</TABLE>
(1) Severance costs and incentives as described below.
45
<PAGE>
Three Months Ended April 30, 1998 as compared to Three Months Ended April 30,
1997
Net sales for the three months ended April 30, 1998 ("Second Quarter
1998") decreased $16.3 million or 16.8% to $80.8 million from $97.1 million
for the three months ended April 30, 1997 ("Second Quarter 1997"). The
decrease was primarily caused by: (i) a $18.0 million decrease in engineered
crane sales worldwide as Second Quarter 1997 included the completion of
several large projects in both the United States and the United Kingdom
without a corresponding level of projects in Second Quarter 1998; (ii) a $4.4
million increase in standard crane sales attributable to the expansion of the
Company's North American DSC network; (iii) a $1.7 million decrease in
overall parts sales resulting from a $2.3 million decrease in manufactured
parts sales, partially offset by increased used parts sales. Included in the
above net sales changes is a $1.9 million increase in Second Quarter 1998
attributable to a full three months operation of a DSC in Ohio acquired in
February 1997. The decline in engineered crane sales was due to a downturn in
orders in the United Kingdom container crane business, the failure to win
certain large projects in the United States and the delay in the awarding of
certain potential orders in the United States which, if the Company wins
certain bids, are expected to become bookings later in fiscal 1998.
Cost of sales decreased $14.3 million or 19.6% to $58.5 million in Second
Quarter 1998 from $72.8 million in Second Quarter 1997 primarily due to the
lower sales volumes described above. Cost of sales continued to decrease as a
percentage of net sales from 75.0% in Second Quarter 1997 to 72.5% in Second
Quarter 1998 due to the continued shift in the Company's sales mix toward the
higher margin standard cranes and aftermarket products and away from
engineered cranes.
Selling, general and administrative expenses increased $1.2 million or
8.6% to $15.2 million in Second Quarter 1998 from $14.0 million in Second
Quarter 1997. The primary causes were the purchase of a large DSC in Ohio in
February 1997 (which accounted for $0.3 million of the increase), as well as
unabsorbed engineering costs due to lower engineered crane sales, charges to
expense of certain items which were previously absorbed into cost of sales
and general cost increases.
Accordingly, operating income before non-recurring employee benefit costs
and parent management fees decreased $2.9 million or 27.6% to $7.6 million in
Second Quarter 1998 from $10.5 million in Second Quarter 1997. Operating
income before non-recurring employee benefit costs and parent management fees
represented 9.3% of net sales in Second Quarter 1998 compared to 10.8% in
Second Quarter 1997.
As a result of the Recapitalization, the Company experienced a series of
non-recurring employee benefit costs. These costs included severance costs
associated with restructuring the Company's United Kingdom manufacturing
operation and incentives to certain members of management. Costs totaling
$1.9 million were incurred in Second Quarter 1998. There was no corresponding
amount incurred in Second Quarter 1997. While the cost of these incentive
payments appears on the Company's income statements, HII is responsible for
paying these incentives.
Parent management fees allocated by HII (prior to the Recapitalization)
which represented an allocation of HII's corporate expenses were $0.5 million
and $0.8 for Second Quarter 1998 and Second Quarter 1997, respectively.
Approximately $2.1 million in interest expense was recorded in April 1998
resulting from the issuance of the debt in connection with the
Recapitalization.
The provision for income taxes, as a percentage of income before income
taxes, for Second Quarter 1998 was 23.4%. Due to changes in the structure of
the Company, the estimated effective tax rate for Fiscal 1998 is 40%. The
Company accrued tax expense in Second Quarter 1998 sufficient to achieve the
40% rate on a year-to-date basis.
Net income decreased $4.1 million, or 73.2% to $1.5 million in Second
Quarter 1998 from $5.6 million in Second Quarter 1997. Net income represented
1.9% of net sales in Second Quarter 1998 compared to 5.8% of net sales in
Second Quarter 1997.
46
<PAGE>
Six Months Ended April 30, 1998 as Compared to Six Months Ended April 30, 1997
Net sales for the six months ended April 30, 1998 ("First Half 1998")
decreased $19.9 million or 11.2% to $157.2 million from $177.1 million for the
six months ended April 30, 1997 ("First Half 1997"). The change in net sales was
primarily the result of: (i) a $38.9 million decrease in engineered crane sales
worldwide as First Half 1997 included the completion of several large projects
in both the United States and the United Kingdom without a corresponding level
of projects in First Half 1998; (ii) a $16.2 million increase in standard crane
sales in First Half 1998 with the expansion of the Company's North American DSC
network which partially offset the decline in engineered crane sales; and (iii)
a $2.8 million increase in sales of parts, service, modernizations, hoists and
components again due to the expanded DSC network. Included in the above net
sales changes is a $7.4 million increase in First Half 1998 attributable to a
full six months operation of a DSC in Ohio acquired in February 1997. The
decline in engineered crane sales was due to a downturn in orders in the
United Kingdom container crane business, the failure to win certain large
projects in the United States and the delay in the awarding of certain
potential orders in the United States which, if the Company wins certain
bids, are expected to become bookings later in fiscal 1998.
Other income - net decreased from $1.5 million in First Half 1997 to $0.7
million in First Half 1998 primarily due to the recognition of a $1.1 million
gain in First Half 1997 on an insurance claim relating to a fire at the Morris
Ltd. facility in the United Kingdom in fiscal 1995.
Cost of sales decreased $18.4 million or 13.8% to $115.2 million in First
Half 1998 from $133.6 million in First Half 1997 primarily due to the lower
sales volumes described above. Cost of sales continued to decrease as a
percentage of net sales, from 75.5% in First Half 1997 to 73.2% in First Half
1998. This improvement was caused by a shift in the Company's sales mix toward
the higher margin standard cranes and aftermarket products and away from
engineered cranes. Accordingly, gross profit, as a percentage of net sales,
increased in First Half 1998 to 26.8% from 24.5% in First Half 1997.
Selling, general and administrative expenses increased $2.2 million or
8.1% to $29.5 million in First Half 1998 from $27.3 million in First Half
1997. The primary cause was the acquisition of the Ohio DSC in February 1997
(which accounted for $0.8 million of the increase). Accordingly, only two
months of selling, general and administrative expenses related to this DSC
were recorded in First Half 1997. Other causes for the increase were
unabsorbed engineering costs due to lower engineered crane sales and general
cost increases.
Operating income before non-recurring employee benefit costs and parent
management fees decreased $4.3 million or 24.4% to $13.3 million in First Half
1998 from $17.6 million in First Half 1997. This decrease was primarily due to
lower engineered crane sales volume, the gain on the insurance claim in First
Half 1997 and the additional costs associated with the separation from HII.
Operating income before non-recurring employee benefit costs and parent
management fees represented 8.4% of net sales in First Half 1998 compared to
10.0% in First Half 1997.
As a result of the Recapitalization, the Company experienced a series of
non-recurring employee benefit costs. These costs included severance costs
associated with restructuring the Company's United Kingdom manufacturing
operation and incentives to certain members of management. While the cost of the
incentive payments appear on the Company's income statements, HII, the Company's
former parent, not the Company, is responsible for paying these incentives. The
severance costs were approximately $0.7 million and the incentives to management
were approximately $1.2 million.
Parent management fees allocated by HII (prior to the Recapitalization)
which represented an allocation of HII's corporate expenses were $1.2 million
and $1.4 million for the First Half 1998 and First Half 1997, respectively.
Approximately $2.1 million in interest expense was recorded in April 1998
resulting from the issuance of debt in connection with the Recapitalization.
The provision for income taxes is approximately 40% of Income before
income taxes and Minority interest for both First Half 1998 and First Half 1997.
47
<PAGE>
Accordingly, Net income decreased $5.9 million, or 61.5% to $3.7 million
in First Half 1998 from $9.6 million in First Half 1997. Net income represented
2.3% of net sales in First Half 1998 compared to 5.4% of net sales in First Half
1997.
<TABLE>
<CAPTION>
Fiscal Years Ended October 31,
----------------------------------------------------------
1995 1996 1997
----------------------------------------------------------
Percent of Percent of Percent of
$ Net Sales $ Net Sales $ Net Sales
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales ................ $243.2 100.0% $323.7 100.0% $353.4 100.0%
Other income net ......... 3.8 1.6 1.1 0.3 2.6 0.7
Cost of sales ............ 186.4 76.6 247.6 76.5 260.8 73.8
Selling, general and
administrative
expenses .............. 36.9 15.2 45.0 13.9 56.8 16.1
Parent management
fee ................... 1.9 0.8 2.3 0.7 2.9 0.8
Nonrecurring employee
benefit costs (1) ... -- -- -- -- -- --
Operating income ......... 21.7 8.9 30.0 9.3 35.5 10.0
Net income ............... 13.5 5.6 18.4 5.7 20.9 5.9
</TABLE>
(1) Severance costs and incentives as described above.
Fiscal 1997 as Compared to Fiscal 1996
Net sales in fiscal 1997 increased $29.7 million or 9.2% to $353.4 million
from $323.7 million in fiscal 1996. The increase in net sales was primarily the
result of:
(i) the acquisition of a large DSC in Ohio in February 1997 which
contributed sales of $15.7 million, prior to eliminations;
(ii) the full year impact in fiscal 1997 of the acquisition of a
large DSC in Alberta, Canada in May 1996 which contributed
$10.8 million in additional sales, prior to eliminations;
(iii) a $9.7 million increase in sales of standard cranes and
aftermarket products and services through the existing North
American DSC network;
(iv) a $9.7 million increase in engineered crane sales in the
United Kingdom due to several large port crane and warehouse
automation projects; and
(v) a $6.1 million increase in sales of standard cranes and
aftermarket products and services through the United Kingdom
DSC network.
These increases were offset, in part, by:
(i) a $9.3 million decrease in engineered crane sales in the
United States due to the unusually high level of large
projects recorded in 1996; and
(ii) an $11.7 million increase in intercompany sales eliminations
primarily due to the increase in sales of products and
services through the Company's North American DSC network
rather than through independent distributors.
Other income--net increased to $2.6 million in 1997 from $1.1 million in
1996 due principally to a $2.0 million gain in 1997 on the insurance claim
relating to the fire at its Morris Ltd. facility in the United Kingdom in fiscal
1995.
Cost of sales increased $13.2 million or 5.3% to $260.8 million in 1997
from $247.6 million in 1996, primarily as a result of higher sales volume.
Cost of sales represented 73.8% of net sales in 1997, a decrease from 76.5%
of
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net sales in 1996. This improvement was primarily due to the completion of
several large engineered crane projects at costs lower than previously
accrued. In addition, there was a shift in the Company's sales mix in 1997
toward the higher margin parts and services component of the Company's
aftermarket business. As a result, gross profit increased to $92.6 million or
26.2% of net sales in 1997 from $76.1 million or 23.5% of net sales in 1996.
Selling, general and administrative expenses increased by $11.8 million
or 26.2% to $56.8 million in 1997 from $45.0 million in 1996. These expenses
represented 16.1% of net sales in 1997 up from 13.9% in 1996. This increase
was primarily due to costs associated with the continued expansion of the
Company's DSC network in North America and the United Kingdom as well as an
increase in engineering costs that were not allocated to specific projects.
Parent management fees allocated by HII increased to $2.9 million in 1997
from $2.3 million in 1996.
Operating income increased by $5.5 million or 18.3% to $35.5 million in
1997 from $30.0 million in 1996. Operating income represented 10.0% of net
sales in 1997 compared to 9.3% of net sales in 1996. This improvement was
primarily the result of higher margins on certain large original equipment
projects and a change in sales mix toward the higher margin parts and
services component of the Company's aftermarket business, offset, in part, by
increased operating expenses associated with the Company's expanding DSC
network.
Net income increased by $2.5 million or 13.6% to $20.9 million in 1997,
from $18.4 million in 1996. This increase resulted principally from higher
operating income, offset, in part, by higher income taxes.
Fiscal 1996 as Compared to Fiscal 1995
Net sales in fiscal 1996 increased $80.5 million or 33.1% to $323.7
million from $243.2 million in fiscal 1995. The increase in net sales was
primarily the result of:
(i) the acquisition of large DSCs in Alabama in October 1995,
South Carolina in December 1995 and Alberta, Canada in May
1996, which contributed $32.3 million in additional sales,
prior to eliminations;
(ii) a $17.9 million increase in United States engineered crane
sales due to several large orders for steel mini-mills;
(iii) a $14.1 million increase in sales of standard cranes and
aftermarket products and services through the existing North
American DSC network; and
(iv) a $13.5 million increase in sales outside North America.
Other income--net decreased to $1.1 million in 1996 from $3.8 million in
1995. Results in 1995 included a gain of $2.3 million associated with an
insurance claim relating to certain assets destroyed by a fire in the United
Kingdom.
Cost of sales increased $61.2 million or 32.8% to $247.6 million in 1996
from $186.4 million in 1995, primarily as a result of higher sales volume. Cost
of sales represented 76.5% of net sales in 1996, compared to 76.6% of net sales
in 1995. Gross profit increased to $76.1 million or 23.5% of net sales in 1996
from $56.8 million or 23.4% of net sales in 1995.
Selling, general and administrative expenses increased by $8.1
million or 22.0% to $45.0 million in 1996 from $36.9 million in 1995. These
expenses declined to 13.9% of net sales in 1996 from 15.2% of net sales in 1995.
The increased costs were primarily due to the acquisition of DSCs in North
America and the expansion of the Company's DSC network in the United Kingdom.
Parent management fees allocated by HII increased to $2.3 million in 1996
from $1.9 million in 1995.
Operating income increased by $8.3 million or 38.2% to $30.0 million in
1996 from $21.7 million in 1995. Operating income represented 9.3% of net sales
in 1996, an increase from 8.9% of net sales in 1995. This improvement was
principally the result of sales growth in the higher margin aftermarket parts
and service business, offset, in part, by increased operating expenses as the
Company continued to expand its DSC network.
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<PAGE>
Net income increased by $4.9 million or 36.3% to $18.4 million in 1996
from $13.5 million in 1995. This increase was primarily the result of higher
operating income, offset, in part, by higher income taxes.
Liquidity and Capital Resources
The majority of the Company's sales of products and services are recorded
as products are shipped or services are rendered. Revenue on certain long-term
contracts is recorded using the percentage-of-completion method. Net cash flow
from operations is affected by the volume of, and the timing of payments under,
percentage-of-completion long-term contracts.
Net cash flow used for operating activities was $2.1 million for the
six months ended April 30, 1998 compared to cash provided by operating
activities of $12.5 million for the six months ended April 30, 1997. The
decrease was due primarily to a decrease in acquisition funding provided by
HII and its affiliates related to the acquisition of a DSC in Ohio in
February 1997.
Net cash flow provided by operations was $3.8 million, $23.5 million
and $12.9 million in 1995, 1996 and 1997, respectively. The decrease from
1996 to 1997 was primarily due to a larger increase in net working capital
and to a decrease in the amount of acquisition funding provided by HII and
its affiliates. The increase from 1995 to 1996 was primarily due to an
increase in net income, an increase in cash provided by HII and its
affiliates to fund certain acquisitions and a smaller increase in net working
capital. The Company's cash flow provided by operations was largely affected
by changes in working capital, primarily due to the presence of an unusually
large number of percentage of completion contracts in 1996.
Net cash used for investment and other transactions for the six months
ended April 30, 1998 and 1997 was $3.6 million and $13.5 million, respectively.
The decrease was primarily due to a lower level of acquisition expenditures. The
Company currently anticipates that 1998 capital expenditure requirements for the
maintenance and improvement of existing operations and for the implementation of
systems projects will be approximately $4.0 million.
Net cash used for investment and other transactions for the years ended
1995, 1996, and 1997 was $2.5 million, $21.2 million and $14.9 million,
respectively. The decrease from 1996 to 1997 was primarily due to a lower level
of acquisition expenditures and the receipt in 1997 of insurance proceeds
related to an earlier fire. The increase from 1995 to 1996 was primarily due to
(i) increased expenditures on acquisitions, (ii) increased capital expenditures
in 1996 and (iii) the receipt in 1995 of proceeds from the sale of a facility in
Florida. The Company has completed 10 acquisitions since the beginning of 1995
for a total of $30.9 million.
Concurrent with the Offering, MMH offered its $200,000,000 principal
amount of 9 1/2% Senior Notes Due 2008. Interest will accrue on the Senior
Notes from March 30, 1998, the date of issuance of the Senior Notes, and will
be payable semi-annually on each April 1 and October 1, commencing October 1,
1998. The Senior Notes will mature on April 1, 2008.
As part of the Transactions, the Company entered into the New Credit
Facility which includes $55.0 million of term loans, the Revolving Credit
Facility and the Acquisition Facility. The Revolving Credit Facility provides
the Company with up to $70.0 million of available borrowings (of which $15.0
million is required under the Note Indenture to be reserved for issuance of
letters of credit) until the fifth anniversary of the Recapitalization
Closing for working capital, acquisitions and other corporate purposes,
subject to compliance with certain conditions, including a borrowing base
test. Up to $20.0 million of the Revolving Credit Facility (of which $15.0
million will not be subject to a borrowing base) is available for the
issuance of documentary and standby letters of credit. The Acquisition
Facility permits the Company to borrow up to $30.0 million until the third
anniversary of the Recapitalization Closing (and to repay the same in
installments prior to the seventh anniversary of the Recapitalization
Closing) to finance acquisitions, subject to compliance with certain
conditions. See "Description of the New Credit Facility." Term Loan A will be
payable in 20 quarterly installments, commencing on June 30, 1998 and Term
Loan B will be payable in 28 quarterly installments, commencing on June 30,
1998.
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<PAGE>
Aggregate yearly term loan principal payments under the New Credit
Facility will be as follows: (i) $675,000 in 1998; (ii) $2,100,000 in 1999;
(iii) $3,600,000 in 2000; (iv) $5,100,000 in 2001; (v) $6,600,000 in 2002; (vi)
$11,988,000 in 2003; (vii) $16,625,000 in 2004; and (viii) $8,313,000 in 2005.
Historically, the Company's interest expense has not been material. On a pro
forma basis, assuming the Transactions had occurred on November 1, 1996, the
Company's cash interest expense for 1997 would have been $24,841,000.
Borrowings under the New Credit Facility bear interest at various
interest rates based on certain floating reference rates. To limit the effect
of increases in the interest rates of the New Credit Facility, the Company has
entered into an interest rate swap arrangement. The effect of this
arrangement, which expires on March 31, 2001, is to limit the interest rate
exposure on specified amounts up to $55.0 million borrowed under the New
Credit Facility at a fixed LIBOR rate of 5.875% plus 2.25% or 2.75%, as
applicable.
Borrowings under the New Credit Facility are (i) secured by substantially
all of the present and future assets of the Company and its subsidiaries located
in the United States and the United Kingdom, certain of the Company's
subsidiaries' present and future assets located in Canada and by a pledge of
substantially all of the issued and outstanding shares of capital stock of the
Company and its current and future subsidiaries and (ii) guaranteed by Holdings
and substantially all of the Company's subsidiaries. See "Description of the New
Credit Facility."
As of April 30, 1998, Holdings and its subsidiaries had an aggregate of
$261.1 million of Indebtedness outstanding, including the $200.0 million
principal amount of the Senior Notes issued by the Company and $58.3 million
of borrowings under the New Credit Facility. The Company's known debt service
and lease commitments for 1998 amount to approximately $17.2 million,
consisting of $0.8 million in principal payments, $12.3 million in interest
payments and $4.1 million for lease payments.
At April 30, 1998, the Company had, subject to compliance with certain
conditions, approximately $63.6 million of availability (of which $15.0 million
is required under the Indenture to be reserved for issuance of letters of
credit) under the Revolving Credit Facility. See "Capitalization." Management
believes that cash flow from operations, together with borrowings under the
Revolving Credit Facility will be sufficient to meet its anticipated cash
requirements for interest and principal payments, working capital, the payments
to be made to Holdings described below and capital expenditures for the
foreseeable future. The Company also expects that expansion and future
acquisitions will be financed from funds generated from operations and
borrowings under the Revolving Credit Facility and the Acquisition Facility.
Holdings' primary cash needs are for administrative expenses and for
the payment of income taxes of Holdings and its affiliates related to the MHE
Business. Holdings is a holding company that conducts all of its operations
through its subsidiaries. Consequently, Holdings' ability to meet its cash
needs depends upon receiving dividends, loans, advances or other payments
from its subsidiaries. The New Credit Agreement and the Note Indenture
generally restrict the ability of Holdings' subsidiaries to transfer funds to
Holdings, other than for administrative fees and expenses (subject to a
general limit) and other than for the payment of income taxes. Under the
terms of the Note Indenture, the Company is generally restricted from paying
dividends or making other restricted payments to Holdings unless, among other
things, the ratio of the Company's EBITDA to Consolidated Interest Expense
(as defined in the Note Indenture) for the four most recent consecutive
fiscal quarters is at least 2 to 1. Moreover, the terms of the Series A
Senior Preferred Stock, as well as the Series B Junior Preferred Stock and
the Series C Junior Voting Preferred Stock, restrict the ability of Holdings
and its subsidiaries to incur additional indebtedness. As a result of these
restrictions, among others, there can be no assurance that Holdings will have
available to it sufficient cash resources to pay cash dividends on the New
Series A Senior Preferred Stock (or on the Series B Junior Preferred Stock
and Series C Junior Voting Preferred Stock) commencing October 1, 2003. In
addition, all issues of Holdings' preferred stock are mandatorily redeemable.
The inability of Holdings' subsidiaries, or any limitation on such ability,
to pay dividends or make other payments to Holdings could have a material
adverse effect on Holdings' ability to meet its cash requirements.
The Company's products are sold in over 50 countries around the world.
Although revenues of the Company are generated in foreign currencies, the vast
majority of both sales and associated costs are in United States dollars,
51
<PAGE>
Pounds Sterling and Canadian Dollars. The Company may, from time to time,
hedge specifically identified committed cash flows in foreign currencies
using forward currency sale or purchase contracts. Such foreign currency
contracts historically have not been material in amount.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises as a result of computer programs having been
written, and systems having been designed, using two digits rather than four
to define the applicable year. Consequently, such software has the potential
to recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. The Company is currently in the process of identifying those
programs and systems that are not Year 2000 compliant. At this time, the
Company does not anticipate that the costs of ensuring that its systems will
be Year 2000 compliant will have a material adverse effect on its business,
financial condition and results of operations. Because the Company has not
yet completed the analysis of its software applications, however, there can
be no assurance that at the year 2000 such systems will in fact be compliant.
If the systems of the Company or other companies on whose services the
Company depends, or with whom the Company's systems interface are not Year
2000 compliant, there could be a material adverse effect on the Company's
financial condition or results of operations.
52
<PAGE>
BUSINESS
The Company is a leading international provider of "through-the-air"
material handling products and services used in most manufacturing industries.
The Company's original equipment operations design and manufacture a
comprehensive line of industrial cranes, hoists and other component products,
sold principally under the P&H and Morris brand names. Through its aftermarket
operations, the Company provides a variety of related products and services,
including replacement parts, repair and maintenance services and product
modernizations. In recent years, the Company has shifted its orientation from an
original equipment-focused United States manufacturer to an international full
service provider with a significant emphasis on the high margin aftermarket
business.
During the past three years, the Company has grown significantly, both
internally and through acquisitions. From fiscal 1994 through fiscal 1997,
the Company's net sales grew from $109.4 million to $353.4 million and EBITDA
increased from $15.1 million to $45.9 million, although net sales and EBITDA
income decreased 11.2% and 20.0%, respectively, for the six months ended
April 30, 1998 as compared to the six months ended April 30, 1997. Management
believes that the Company's growth from 1994 to 1997 is largely attributable
to (i) strengthening and broadening its product line, (ii) building a network
of Company-owned distribution and service centers which provides a local
presence for product support and a platform for growth and (iii) expanding
into attractive domestic and international markets through internal growth
and a disciplined acquisition strategy.
The Company's core business was founded in 1884 and material handling
machinery and related equipment have been sold under the well-recognized P&H and
Morris brand names since the 1890s. The Company has developed a large global
installed base of equipment, having sold an aggregate of over half a million
cranes and hoists according to management estimates. Management believes that
the Company is one of the leading suppliers of industrial overhead cranes in
North America, the United Kingdom and South Africa. Management also believes
that the Company is one of the largest global providers of aftermarket products
and services to the industrial crane industry. Sales outside of North America
accounted for 39% of fiscal 1997 net sales, with Western Europe representing 22%
and the Pacific Rim representing 8% of net sales. For additional geographical
information, see the Combined Financial Statements of the Company and notes
thereto appearing elsewhere herein.
Industrial cranes and hoists are critical to the operations of most
businesses that require the movement of large or heavy objects. The steel,
aluminum, paper and forest products, aerospace, foundry, and automotive
industries, among others, rely on cranes and hoists as one of the most flexible
and efficient methods of transporting materials within a plant while maximizing
the use of available space. Industrial cranes, which typically last 20 to 50
years, require significant aftermarket support in the form of replacement parts,
machine modernizations and upgrades, repairs and inspection and maintenance
services.
The current management team has implemented a strategy to capitalize on
the Company's significant global installed base of equipment to generate high
margin aftermarket opportunities. The Company has built its aftermarket
operations in order to become a full service provider and capture additional
revenue. In addition, management believes that the diversified earnings created
by this strategy help to lessen the effect of economic cycles on the Company. In
fiscal 1997, aftermarket sales accounted for approximately 40% of net sales and
65% of gross profit on a consolidated basis, while in North America, where the
Company has pursued its full service strategy for a longer period of time, the
aftermarket business accounted for 51% of net sales and 72% of gross profit.
Prior to the acquisition of Morris Ltd. in 1994, the Company's
operations were primarily conducted in the United States. The acquisition of
Morris Ltd., which is now known as Morris Material Handling Ltd., provided
the Company with major manufacturing facilities in the United Kingdom and
South Africa and access to many other markets around the world. The Company
has since expanded its international manufacturing operations by acquiring
Mondel Engineering Ltd.'s brake manufacturing operations in Canada in 1995.
In addition, the Company has acquired regional crane assemblers and large
distributors in Alabama, Ohio, South Carolina, Canada, Mexico, Scotland and
Singapore. Since July 1994, the Company has acquired a total of 12 businesses
that collectively generated annual revenues in excess of $170.0 million in
fiscal 1997 (of which $112.1 million was attributable to Morris Ltd.).
53
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Industry Overview
Industrial cranes and hoists provide "through-the-air" material handling
for a broad range of industrial applications. Within the industrial setting,
through-the-air material handing equipment continues to be one of the most
flexible, effective and reliable means of transferring materials while
maximizing the use of available space. Through-the-air material handling
equipment provides more efficient space and capacity utilization than fixed
conveyors and traditional forklifts. These tools are widely used in
manufacturing industries with no practical alternative or substitute. The
industry is comprised of original equipment cranes and hoists, and aftermarket
parts, service and modernizations. Despite global demand, the industrial crane
and hoist industry remains highly fragmented, with three global participants and
a large number of regional and local players.
The United States market for industrial overhead cranes and hoist products
is estimated to be approximately $800 million per year and the potential
aftermarket for such products is estimated to be approximately $1.2 billion per
year. Management estimates that the global market is several times larger. In
mature industrialized economies, original equipment growth is driven by the need
for upgrades and replacements as well as capacity expansion. Technological
innovations such as more compact, space efficient cranes, built in diagnostic
systems and sophisticated motors and transmissions, improve operating efficiency
and fuel the replacement/upgrade market. In emerging economies, however, the
market for overhead cranes is tied principally to industrial development. Demand
for aftermarket products and services is driven by general wear and tear of
equipment and increases as a result of growth in the installed base of cranes
and hoists. Management believes that the global market for outsourced crane
maintenance and repair services is continuing to grow as more companies focus on
core competencies and use outsourced suppliers.
Competitive Strengths
Large Installed Base of Existing Equipment. The Company believes it has
one of the largest installed bases of industrial cranes in North America, the
United Kingdom and South Africa. This installed base provides the Company with
well-established relationships and a strong platform upon which to pursue high
margin aftermarket opportunities. A large portion of the Company's installed
base is used in demanding process industries which require frequent replacement
parts, repairs, inspection services and modernizations.
Stable Aftermarket Demand and Earnings. Material handling products are
critical to customers' operations. As long as industrial plants continue to
operate, the cranes and hoists used in such facilities will require replacement
parts and maintenance services, irrespective of economic cycles. Management has
increased its focus on aftermarket operations, and this more stable business
represented 65% of the Company's gross profit in fiscal 1997.
Diverse Customer Base. The Company sells both original equipment and
aftermarket products and services to thousands of customers operating in various
manufacturing industries in more than 50 countries. Management believes that
this geographic and industry diversity helps to lessen the effect on the Company
of economic cycles that may affect a particular region or industry.
Reputation for Reliability and Engineering Expertise. Over its long
history of providing custom engineered cranes and hoists, the Company has
developed a reputation for engineering expertise and product reliability. As the
Company has developed a number of innovative technologies, it has enhanced its
reputation and built a platform to pursue the higher volume standard crane
market. In addition, the Company has been able to apply its proven technical
skills in the aftermarket business.
Company-Owned Distribution and Service Network. The Company has developed
an international distribution and service network with 61 Company-owned
locations in key industrial markets. This DSC network is central to the
Company's strategy of being a single source provider of original equipment and
aftermarket products and services. Management believes that ownership of its
primary distribution channel provides the following competitive advantages: (i)
a higher level of control over the delivery of its products and services; (ii)
faster service response time; (iii) quicker delivery of standard cranes at a
lower cost; and (iv) increased sales and margins by capturing the incremental
profit that would otherwise be recognized by independent distributors.
54
<PAGE>
Experienced Management Team. The Company is run by an experienced,
entrepreneurial and talented management team led by its President, Michael
Erwin. The top seven executives combined have over 100 years of experience at
the Company. Mr. Erwin has run the Company since December 1994 and, along
with the rest of the senior management team, has developed and implemented
the Company's successful growth strategies. In acquiring 12 companies since
1994, management has demonstrated its ability to acquire and integrate
businesses in a disciplined and effective manner. Under current management's
leadership, EBITDA has grown at a compound average annual rate of
approximately 45% from fiscal 1994 through fiscal 1997. The Company, however,
has incurred substantial indebtedness in connection with the Transactions. As
a result, it may be at a disadvantage because it is may be more leveraged
than some of its competitors.
Business Strategy
Management has developed an integrated strategy designed to increase
revenues and profits by capitalizing on the Company's large installed base of
equipment, Company-owned distribution and service network and technical
competencies to capture greater market share and differentiate the Company from
original equipment-focused competitors.
The key components of the Company's strategy are as follows:
Focus on Aftermarket Opportunities. The United States industrial crane and
hoist aftermarket is estimated to be $1.2 billion annually and management
estimates the global aftermarket to be several times that amount. This market is
highly fragmented and a substantial portion of repair and maintenance work is
performed by customers' own maintenance personnel. A recent independent study
indicates that the Company currently captures approximately 25% of the United
States aftermarket potential of its own installed base and less than 10% of the
entire United States aftermarket potential. Management has developed a series of
focused marketing programs and product offerings designed to capture a greater
share of the aftermarket business by taking advantage of the Company's large
installed base, brand recognition, and local DSC network. The Company is
beginning to see the benefits of these efforts and aftermarket sales have
increased in each of the last four years.
Provide High Level of Customer Support. The Company's products and
services are designed to meet its customers' objectives of lowering their
material handling costs and increasing the efficiency of their operations. The
Company's goal is to help its customers reduce costs and increase profitability
through the proper selection, design, manufacture and installation of original
equipment and by providing a wide variety of aftermarket products and services.
Management believes that this ability to provide comprehensive solutions to its
customers' needs is a competitive advantage.
Expand DSC Network. The Company's DSCs are its platform for growth and
central to its strategy of being a single source provider of original equipment
and aftermarket products and services. The Company's North American DSC network
covers a broad territory of geographically dispersed customers. The Company
plans to continue developing this network with the goal of having a DSC in each
key industrial market in North America. The Company has developed similar DSC
networks in the United Kingdom and South Africa, and management plans to
replicate this model in other attractive markets.
Improve Production Efficiency to Reduce Costs. Management has implemented
numerous efficiency initiatives that it believes will improve the Company's
competitiveness while enhancing profit margins. The Company is completing the
re-engineering of various operations to cellular manufacturing. In addition, the
Company has standardized a number of its proprietary components which it
manufactures at specialized facilities for global distribution. Management
believes these initiatives will enable the Company to lower its overall cost
structure by reducing labor, engineering, and fabrication expenses and to
achieve economies of scale and permit faster deliveries. In the United States,
the lead time required to deliver certain original equipment was reduced by as
much as 50% in fiscal 1997.
Increase Sales of High Volume Original Equipment Products. The Company
plans to continue increasing its penetration of the higher volume and more
stable market for standard cranes and hoists by: (i) capitalizing on its brand
equity in engineered cranes; (ii) reducing costs; and (iii) improving delivery
times. The Company has tripled
55
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the number of standard cranes it has sold in the United States during the past
three years, yet its share of the United States standard crane market in fiscal
1997 was still less than 15%.
Expand Through Selected Acquisitions. The global material handling
industry is highly fragmented and is beginning to consolidate as a result of the
scale economies that favor larger competitors. Management believes that the
Company is well positioned to capitalize on this opportunity. Since July 1994,
the Company has acquired 12 businesses which collectively generated annual
revenues in excess of $170.0 million in fiscal 1997. The Company plans to
continue making strategic acquisitions to penetrate new markets and to expand
its range of product and service offerings.
Products and Services
The Company operates through two distinct but interrelated business
groups: (i) original equipment and (ii) aftermarket products and services.
Original Equipment
The Company's original equipment operations design, manufacture and
distribute a broad range of standard and engineered overhead and gantry cranes,
hoists and related products. The Company's original equipment products have a
reputation for quality, durability and technological innovation.
Engineered Cranes. Management attributes the Company's position as a
leading manufacturer of industrial cranes to its reputation for reliability and
engineering sophistication. The Company's engineered cranes are used by
customers with unique performance requirements that cannot be achieved with a
standard overhead crane. The Company's engineered cranes are individually
designed for specific applications in a wide variety of demanding environments
and typically have a high load capacity. Each unit is highly engineered,
incurring between 300 and 4,500 hours of engineering, and is generally priced
between $60,000 and $6.0 million. The Company markets engineered cranes under
the P&H (North and South America and Southeast Asia) and Morris (United Kingdom,
South Africa, Scandinavia, the Middle East and Southeast Asia) brand names.
Within the engineered crane market, performance is often the most critical
purchase criterion for a customer. Given the premium placed on technological
sophistication and specific product performance, customers purchasing highly
engineered cranes tend to be less sensitive to the length of time between order
and delivery than most standard overhead crane customers. Overall lead times for
engineered cranes typically range between 20 and 40 weeks and include on-site
inspection of customer needs, in-house engineering and development,
manufacturing, product testing and installation. Many engineered crane projects
are completed pursuant to contracts on which the Company receives progress
payments and for which the Company occasionally must post performance bonds.
Engineered cranes provide particularly valuable aftermarket opportunities
since they often operate in harsh environments and require frequent replacement
parts and a high degree of ongoing inspection and maintenance services.
Management believes that the Company is well positioned to provide these
services for its customers as a result of its product knowledge, expertise and
local technical support.
Due to the advanced design of an engineered crane, these products are
generally manufactured at one of the Company's facilities located in Oak Creek,
Wisconsin, Loughborough, England or Johannesburg, South Africa. Each of these
facilities maintains advanced manufacturing capabilities, sophisticated
engineering skills, project management and inspection capabilities.
Standard Cranes. The Company's standard cranes, which utilize
pre-engineered components, are adaptable to a wide variety of uses. While the
cranes are configured to meet each customer's particular needs, the degree of
specific engineering is typically limited to less than 100 hours and most often
falls within the 20 to 60 hour range. These cranes typically range in price from
$10,000 to $200,000. The Company markets various standard cranes under the P&H
(North and South America and Southeast Asia), Morris (United Kingdom, South
Africa, Scandinavia, the Middle East and Southeast Asia), Kaverit (Canada) and
Hercules (Mexico) brand names.
56
<PAGE>
While engineered cranes have typically been produced by larger
manufacturers, local crane builders have historically supplied significant
numbers of standard cranes. Delivery time and price are key purchase criteria.
The Company has successfully grown its standard crane sales by expanding local
assembly operations to shorten delivery times and reduce costs.
Hoists. The Company manufactures electric wire rope and chain hoists,
manual chain hoists and ratchet lever hoists. The Company's hoists range in
capacity from 1/8 of a ton to 60 tons and feature a variety of electrical
control technologies. Customers select a specific type of hoist based on the
number of lifts to be performed per day and the average load capacity. Hoist
product prices range from $100 to $150,000, with most sold in the $1,000 to
$8,000 range. The Company markets its industrial hoists under the Redi-Lift and
Hevi-Lift brand names in North and South America and under the Morris brand name
in the United Kingdom, South Africa, South America and Southeast Asia. Through
the acquisition of Morris Ltd. in 1994, the Company significantly strengthened
its position in the hoist marketplace. In 1994, a portion of the Company's
Loughborough, England facility used to manufacture electric hoists was destroyed
by a fire. The Company rebuilt the facility as a state-of-the-art hoist
manufacturing and assembly plant.
Other Components. Over the past several years, the Company has
significantly expanded its product breadth through strategic acquisitions and
the focused application of its technical expertise to complementary component
products. Industrial brakes and winches represent two important component
products manufactured by the Company and marketed to end-users and/or to other
industrial equipment manufacturers.
Aftermarket Products and Services
The Company's aftermarket business consists of replacement parts, repairs,
inspection and maintenance services, and modernizations for products
manufactured by both the Company and its competitors. The Company's network of
DSCs and independent distributors located around the world is the platform for
the Company's aftermarket sales activities, serving as distribution centers for
its original equipment and replacement parts as well as the focal point for
service activities. While aftermarket sales accounted for approximately 40% of
net sales in fiscal 1997, they accounted for 65% of gross profit. While the
Company's share of the aftermarket business on its United States installed base
is approximately 25%, where proprietary parts or product knowledge is important,
the Company has a significantly higher share of the aftermarket business.
Parts and Components. The Company manufactures a wide range of replacement
parts and components necessary to maintain cranes and hoists manufactured by
both the Company and its competitors. These parts are sold through both DSCs and
independent distributors and agents.
Given the long useful life of an overhead crane, which ranges from 20 to
50 years, the Company's installed base of equipment provides a strong foundation
for the Company's aftermarket business. Parts sales are generated by customer
requests and through service personnel during scheduled inspections, appraisals
and service calls.
The Company markets both proprietary and commercially available parts for
its equipment. Proprietary parts command premium prices because they either have
unique design attributes that make them prohibitively expensive to reverse
engineer or are critical parts where an inadequate substitute could have
catastrophic consequences.
Service. The Company provides installation, repair, inspection and
maintenance services, primarily through its DSC network. The Company provides
these services under highly recognized trade names including ProCare (United
States, Canada), Crane Aid (South Africa) and UK Crane Service (United Kingdom).
The Company has expanded its service offerings as a strategic response to
customers' increased interest in outsourcing the repair, inspection and
maintenance of overhead cranes and hoists. Currently, management estimates that
more than 30% of the Company's total repair and maintenance net sales are from
services performed upon cranes and hoists manufactured by its competitors.
Management believes that there is significant opportunity to leverage its
growing service operations to provide similar services on significantly more of
the cranes and hoists manufactured by its competitors.
57
<PAGE>
In addition to responding to service calls from clients, the Company has
[6~expanded its portfolio of services to include inspections for regulatory
compliance purposes (such as OSHA) as well as an innovative Crane
Appraisal/Repair Evaluation (CARE) program. The CARE program thoroughly assesses
the condition and performance of a crane and provides a concise reference
document for restoring the equipment to optimal operating performance. Each of
these inspection programs sends a highly-trained service technician into
customers' factories to evaluate the overall condition of the crane or hoist,
and allows the technician to recommend preventive maintenance and replacement
components. See "--Sales, Marketing and Distribution."
Modernizations. Crane modernizations provide an attractive opportunity for
the Company to generate additional revenue from the entire installed base of
equipment. By upgrading the electrical and mechanical systems on existing
cranes, the Company can help its customers to optimize crane performance and
improve the capacity and efficiency of their operations. The cost of modernizing
an older crane typically ranges between 10% and 60% of the cost of a new
product.
Sales, Marketing and Distribution
Due to the diverse nature of its product lines and customer requests, the
Company uses multiple sales approaches to serve its large customer base. A
majority of sales are generated by Company employees and DSCs. In addition, the
Company utilizes a number of independent agents and distributors in certain
markets. In many markets, the members of the Company's sales staff specialize in
either original equipment or aftermarket products and services. These employees
have the ability to effectively identify and service the original equipment and
aftermarket needs of the customer, thereby positioning the Company as a single
source provider.
With the exception of very sophisticated original equipment projects, the
Company's selling efforts occur primarily at the regional level. For
sophisticated original equipment, the Company uses dedicated worldwide product
or engineering specialists to "team sell" the products. In this process, the
team provides written specifications, design concept consulting, project scope
development and project financial planning.
In order to develop stronger and more knowledgeable customer
relationships, the Company has developed a DSC network, bringing the Company's
parts and service operations closer to the customer. The Company's DSC network
provides three distinct yet integrated functions: (i) a distribution network for
parts; (ii) a sales organization for original equipment; and (iii) an
installation, repair, inspection and maintenance service operation. The Company
has significantly expanded its DSC network in recent years through both
acquisitions of previously independent distributors as well as the start-up of
new DSCs.
The Company's DSC network consists of 61 locations, including 38 in North
America. In 1994, the Company opened its first DSC in the United Kingdom and,
over the past three years, has built a DSC network with 12 locations that
operate under the UK Crane Service trade name. The Company's DSC network in
South Africa presently consists of 10 locations that operate under the Crane Aid
trade name.
The DSC network maintains an inventory of fast-moving parts and deploys
fully equipped service technicians, to provide product support to local
customers. Certain of the Company's DSCs also build small, standardized original
equipment cranes, which has enabled the Company to increase its penetration of
the standard crane market. The Company's goal is to have a DSC in each key
industrial market in North America. In certain customer locations, the Company
has technicians permanently on site to provide immediate technical support or
routine preventive maintenance.
<TABLE>
<CAPTION>
The following table outlines the Company's current DSC network:
Location Principal Trade Names Number
- --------------------------------------------------------------------------------
<S> <C> <C>
North America P&H Material Handling Center 38
United Kingdom UK Crane Service 12
South Africa Crane Aid 10
Southeast Asia Morris Blooma 1
</TABLE>
The Company's distribution and service operations are also supported by
distributor and agent relationships in more than 50 countries, many of which are
unwritten arrangements that may be terminated at any time.
58
<PAGE>
Manufacturing
The Company employs high-quality, technically advanced manufacturing at
its core facilities. The Company utilizes specialized manufacturing facilities
in combination with regional assembly to balance the different operational
requirements faced by a full service participant in the overhead crane and hoist
industry.
The specialized manufacturing facilities build highly engineered cranes
and utilize advanced technology throughout the manufacturing process. These
facilities support the regional DSC crane assembly operations by providing
high-quality, standardized components which are manufactured using processes
which are not economical for smaller, regional facilities. For example, due to
the specialized nature of the machining and assembly processes associated with
hoists and brake systems, focused manufacturing facilities located in
Loughborough (hoists) and Toronto (brakes) are used to produce the majority of
these components for distribution to the Company's facilities throughout the
world. This centralization allows the Company to take advantage of economies of
scale and focused engineering resources while supporting the Company's objective
of standardizing component design and manufacturing.
By providing light manufacturing and assembly of standardized overhead
crane products on a regional basis, the Company addresses customers' demand for
cost effective products and shorter lead-times. This regional manufacturing
strategy also benefits the Company's new product development efforts since the
regional DSC manufacturers have a better understanding of end-users' performance
needs.
Raw Materials
The Company maintains strong relationships with a large number of
suppliers both domestically and abroad. Typically, the Company will source raw
materials from a local supplier in the region of the manufacturing facility,
often entering into a blanket purchase order or an equivalent arrangement to
reduce costs. Under certain circumstances, however, the Company will establish a
long-term supply arrangement, either in an attempt to secure product consistency
or to take advantage of volume discounts. Some of the materials most frequently
purchased by the Company include steel, electric motors, castings and forgings,
electrical controls and components, and power transmission and related
components. Substantially all of the materials purchased by the Company are
available from a variety of sources within the country of manufacture or abroad.
Backlog
The Company's backlog of orders at April 30, 1998 was approximately
$103.5 million compared to approximately $97.7 million at April 30, 1997.
However, bookings in the six months ended April 30, 1998 increased by $20.8
million or 14.6% as compared to the six months ended April 30, 1997. The
change in backlog is primarily attributable to increased bookings offset in
part by reduced through-put time as the Company has improved its manufacturing
operations. In the United States, the lead time required to deliver certain
original equipment was reduced by as much as 50% in fiscal 1997. The
Company's orders for standard hoist products are usually shipped within 3 to
12 weeks. Overall lead times for products that are manufactured to customer's
specifications typically range between 12 and 40 weeks. The backlog of orders
that will not be shipped in fiscal 1998 is estimated to be approximately
$12.0 million.
Warranties
The Company generally provides a warranty on its products for periods of
one to two years. At April 30, 1998, the Company had accrued warranties of
approximately $2.8 million.
Trademarks and Brand Names
The Company offers its equipment and services primarily under the P&H
and Morris brand names. The P&H and Morris trademarks, which have been
consistently used for over 100 years, are recognized in important markets
around the world. P&H is currently used on above-ground mining equipment
manufactured by HarnCo, as well as on the crane and hoist products
manufactured by the Company for related services offered by the Company.
HarnCo
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<PAGE>
has licensed to the Company the sole and exclusive right to use the
P&H trademark on a worldwide basis in connection with "through-the-air"
material handling original equipment from the date of the Recapitalization
Closing until 15 years after the earlier to occur of a sale of Holdings to a
third party or a public offering of the common stock of Holdings, the Company
or their parents or successors, and for an additional seven years in
connection with aftermarket products and services. The royalty fee for use of
the trademark is 0.75% of the aggregate net sales of the MHE Business for the
ten year period commencing March 30, 1999. See "Certain Relationships and
Related Transactions."
The Company also sells products under the Kaverit and Mondel trademarks in
Canada, and the Hercules trademark in Mexico. It provides aftermarket service
under the ProCare trademark in the United States, the UK Crane Service trademark
in the United Kingdom, and the Crane Aid trademark in South Africa. The Company
also uses a variety of other marks in different countries. There are no known
conflicts or third party rights which would materially impact the Company's
limited use of the P&H trademark in connection with the Company's business
activities for the life of the license agreement or use of its other trademarks.
Patents
The Company owns approximately 60 United States patents and pending patent
applications and approximately 120 foreign patents and pending patent
applications, primarily in Brazil, Canada, Japan, Mexico and the United Kingdom.
The Company has acquired patents pertaining to improvements in stacker cranes,
portal cranes, anti-sway cable reeving systems for cranes, automation and
controls, and crane wheel and rail configurations to prevent skewing of
rail-mounted cranes. Most of the products manufactured by the Company are
proprietary in design and the Company is not aware of any subsisting patents
held by others which would be infringed by the manufacture and sale of the
Company's current lines of crane and hoist products. Patents are important to
the Company because, among other things, they prevent competitors from using
the Company's proprietary inventions and designs. The Company believes this
provides a competitive advantage in the marketplace. However, the Company's
overall competitive position is not dependent upon a particular patent, nor
would the loss of any particular patent have a material impact upon the
Company's competitive or financial position. Nonetheless, the Company expects
to continue to protect its proprietary technology through patents and other
forms of intellectual property. The Company has aggressively pursued
infringement of its proprietary rights and intends to continue to do so
should the need arise. The Company's patents have a duration ranging from
approximately one to eighteen years, depending on the filing dates of the
patent applications.
Competition
The industrial crane and hoist industry is highly fragmented, with three
global participants and many regional and local players. Therefore, the markets
in which the Company operates are highly competitive, and the Company faces
competition from a number of different manufacturers in each of its product
areas and geographic markets, both domestic and foreign. Globally, the Company
believes it is one of the three largest manufacturers of industrial overhead
cranes and one of the largest providers of related aftermarket products and
services. Other global competitors include Mannesmann Dematic AG, a subsidiary
of Mannesmann AG, and KCI Konecranes International Corp. Within specific
geographic and product markets, the market share of the top participants often
varies.
Governmental Regulation
Environmental Regulation
The Company's operations and properties worldwide are subject to extensive
and changing legal requirements and regulations pertaining to environmental
matters. In 1997, expenditures in connection with the Company's compliance with
federal, state, local and foreign environmental laws and regulations did not
have a material adverse effect on the Company's earnings or competitive
position.
The principal environmental compliance issues that arise in connection
with the Company's manufacturing facilities are hazardous/solid waste disposal
and air emissions (primarily paint and welding). The Company's DSCs do not
create environmental conditions that materially affect the Company's operations.
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<PAGE>
The Resource Conservation and Recovery Act ("RCRA") requires the Company
to manage and recycle or dispose properly of the wastes it generates from its
manufacturing operations. Similar foreign hazardous waste laws and regulations
apply to the Company's facilities outside the United States. RCRA and these
other hazardous waste laws and regulations include storage, management and
manifest provisions, among others. The Company also has embarked on a pollution
prevention program, for example, reducing the hazardous waste generated at its
Oak Creek, Wisconsin facility by 63 percent in 1996 from the prior year, while
at the same time increasing production. The Company has agreements worldwide
with hazardous waste management firms to recycle or dispose properly of
generated hazardous wastes. Many of the Company's regional distribution centers
have a "parts washer sink" on-site, and the spent solvents generated from these
minor cleaning activities are managed, collected and recycled under contracts
with waste management firms. The Company is not aware of any material
non-compliance with applicable hazardous waste laws and regulations at its
facilities or operations.
Under the Clean Air Act, the States have adopted an array of control
measures and programs to minimize certain hazardous air pollutants and
particulate matter. The Company has obtained necessary permits for any affected
facilities. Foreign clean air laws and regulations address many of the same
pollutants and issues. Considerable regulatory activity is expected in the next
ten years with the implementation of 1997 changes to the national ambient air
quality standards for ozone and particulate matter. The Company has made a
number of select investments in equipment at its primary manufacturing sites in
anticipation of these changes. The adoption of some of these additional clean
air regulations might require the Company to make further capital expenditures
not currently anticipated and that may be material.
In connection with the ownership of its properties and operation of its
business, the Company may also be subject to liability under various federal,
state, local and foreign laws, regulations and ordinances relating to clean-up
and removal of hazardous substances on, under or in such properties. Certain
laws, such as the Comprehensive Environmental Response, Compensation and
Liability Act, typically impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous substances.
Persons who arrange, or are deemed to have arranged, for the disposal or
treatment of hazardous substances also may be liable for the costs of removal
and remediation of such substances at the treatment or disposal site, regardless
of whether such site is owned or operated by such person. Under the terms of the
Recapitalization Agreement, HarnCo retained all liability for the only two, open
environmental clean-up claims brought against HarnCo in the Milwaukee area. The
Company and its management are not aware of any other material environmental
clean-up claim which is pending or is threatened against the Company, but there
can be no assurance that any such claim will not be asserted against the Company
in the future.
The Company has undergone significant expansion in recent years through
acquisitions, and management has decided that it is important for the Company's
operations to adopt a "proactive" compliance management approach to
environmental matters. The Company hired a manager of safety, health and
environmental affairs in September 1996 to oversee worldwide compliance, and
staff has been designated to lead compliance activities at each facility. The
Company also is developing an "Annual Compliance Calendar" matrix for all
required facility reports and an audit system for all environmental, safety and
health issues. A key component of the Company's environmental strategic
management plan is training for managers and employees. Once fully implemented
in 1998, the Company believes its compliance program will be in conformance with
ISO 14000 standards.
It is likely that situations will arise from time to time requiring the
Company to incur expenditures in order to ensure continuing regulatory
compliance. The Company is not aware of any environmental condition or any
operation at any of its properties or facilities, either individually or in the
aggregate, which would cause expenditures that would result in a material
adverse effect on the Company's results of operations, financial condition, or
competitive position. There could be future, unknown environmental regulatory
changes that could have a material effect.
In connection with the Transactions, an environmental assessment of
certain of the Company's properties and operations at which the Company may
have potential environmental liabilities has been conducted. This
environmental assessment has indicated that no environmental matters or
compliance issues exist at the Company's United States properties and
operations that would have a material adverse effect on the Company's
earnings or competitive position. At some of the Company's foreign properties
and operations, however, the environmental
61
<PAGE>
assessment has indicated a need for the Company to conduct certain follow-up
measures in order to reduce potential environmental liabilities. The Company
intends to follow up on certain of the recommendations made in the environmental
assessment with respect to both United States and foreign properties. There can
be no assurance that unknown conditions at the Company's facilities will not
result in potential liabilities that may be material.
The Loughborough, England facility is subject to an air emissions permit,
the limits of which became enforceable in April 1998. The Company has retained
a consultant who has conducted tests to determine if the facility complies with
such limits. However, the results of the consultant's tests have not been
received to date. Further, the Company is currently evaluating the purchase of
insurance to cover some or all potential environmental liabilities.
Other Regulation
The Company's operations also are subject to many other laws and
regulations, including those relating to workplace safety and worker health
(principally OSHA and regulations thereunder in the United States and similar
laws in most other countries). The Company believes it is in material compliance
with these laws and regulations and does not believe that future compliance with
such laws and regulations will have a material adverse effect on its cash flow,
results of operations or financial condition.
Properties
The Company maintains its corporate headquarters in Oak Creek, Wisconsin
and conducts its principal operations at the following facilities:
<TABLE>
<CAPTION>
Square
Location Utilization Footage Owned/Leased
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loughborough, U.K. Crane/hoist manufacturing 420,000 Owned(a)
Oak Creek, WI Crane/hoist/winch manufacturing 277,000 Owned
Johannesburg, S.A. Crane/hoist manufacturing 124,000 Owned
Franklin, OH Regional fabrication/remanufacturing 75,000 Owned
Mexico City, Mexico Crane/hoist manufacturing/distribution/service 65,000 Owned
Edmonton, Canada Crane/hoist regional manufacturing/service 58,300 Owned
Windsor/Madison, WI Crane/hoist remanufacturing 55,000 Leased(b)
Mauldin/Greenville, SC Regional crane assembly/service 40,400 Leased(c)
Birmingham, AL Regional crane assembly/service 36,500 Owned/Leased(d)
Singapore, Singapore Parts warehouse/crane assembly/hoist distribution 21,200 Licensed(e)
Toronto, Canada Brake systems and parts manufacturing 17,600 Leased(f)
</TABLE>
- ----------
(a) Unused portions are subleased.
(b) Lease expires May 31, 2002.
(c) Lease expires December 31, 2004.
(d) The Company owns the property with the exception of a portion thereof
leased (with an option to purchase) from the Industrial Revenue Board of
Birmingham.
(e) The property is held under a license granted pursuant to a building
agreement with the Jurong Town Corporation of Singapore. Subject to
compliance with certain stipulated conditions in such agreement, the
Company is to be granted a 30-year lease of the property from
April 1, 1994.
(f) Lease expires February 15, 2000.
The Company also owns and leases a number of other properties as DSCs in
the United States, Canada, the United Kingdom, South Africa and Mexico.
The Company believes that its properties have been adequately
maintained, are in generally good condition, and are suitable for the
Company's business as presently conducted. The Company believes its existing
facilities provide sufficient production capacity for its present needs and
for its anticipated needs in the foreseeable future. The Company also
believes that upon the expiration of its current leases, it either will be
able to secure renewal terms or enter into leases for alternative locations
at market terms.
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<PAGE>
Employees
At April 30, 1998, the Company had a total of 2,040 full-time
employees, of which 772 were hourly and 1,268 were salaried personnel.
Approximately 79% of the Company's hourly employees are represented by
unions. The Company's United States operations employ approximately 904
employees, of which 156 production and maintenance employees at the facility
in Oak Creek, Wisconsin are unionized. Until the October 1997 Drop Down, the
Company's unionized employees in the United States were covered by a
collective bargaining agreement between HarnCo and the United Steelworkers of
America, Local 1114, which expires August 31, 1998. In connection with the
October 1997 Drop Down, these employees became employees of MHLLC, a
newly-created wholly-owned subsidiary of the Company. The Company will honor
the collective bargaining agreement as to its employees through the remainder
of its term. Negotiations with respect to a new collective bargaining
agreement have begun and the Company is seeking changes in benefit programs.
In addition, the Company is a party to several agreements with unions
representing certain of its employees in Mexico, South Africa and the United
Kingdom. These agreements all have a one year term. There can be no assurance
that the Company will be able to successfully negotiate a new collective
bargaining agreement with Local 1114 or any other collective bargaining
agreements upon their expiration without work stoppages.
None of the Company's businesses has experienced a significant strike,
slowdown, or lockout within the last ten years. The Company believes that its
relationship with its employees is good and that it provides working conditions,
wages, and benefits that are competitive with other providers of the kinds of
products and services offered by the Company.
Legal Proceedings
From time to time, the Company is involved in routine litigation incident
to its operations. The Company believes that any pending or threatened
litigation will not have a material adverse effect on its consolidated results
of operations and financial condition.
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MANAGEMENT
The following sets forth certain information with respect to the persons
who are members of Holdings' Board of Directors or the senior management team of
the Company and/or Holdings.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael S. Erwin................ 45 President, Chief Executive Officer and Director
David D. Smith.................. 43 Vice President--Finance and Director
Peter A. Kerrick................ 41 Vice President--Equipment
Richard J. Niespodziani......... 46 Vice President--Aftermarket Products
Edward J. Doolan................ 46 Vice President--Distribution & Service
K. Bruce Norridge............... 51 Vice President--Europe & Africa
Michael J. Maddock.............. 55 Vice President--Pacific Rim & Middle East
Martin L. Ditkof................ 40 General Counsel and Secretary
Todd R. Berman.................. 40 Chairman of the Board
Jay R. Bloom.................... 42 Director
Robert W. Hale.................. 51 Director
Michael S. Shein................ 34 Director
Michael R. Young................ 53 Director
Larry Zine...................... 43 Director
</TABLE>
Michael S. Erwin--Michael Erwin serves as President and Chief Executive Officer
of Holdings and the Company. He has run the Company since December 1994 and has
served as a director of Holdings since 1995. Since joining the Company in 1974,
he has held a variety of positions, including General Manager, Equipment
Division; Operations Manager, Oak Creek; Marketing Manager, Hoist Division; and
Material Handling Regional Manager, Chicago. Mr. Erwin holds a Bachelor of
Science degree in Business Management, System/Operations Management from
Milwaukee School of Engineering and an Associate's Degree in Mechanical
Technology from Milwaukee Area Technical College.
David D. Smith--David Smith has been serving as Vice President--Finance of
the Company since March 30, 1998 and as a director and Vice President of
Holdings since 1997. Previously, he served as Vice President and Controller of
the Company since 1993. Mr. Smith joined the Company in 1988 as a Senior
Operations Auditor. Mr. Smith received his Bachelor of Science in Business
Administration from Bucknell University and his M.B.A. from the University of
Pittsburgh. Mr. Smith is a Certified Public Accountant.
Peter A. Kerrick--Peter Kerrick assumed his current position as Vice
President--Equipment of the Company in 1995. Since joining the Company in 1978
as a Design & Project Engineer, Mr. Kerrick has held numerous positions with the
Company, primarily in the sales capacity. Mr. Kerrick obtained a Bachelor of
Science degree in Mechanical Engineering from Purdue University.
Richard J. Niespodziani--Richard Niespodziani has served as Vice
President--Aftermarket Products of the Company since 1994. Prior to his current
position, Mr. Niespodziani served as General Manager for five different business
areas at the Company. He also has held multiple positions related to the
Company's aftermarket operations since joining the Company in 1974. Mr.
Niespodziani received his Bachelor of Science degree in Business Administration
from the University of Wisconsin Stevens Point and his M.B.A. from the
University of Wisconsin Whitewater.
Edward J. Doolan--Edward Doolan serves as Vice President--Distribution &
Service of the Company. Prior to being promoted to his current position in 1994,
Mr. Doolan served in a variety of positions in the aftermarket products and
service groups. He joined the Harnischfeger team in 1979 and became Director of
Product Support for the Company in 1985. Mr. Doolan has a Bachelor of Science in
Industrial Engineering from Georgia Tech and an M.B.A. from Marquette
University.
K. Bruce Norridge--Bruce Norridge has been Vice President--Europe & Africa
of the Company since September 1997. Prior to that, he was Managing Director of
Morris Ltd.'s Engineered Products Division from 1992 to 1997. Mr. Norridge has
been employed with Morris Ltd. since 1979. Mr. Norridge received a National
Diploma in Structural Engineering and an Advanced Diploma in Production
Management and is a graduate fellow of the
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<PAGE>
Production Management Institute of South Africa. Mr. Norridge is a
Registered Professional Technologist in Engineering and a Registered
Professional Production Manager.
Michael J. Maddock--Michael Maddock has been Vice President--Pacific Rim &
Middle East of the Company since September 1997. Previously, Mr. Maddock held a
number of positions at Morris Ltd., including Director and General Manager,
Hoist Division, and Managing Director, Standard Products Division. He joined
Morris Ltd. in 1989. Mr. Maddock received his M.I. in Mechanical Engineering
from the Institute of Mechanical Engineers, a Bachelor of Science in Metallurgy
from the University of Surrey, a Higher National Diploma in Mechanical
Engineering and a Higher National Certificate in Production Engineering. He
received his Membership from the Institute of Mechanical Engineers.
Martin L. Ditkof--Martin Ditkof currently serves as General Counsel of the
Company and as Secretary of Holdings. He joined the Harnischfeger team as a
Corporate Attorney in 1988 and assumed his current position at the Company in
November 1995. Mr. Ditkof received a Bachelors degree in Business Administration
from the University of Michigan and his Juris Doctorate from Cornell Law School.
Todd R. Berman--Todd Berman has been Chairman of the Board of Holdings
since March 30, 1998. Mr. Berman is the founder and President of Chartwell
Investments Inc. He has served as Chairman of the Board of Griffith Consumers
Company, one of the nation's largest independent distributors of heating oil and
other petroleum products, since December 1994; as Chairman of Carl King, Inc.,
the leading operator of gas stations and convenience stores in the Delmarva
peninsula (Delaware, Maryland, Virginia), since December 1994; and as a director
of Petro Stopping Centers, L.P., a leading operator of large, full-service truck
stops, since January 1997. Mr. Berman has been with Chartwell Investments Inc.
or its predecessor since 1992. He received his A.B. from Brown University and an
M.B.A. from Columbia University Graduate School of Business.
Jay R. Bloom--Jay Bloom has been a director since March 30, 1998. Mr.
Bloom is a Managing Director and co-head of the High Yield Group of CIBC
Oppenheimer. In addition, he is the co-head of CIBC High Yield Merchant Banking
Funds. At CIBC Oppenheimer, he has been responsible for overall portfolio
strategy, numerous high yield financings and investments in numerous companies
through the merchant banking funds. Prior to joining CIBC Oppenheimer in 1995,
Mr. Bloom was a founder and managing director of The Argosy Group L.P. Before
Argosy, Mr. Bloom was a managing director in the Mergers and Acquisitions Group
of Drexel Burnham Lambert Incorporated. Mr. Bloom serves on the board of
directors of GT Crossing Limited, Global Telesystems Limited, Heating Oil
Partners, L.P., Consolidated Advisers Limited, L.L.C., and Riverside Millwork
Company, Inc. and is on the Board of Advisors of Oak Hill Securities Fund, L.P.
Mr. Bloom received his B.S. and M.B.A. degrees from Cornell University,
graduating summa cum laude, and his Juris Doctorate from Columbia University
School of Law.
Robert W. Hale--Robert Hale was appointed as the representative of
HarnCo to the board of directors of Holdings (pursuant to the terms of the
Stockholders' Agreement (as defined herein)) on March 30, 1998 and has served
as a director since that date. Mr. Hale is President of HII's P&H Mining
Equipment division, a position he has held since 1994. Previously, Mr. Hale
ran the Company, serving as Senior Vice President and General Manager of
HII's P&H Material Handling division from 1988 to 1994. Mr. Hale received a
Bachelor of Science in civil engineering from Marshall University and is a
graduate of Harvard's AMD Program.
Michael S. Shein--Michael Shein has been a director and Vice-President of
Holdings since March 30, 1998. Mr. Shein is a Managing Director and co-founder
of Chartwell Investments Inc. and has been with Chartwell Investments Inc. or
its predecessor since 1992. Mr. Shein has served as a director of Griffith
Consumers Company, one of the nation's largest independent distributors of
heating oil and other petroleum products, since December 1994; a director of
Carl King, Inc., the leading operator of gas stations and convenience stores in
the Delmarva peninsula (Delaware, Maryland, Virginia), since December 1994; and
a director of Petro Stopping Centers, L.P., a leading operator of large,
full-service truck stops, since January 1997. Mr. Shein received a B.S. summa
cum laude from The Wharton School at the University of Pennsylvania.
Michael R. Young--Michael Young has served as a director since March 30,
1998. Mr. Young has served as the Chairman, Chief Executive Officer and
President of Bristol Compressors from 1983 to 1987 and since 1996. Mr. Young was
the Chairman and Chief Executive Officer of Evcon Industries from 1991 to 1995
and was integrally involved in selling the company to York International. Mr.
Young was the President and Chief Operating Officer of
65
<PAGE>
York International from 1988 to 1989. From 1976 to 1983, Mr. Young was
Director of Product Development for Rockwell International's Automotive
Operations and prior to that was Chief Engineer of Eaton Corporation's
Engineering & Research Center. Mr. Young received B.S., M.S. and Doctorate
degrees from the University of Detroit.
Larry Zine--Larry Zine serves as a director since March 30, 1998. Mr. Zine
has been Executive Vice President and Chief Financial Officer of Petro Stopping
Centers, L.P., a leading operator of large full-service truck stops since
December 1996. Mr. Zine served as the Executive Vice President and Chief
Financial Officer for The Circle K Corporation, the second largest chain of
convenience stores in the United States, from 1988 to 1996. Mr. Zine was an
integral part of The Circle K Corporation's reorganization from bankruptcy in
July 1993, its initial public offering in March 1995 and subsequent sale in June
1996. Mr. Zine has worked for The Circle K Corporation for 15 years in various
capacities. Mr. Zine was educated at the University of North Dakota and holds an
M.S. degree in accounting and a B.S.B.A. in marketing.
Director Compensation
Holdings contemplates that it will not pay directors fees to any of its
directors. Holdings will reimburse its directors for all reasonable
out-of-pocket expenses incurred in connection with attending Board meetings.
Executive Compensation
Holdings does not contemplate that it will compensate its officers for
their services as officers of Holdings.
Arrangements After Consummation of the Transactions
Employment Agreements
On March 30, 1998, the Company entered into new employment agreements
with certain senior managers of the Company, including the Named Executive
Officers. The agreements with Messrs. Erwin, Smith and Niespodziani provide
for their employment in their current capacities for three years, and for
additional one year periods thereafter unless canceled by either party on 60
days notice prior to such renewal date. They provide Messrs. Erwin, Smith and
Niespodziani a base salary (subject to annual review by the Board of
Directors) of $180,000, $111,300 and $111,540, respectively, and an annual
performance-based bonus plan (based on Economic Value Added for 1998 and on
EBITDA for years thereafter), the terms of which are to be agreed upon by the
Compensation Committee of the Board of Directors and the Company's Chief
Executive Officer. The agreements also provide for the indemnification of the
executives, and include non-competition and confidentiality provisions. If
the executive resigns for Good Reason (as defined therein, which definition
includes material reduction of the executive's duties or substantial change
in work conditions, a material decrease in compensation or benefits, and
changes in control of the Company), the executive is entitled to continuance
of his then current base salary for 12 months, continuation of health and
life insurance benefits for 24, a pro-rated bonus, the continuation of other
perquisites for six months and payment, if requested, for all equity in
Holdings or the Company held by the executive or his family. If the executive
is terminated by the Company without Cause (as defined therein, which
definition includes the willful failure of the executive to substantially
perform his duties, and the commission of a fraud on the Company, if not
cured within 30 days' written notice thereof), he is entitled to a lump sum
payment equal to his then current annual base salary plus a lump sum payment
equal to the base salary which would otherwise have been payable for the
balance of the fiscal year in which termination occurs, and the same benefits
as if he resigned for Good Reason.
The Company also entered into new employment agreements with Messrs.
Norridge and Maddock on March 30, 1998. These agreements generally continue
in effect until the death of the executive, the executive's reaching normal
retirement age, termination by the Company for Cause (as defined therein,
which definition includes the executive being absent from work through
sickness or disability for more than six months in any 12 month period, and
the executive neglecting to perform his duties in a material way),
termination by the Executive for Good Reason (as defined therein, which
definition includes the failure by the Company to pay the compensation and
benefits required by the agreement and a material diminishment in the duties
of the executive), or until terminated by either party upon 12 months notice.
Messrs. Maddock and Norridge are entitled to (pound)80,900 and (pound)79,000
base salary,
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<PAGE>
respectively, subject to review annually, a bonus calculated and paid in
accordance with the provisions of the management bonus scheme, an additional
payment of (pound)56,250 for each of 1998 and 1999, pension benefits at least
equal in value to the benefits the executive would have been entitled to
under the previous benefit plan in which such executive participated, and
various other benefits. The executive may terminate the agreement at any time
for Good Reason, in which case the executive is entitled to receive his
annual base salary immediately prior to termination for an additional 12
months and a lump sum of (pound)56,250 multiplied by two minus the number of
times the executive received this additional payment. The executive is also
entitled to continue participating in the medical, dental and life insurance
plans for one year or until he receives equivalent benefits from a new
employer.
Equity Incentive Plan
In connection with the Recapitalization, the Company intends to
establish a new equity incentive plan to attract and retain key personnel,
including senior management, and to enhance their interest in the Company's
continued success. Holdings will reserve 1,186.0849 shares of Common Stock
and 4,328.25 shares of Series C Junior Voting Preferred Stock with a value of
$8.1 million on March 30, 1998 for this plan (such shares to be denominated
in 8,100 units consisting of 0.1464 shares of Common Stock and 0.5344 shares
of Series C Junior Voting Preferred Stock (the "Equity Units")). The Company
has committed to make an initial option grant to each member of the Company's
senior management on March 30, 1998 under such executive's employment
agreement. Messrs. Erwin and Smith are to be granted 1,990 Equity Units
(representing 291.3 shares of Holdings Common Stock and 1063.5 shares of
Series C Junior Voting Preferred Stock) and 816 Equity Units (representing
119.5 shares of Holdings Common Stock and 436.1 shares of Series C Junior
Voting Preferred Stock), respectively. Messrs. Niespodziani, Maddock and
Norridge each are to be granted 676 Equity Units (representing 99.0 shares of
Holdings Common Stock and 361.3 shares of Series C Junior Voting Preferred
Stock). The exercise price of each Equity Unit covered by the initial option
grants to the members of the Company's senior management is to be $1,000. The
Company does not anticipate making additional option grants to these
executives under the plan, but does anticipate making grants to other or to
new members of management. Options not previously exercised or terminated
will expire ten years from the date of grant. The Company is in the process
of establishing the vesting terms for such Equity Units.
Arrangements Prior to Consummation of the Transactions
The following describes certain compensation and benefit arrangements
applicable to members of the senior management team of the Company for periods
prior to March 30, 1998. Such employees' participation in such plans and
programs, except as otherwise noted, terminated on March 30, 1998, except with
respect to vested benefits.
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<PAGE>
1997 Summary Compensation Table
The following table presents information concerning compensation paid for
services to the Company during fiscal year 1997 to the Chief Executive Officer
of the Company and the four other most highly paid executive officers employed
by the Company at the end of fiscal year 1997, collectively, the "Named
Executive Officers."
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
------------------------------- ---------------------- ------------------
Other Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Award(s) SARs Payouts sation
Principal Position ($) ($)(a) ($) ($) (#) ($)(b) ($)(a)(c)
------------------ ------- ------- -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael S. Erwin ........................ 155,850 109,192 12,358(a) -- -- 12,220 30,146
President and Chief Executive Officer
David D. Smith .......................... 104,980 47,644 5,705(a) -- -- 6,863 14,705
Vice President--Finance
Richard J. Niespodziani ................. 106,250 61,926 1,967(a) -- -- 1,755 9,052
Vice President--Aftermarket
Products
Michael J. Maddock ...................... 125,300 55,196 -- -- -- -- 95,605(d)
Vice President--Pacific Rim &
Middle East
K. Bruce Norridge ....................... 125,042 55,112 71,932(e) -- -- -- 95,605(d)
Vice President--Europe & Africa
</TABLE>
- ----------
(a) Certain participants in HII's Executive Incentive Plan may elect to defer
up to 100% of their cash bonuses by converting such bonuses into HII
common stock at a 25% discount from the average closing price of the HII
common stock for the last month of the HII fiscal year. All such stock is
held in the HII Deferred Compensation Trust and may not be withdrawn by a
participant as long as the participant remains an employee of HII. Mr.
Erwin, Mr. Smith and Mr. Niespodziani elected to defer 25%, 25% and 10% of
their respective fiscal 1997 cash bonuses into HII common stock under this
plan. The HII Executive Incentive Plan also provides that dividends on
shares held in participants' accounts are reinvested in HII common stock
at a 25% discount from market prices. The dollar values of the differences
between (i) the bonus amount converted and the market value of the shares
purchased and (ii) the dollar amounts attributable to the discount upon
the reinvestment of dividends are included in the "Other Annual
Compensation" column. The dollar value of the bonus amounts that have been
converted into stock and deferred are reported in the "LTIP Payouts" and
"All Other Compensation" columns. The "banked" portion of any bonus is not
reported in the Summary Compensation Table but is reported in the
Long-Term Incentive Plans--Awards Table.
(b) Represents the portion of the bonus earned in 1997 that resulted from
bonuses that were "banked" in prior years under the EVA Bonus Program
described in connection with the Long-Term Incentive Plans--Awards Table.
Mr. Erwin, Mr. Smith and Mr. Niespodziani elected to defer 25%, 25% and
10% of their respective 1997 cash bonuses into HII common stock under the
HII Executive Incentive Plan.
(c) Includes the following amounts which represent bonuses earned in 1997 (net
of amounts reported under LTIP Payouts) and deferred and converted into
HII common stock by the Named Executive Officers under the HII Executive
Incentive Plan as described in footnote (a) above: Mr. Erwin $24,611; Mr.
Smith $10,131; and Mr. Niespodziani $4,123. Also includes $4,080 for Mr.
Erwin, Mr. Smith and Mr. Niespodziani which represents cash payments under
the HII Profit Sharing Plan and the following amounts paid by HII during
fiscal 1997 for group term life insurance premiums for the benefit of the
executives: Mr. Erwin, $1,455; Mr. Smith, $494; and Mr. Niespodziani,
$849.
(d) Represents an annual earn-out paid to Messrs. Maddock and Norridge
pursuant to the terms of their employment agreements.
(e) Includes $13,750 in car allowance and $51,063 for various expatriate
expenses incurred by Mr. Norridge, paid by the Company pursuant to the
terms of his employment agreement.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values (a)
The following table sets forth information with respect to the Named
Executive Officers concerning the number of shares of HII common stock acquired
on exercise of options by the Named Executive Officers during fiscal 1997, the
value realized and the number and value of options outstanding at October 31,
1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Shares Options at Fiscal at Fiscal Year-End
Acquired Value Year-End (#) ($)(c)
on Exercise Realized ---------------------------- ----------------------------
Name (#) ($)(b) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Erwin.......... 1,625 21,865 5,250 6,000 52,459 27,013
David D. Smith............ 2,875 31,150 0 2,375 0 15,551
Richard J. Niespodziani... 1,750 17,453 0 2,250 0 13,166
Michael J. Maddock........ 1,500 29,250 1,875 2,625 17,436 18,557
K. Bruce Norridge......... 1,875 24,561 0 2,625 0 18,557
</TABLE>
- ----------
(a) No Stock Appreciation Rights (SARs) are outstanding.
(b) Based on the market value of the stock on the date of exercise less the
exercise price and withholding tax paid by the recipient, if any.
(c) Based on the closing price of HII common stock on the New York Stock
Exchange on October 31, 1997 of $39.375.
Until the Recapitalization Closing, a portion of the incentive
compensation for senior executives was paid in cash and a portion was deferred
based on future results.
For those executives who have elected to defer their cash bonuses by
converting such bonuses into HII common stock under the terms of the HII
Executive Incentive Plan, the "banked" portion of any bonus is converted into
HII common stock on the same terms as the "unbanked" portion of the bonus.
Long Term Incentive Plans--Awards in Last Fiscal Year
Number of Shares, Estimated Future
Units or Other Payouts Under
Rights Non-Stock Price
Name (#)(a) Based Plans ($)(b)
---- ----------------- ------------------
Michael S. Erwin......................... 17 1,558
David D. Smith........................... 18 1,732
Richard J. Niespodziani.................. 9 2,486
Michael J. Maddock....................... -- --
K. Bruce Norridge........................ -- --
- ----------
(a) Reflects HII common stock purchased through conversion of each executive's
banked bonus at a 25% discount on the purchase price of $41.78 in
accordance with the provisions of the HII Executive Incentive Plan. The
amount so converted by each of the executive officers is as follows:
Michael Erwin $693; David Smith $770; and Richard Niespodziani $368.
(b) Reflects cash portion of "banked bonus."
Pension Plan Table
The following table sets forth the estimated annual benefits payable upon
retirement at normal retirement age for the years of service indicated under
HII's defined benefit pension plan (and excess benefit arrangements defined
below) at the indicated remuneration levels.
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<PAGE>
Remuneration covered by the plan includes the following amounts reported
in the 1997 Summary Compensation Table: salary and bonus (including the cash
value of bonuses foregone for stock under the Executive Incentive Plan).
"Banked" bonuses are not included.
The years of service credited for each of the Named Executive Officers
are: Michael Erwin 24 years, David Smith 15 years, and Richard Niespodziani 23
years.
Benefits are based upon years of service and the highest consecutive five
year average annual salary and incentive compensation during the last ten
calendar years of service. Estimated benefits under the retirement plan are
subject to the provisions of the Code which limit the annual benefits which may
be paid from a tax qualified retirement plan. Amounts in excess of such
limitations will either be paid from the general funds of HII or funded with HII
common stock under the terms of the HII Supplemental Retirement and Stock
Funding Plan. The estimated benefits in the table above do not reflect offsets
under the plan of 1.25% per year of service (up to a maximum of 50%) of the
Social Security benefit.
Years of Service
-------------------------------------------------
Remuneration 5 10 15 20 25 30
- ------------ ------ ------ ------ ------- ------- -------
$140,000 10,500 21,000 31,500 42,000 52,500 63,000
180,000 13,500 27,000 40,500 54,000 67,500 81,000
220,000 16,500 33,000 49,500 66,000 82,500 99,000
260,000 19,500 39,000 58,500 78,000 97,500 117,000
300,000 22,500 45,000 67,500 90,000 112,500 135,000
340,000 25,500 51,000 76,500 102,000 127,500 153,000
380,000 28,500 57,000 85,500 114,000 142,500 171,000
Until March 30, 1998, executive officers of the Company located in the
United Kingdom were eligible to participate in an executive section of the
Harnischfeger Industries Pension Scheme (the "UK Scheme"), which provides
defined benefits. Pension income in the UK Scheme at normal retirement age is
based on the employee's years of service and his last twelve months' taxable
earnings (excluding certain benefits in kind and fluctuating payments), or on an
average of those taxable earnings over the last 24 months, if greater. There is
no offset for United Kingdom social security benefits.
In addition to United Kingdom social security benefits to which such a
person may be entitled, the following table illustrates the amount of annual
pension benefits (in pounds sterling) payable from the UK Scheme to an
individual with the indicated earnings and years of service at the individual's
normal retirement age of 65.
Years of Service
--------------------------------------------------
Remuneration 10 15 20 25 30 35
- -------------- ------ ------ ------- ------- ------- -------
(pounds)50,000 16,667 25,000 33,333 33,333 33,333 33,333
75,000 25,000 37,500 50,000 50,000 50,000 50,000
100,000 33,333 50,000 66,667 66,667 66,667 66,667
125,000 41,667 62,500 83,333 83,333 83,333 83,333
150,000 50,000 75,000 100,000 100,000 100,000 100,000
Mr. Maddock and Mr. Norridge were members of the UK Scheme until March
30, 1998. At December 31, 1997, Mr. Maddock had 8.75 years of service and Mr.
Norridge had 3.42 years of service for purposes of this plan. Because Mr.
Norridge joined the plan after June 1, 1989, as a matter of United Kingdom
law, his benefits after 20 or more years of service would be capped at
(pound)56,000.
Divestiture Bonus Agreements
In September and October 1997, Michael S. Erwin, David D. Smith, Richard
J. Niespodziani, Michael J. Maddock, K. Bruce Norridge and certain other
employees of the Company entered into divestiture bonus agreements with HarnCo
(the "Divestiture Bonuses"). These agreements provide for bonuses to be paid to
such employees in the event of a purchase by a third party not affiliated with
HarnCo of substantially all of the assets and liabilities of the MHE Business
which occurs within one year of the date of the agreement. The Divestiture
Bonuses
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<PAGE>
for Messrs. Erwin, Smith, Niespodziani, Maddock and Norridge are to be
$375,000, $125,000, $125,000, $125,000 and $125,000, respectively. Under these
agreements, each employee agreed to release HarnCo and its affiliates from
certain claims and agreed not to voluntarily terminate his employment with the
MHE Business within the first six months following any such divestiture unless
there is a substantial change in the employee's duties, functions and
responsibilities or the employee is required to perform the principal portion of
his duties outside his current locale.
Employment Agreements
In September and October 1997, HarnCo entered into employment agreements
with Michael Erwin, David Smith, Richard Niespodziani and certain other
employees of the Company which were to be effective upon closing of the sale of
the MHE Business to a third-party buyer. These agreements, which HarnCo assigned
to the Company, were terminated on March 30, 1998 and replaced by new employment
agreements. Morris entered into employment agreements with K. Bruce Norridge,
Vice President--Europe & Africa, and Michael J. Maddock, Vice President--Pacific
Rim & Middle East in connection with the sale of Morris to the Company in 1994.
These agreements also were terminated and replaced by new employment agreements
on March 30, 1998.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of outstanding
shares of voting stock of Holdings beneficially owned by: (i) each executive
officer of Holdings and the Company and each director of Holdings; (ii) all
directors of Holdings and all executive officers of Holdings and the Company as
a group; and (iii) each person known by Holdings to own beneficially more than
five percent of Holdings voting stock, respectively. Holdings believes that each
individual or entity named has sole investment and voting power with respect to
shares of voting stock of Holdings indicated as beneficially owned by them,
except as otherwise noted.
<TABLE>
<CAPTION>
Voting Percent Series C Percent
Name and Address of Beneficial Owner Common Stock of Class Preferred Stock of Class
- ------------------------------------ ------------ -------- --------------- --------
<S> <C> <C> <C> <C>
5% Owners:
Chartwell L.P. (a)...................................... 7,907 77.8% 28,855 100.0%
c/o KPMG
Genesis Building
448 GT
Grand Cayman
Cayman Islands
Harnischfeger Corporation............................... 2,261 22.2% -- --
3600 South Lake Drive
St. Francis, Wisconsin 53235
Executive Officers and Directors:
Todd R. Berman (b)...................................... 7,907 77.8% 28,855 100.0%
Michael S. Shein (b).................................... 7,907 77.8% 28,855 100.0%
Michael S. Erwin (c).................................... -- -- -- --
David D. Smith (c)...................................... -- -- -- --
Peter A. Kerrick (c).................................... -- -- -- --
Richard J. Niespodziami (c)............................. -- -- -- --
Edward J. Doolan (c).................................... -- -- -- --
K. Bruce Norridge (c)................................... -- -- -- --
Michael J. Maddock (c).................................. -- -- -- --
Martin L. Ditkof (c).................................... -- -- -- --
Jay R. Bloom............................................ -- -- -- --
Robert W. Hale.......................................... -- -- -- --
Michael R. Young........................................ -- -- -- --
Larry Zine.............................................. -- -- -- --
All directors and officers as a group (14 persons) (c).. 7,907 77.8% 28,855 100.0%
</TABLE>
- ----------
(a) Chartwell L.P., a Cayman Islands limited partnership, is the managing
member of Frasier L.L.C., a Delaware limited liability company and of
Niles L.L.C., a Delaware limited liability company, which together own
62.4% and 37.6%, respectively of the shares of common stock of MHE
Investments, a Delaware corporation. MHE Investments, in turn, owns
77.8% of the shares of voting common stock of Holdings and 100.0% of
the Series C Junior Voting Preferred Stock. The general partner of
Chartwell L.P. is Chartwell G.P. Corp., a Cayman Islands company.
Chartwell G.P. Corp. may be deemed to beneficially own all of the
shares of Holdings beneficially owned by Chartwell L.P. Mr. Donald
Gales owns all of the issued and outstanding capital stock of Chartwell
G.P. Corp. and, consequently, may be deemed to beneficially own all of
the shares of Holdings beneficially owned by Chartwell G.P. Corp.
However, Holdings has been advised by each of Chartwell L.P., Chartwell
G.P. Corp. and Mr. Gales that each disclaims beneficial ownership of
such Holdings shares. Todd R. Berman, who is Chairman of the Board of
Holdings, is a limited partner of Chartwell L.P. Michael S. Shein, who
serves as a director and Vice President of Holdings, is also a limited
partner of Chartwell L.P. Mr. Berman and Mr. Shein are the managers of
Frasier L.L.C. and Niles L.L.C. Concurrent with the Recapitalization
Closing, an affiliate of CIBC Oppenheimer Corp., the Initial Purchaser
in the Offering, acquired an approximately 25.0% interest in each of
Frasier L.L.C. and Niles L.L.C. Accordingly, CIBC Oppenheimer Corp.
holds an indirect equity interest in 19.4% of the shares of voting
common stock of Holdings, but does not have any beneficial ownership in
such shares. Jay R. Bloom, who is a director of Holdings, is a Managing
Director of CIBC Oppenheimer Corp.
72
<PAGE>
(b) Chartwell L.P., a Cayman Islands limited partnership, is the managing
member of Frasier L.L.C., a Delaware limited liability company and of
Niles L.L.C., a Delaware limited liability company, which together own
100.0% of the shares of common stock of MHE Investments, a Delaware
corporation. MHE Investments, in turn, owns 77.8% of the shares of voting
common stock of Holdings and 100.0% of the Series C Junior Voting
Preferred Stock. Todd R. Berman, who is Chairman of the Board of Holdings,
is a limited partner of Chartwell L.P. Michael S. Shein, who serves as a
director and Vice President of Holdings, is also a limited partner of
Chartwell L.P. Mr. Berman and Mr. Shein are the managers of Frasier L.L.C.
and Niles L.L.C. The address of each of Mr. Berman and Mr. Shein is c/o
Chartwell Investments Inc., 717 Fifth Avenue, 23rd Floor, New York, New
York 10022.
(c) Concurrent with the Recapitalization Closing, members of the Company's
senior management purchased $900,000 of equity interests of Niles
L.L.C., constituting 4.4% of the total equity interest in Niles L.L.C.
Accordingly, members of the Company's senior management collectively
hold an indirect equity interest in 1.3% of the shares of voting common
stock of Holdings, but do not have any beneficial ownership interests
in such shares.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Harnischfeger
Historically, the Company operated as one of several operating units of
HII. Until the reorganization of the Company in October 1997, the core United
States operations of the Company (including all centralized operations and the
Oak Creek manufacturing facility) were conducted directly by HarnCo, which is a
wholly-owned subsidiary of HII, while the rest of the Company's operations
(including Morris Ltd. since its acquisition in 1994) were conducted through a
number of entities, all of which were wholly-owned, directly or indirectly, by
HII and its affiliates, with the exception of the Company's Singapore
operations, which are conducted through an entity in which the Company has an
85% interest. HarnCo continues to own approximately 20.8% of the Common Stock.
HII's two other current operating units consist of mining equipment operations
("Mining"), which are conducted through HarnCo and through another subsidiary of
HII, and paper production equipment operations ("Paper"), which are conducted
through a separate subsidiary of HII.
Previously (and until the Recapitalization Closing), HII and/or HarnCo
performed centrally a number of functions necessary for the operations of the
Company. Under a management services arrangement with HII, the Company was
provided with certain services, including, but not limited to, matters of
organization and administration, cash management, labor relations, employee
benefits, public relations, financial policies and practices, taxation and legal
affairs (intellectual property, environmental, labor, securities and ERISA
compliance, as well as assistance with product liability cases). The annual fee
charged the Company for these services was based upon a pro rata share of
corporate administration costs using an allocation methodology based on
consolidated worldwide sales. Such fees totaled approximately $2.9 million, $2.3
million and $1.9 million in fiscal 1997, 1996 and 1995, respectively.
HarnCo provided information systems services to the Company for which the
Company was charged approximately $1.9 million, $1.0 million and $1.1 million in
fiscal 1997, 1996 and 1995, respectively. HarnCo provided support to the Company
for accounting, credit, traffic, vendor identification numbers and human
resource services for which it charged the Company approximately $756,000,
$784,000 and $776,000 in fiscal 1997, 1996 and 1995, respectively. The Company
also shared a parts warehouse with HarnCo, for which the Company was charged
approximately $1.4 million, $1.3 million and $1.2 million in fiscal 1997, 1996
and 1995, respectively, and leased office space from HarnCo at a cost of
approximately $120,000 per year in fiscal 1997, 1996 and 1995.
In addition, computer hardware, software licenses and other technology
necessary to operate the Company were owned and/or held by HII and/or HarnCo and
were used by HarnCo. Virtually all information systems necessary to the United
States operations of the Company were shared with HarnCo. Furthermore, the
Company (including all of its foreign operations) was insured pursuant to HII's
insurance program. The Company had a number of other arrangements with HII,
HarnCo and/or their affiliates, including tax allocation agreements and
inter-company notes, all of which terminated upon consummation of the
Transactions.
The Company also sold certain products and services to Paper and Mining at
negotiated rates and has performed certain administrative functions for HarnCo
in Mexico. Sales to Mining and Paper amounted to $4.9 million in fiscal 1997,
and to $0.9 million and $0.7 million in fiscal 1996 and 1995, respectively. In
addition, Mining and Paper provided certain products and services to the Company
which management estimates amounted to approximately $10.0 million per year, in
fiscal 1997, 1996 and 1995. HarnCo manufactured electric motors, fabricated
larger steel girders and did machining on certain cranes for the Company at cost
or at cost plus a percentage. In addition, Mining and Paper have acted as motor
rewind subcontractors for the Company. Paper is negotiating a preferred supplier
contract with the Company which provides for the Company to act as a
subcontractor for Paper's service unit. It is contemplated that these
transactions, none of which individually or in the aggregate are significant to
the Company, will continue in the future.
The Company obtained volume discounts by entering into joint purchase
agreements in the United States with HII, Mining and Paper for items such as
bearings, motors, steel, maintenance, repair and operational supplies,
domestic telephone service and rates and fleet and equipment leases
(including master capital leases for vehicles and other equipment). In the
United Kingdom, the Company, Mining and Paper entered into joint purchase
agreements for energy, steel and automobile leases. The Company also had a
joint banking program with the other HII affiliates
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and participated in a consolidated pension plan in the United Kingdom. The
Company's hourly employees at its Oak Creek, Wisconsin facility are covered
by a collective bargaining agreement between HarnCo and the United
Steelworkers of America, Local 1114 that also covers certain employees of
Mining.
In a number of instances, HII and/or HarnCo provided contracting credit
support in connection with the Company's business. Certain customers for large
crane supply contracts require the supplier to provide contracting credit
support and/or parent guarantees of performance. In addition, HII and/or HarnCo
guaranteed Company debt and the Company's performance under certain real estate,
vehicle and equipment leases. At April 30, 1998, there was approximately $34.7
million outstanding under the letters of credit and bonds provided by HarnCo and
the Non-MHE HarnCo Affiliates. See "The Transactions--Credit Support."
Management believes that in the aggregate these products and services can
be obtained on comparable terms from third parties.
Harnischfeger Separation Agreement
The organizational structure of Holdings and its subsidiaries was
substantially reorganized in connection with the anticipated sale of the MHE
Business. In connection therewith, in October 1997 HarnCo transferred the assets
of its Material Handling Equipment Division to MHLLC, a newly-created
wholly-owned subsidiary of the Company. All non-cash assets held by HarnCo and
used exclusively by the MHE Division were transferred or, in the case of leased
personal property, subleased to MHLLC or to one of its affiliates. In return,
MHLLC assumed substantially all of the liabilities of HarnCo and the Non-MHE
HarnCo Affiliates relating to the MHE Business (other than as described below).
HarnCo has retained certain income and other tax liabilities relating to
the MHE Business, all environmental liabilities relating to the ownership or
operation of any shared facilities and of HarnCo's Orchard Street facility, any
liabilities for which HarnCo or its affiliates have been named as potentially
responsible parties with respect to two Superfund sites, and any liabilities
arising in connection with claims alleging exposure to asbestos (to the extent
there is insurance coverage therefor) in connection with the MHE Business prior
to the Recapitalization Closing. In addition, among other matters, the HarnCo
Parties have retained all liability for medical and disability benefit claims
for current United States employees made prior to the Recapitalization Closing,
all claims by United States employees who are on short-term or long-term
disability as of the Recapitalization Closing and all claims with respect to any
of the HII benefit plans for former United States employees of the Company.
Trademark License Agreement
On March 30, 1998, the Company entered into a trademark licensing
agreement with Harnischfeger Technologies, Inc. ("HTI"), a subsidiary of
HarnCo, pursuant to which it was granted a sole and exclusive worldwide
license to use the "P&H" trade name, trademark and service mark on or in
connection with the MHE Business. The term of the license for original
equipment is 15 years after the earlier to occur of (i) the sale of Holdings
to an unaffiliated third party or (ii) the consummation of a public offering
of the common stock of Holdings, the Company or their parents or successors.
The term of the license for aftermarket parts and services is for an
additional seven years. The license agreement provides for a royalty payment
to HTI during the ten year period commencing March 30, 1999 equal to 0.75% of
the total net sales of the MHE Business. There will be no royalty fee for the
remainder of the term.
Component and Manufactured Products Supply Agreement
The Company has entered into a two year agreement with HarnCo pursuant
to which HarnCo is to sell, or have its affiliates sell, to the Company and
to its subsidiaries located in the United States, at cost, certain products,
repair parts and rebuilds as have been previously manufactured by HarnCo for
the Company. The price for these products is the fully absorbed standard cost
for normal production products and repair parts, and the fully absorbed job
cost for rebuilds and repairs.
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Transition Services Agreement
On March 30, 1998, the Company entered into a Transition Services
Agreement with HarnCo pursuant to which HarnCo and/or its affiliates will
provide the Company and the Company's subsidiaries located in the United States
certain specified transition services for a set monthly price per service, plus
cost sharing in certain instances, for periods ranging up to three years. These
services include financial support (including payroll, accounts payable and some
accounting), MIS support (including mainframe applications, PC support,
engineering applications, maintenance, shared products and telephone system
support), human resources support (including assistance in union negotiations,
processing support for workers' compensation, screening and hiring of hourly
employees and benefits administration), shared space, warehouse services for
repair parts at one of HarnCo's facilities, order processing, office space and
lobby services at HarnCo's offices, employee communications, use of corporate
aircraft owned by HarnCo or its affiliates, and all traffic functions and
transportation of materials between Milwaukee area operations. The Company
estimates it will be charged $2.6 million for such services in the seven
remaining months of fiscal 1998 and $1.6 million in fiscal 1999.
Health and Welfare Arrangements
Under the terms of the Recapitalization Agreement, the current United
States employees of the Company continue to participate, from the
Recapitalization Closing until the earlier of the Company's notice of
termination or December 31, 1998, in the medical, dental, life and long-term
disability insurance benefit plans that are sponsored by HarnCo for the benefit
of these employees as of the Recapitalization Closing. The Company pays HarnCo
the cost of all benefits provided under these plans.
Stockholders Agreement
Holdings has entered into a stockholders' agreement and registration
rights agreement with HarnCo and MHE Investments (the "Stockholders' Agreement")
pursuant to which HarnCo has the right to appoint a representative to the board
of directors of Holdings, so long as HarnCo owns at least 5% of the outstanding
Common Stock. Certain actions by Holdings require HarnCo's approval, including
non-pro rata redemptions, certain post-closing affiliate and insider
transactions, granting of conflicting rights or entering into conflicting
agreements, and dividends or distributions on, or redemptions or purchases of,
any junior equity stock at any time when dividends are in arrears on the Series
B Junior Preferred Stock owned by HarnCo. The Stockholders' Agreement also
provides that HarnCo has the right to purchase its pro rata share of future
issuances of Common Stock except for issuances of management stock and options
and common stock sold in an underwritten public offering. HarnCo's shares are
subject to a right of first refusal in favor of Holdings and its designees and
certain other rights.
Credit Indemnification Agreement
On March 30, 1998, HII and the Company entered into a Credit
Indemnification Agreement pursuant to which HII will maintain in place the
Credit Support Obligations in existence on March 30, 1998 but have no further
duty to extend, renew or enter into any new Credit Support Obligations, other
than with respect to the MHE Business obligations existing at the
Recapitalization Closing. The Company has agreed to pay in advance an annual fee
equal to 1% of the amounts outstanding under each letter of credit and bond
provided by HarnCo and the Non-MHE HarnCo Affiliates (approximately $34.7
million as of April 30, 1998). The Company paid a pro-rated fee of $290,106 for
calendar year 1998 at the Recapitalization Closing. HII will refund the Company
on a quarterly basis a pro-rata portion of the annual fee for any reductions in
the outstanding amount of credit that occurred during such quarter. In addition,
the Company will pay HII the full amount of future fees and other expenses that
may be paid by HII or its affiliates to third parties in connection with
maintaining the Credit Support Obligations. The Credit Indemnification Agreement
provides that the Company is to reimburse HII on demand for any payment made by
HII or its affiliates under any of the Credit Support Obligations.
Confidentiality and Non-Competition Agreement
At the Recapitalization Closing, Holdings and HII entered into a
Confidentiality and Non-Competition Agreement, pursuant to which HII agreed, on
behalf of itself and of its subsidiaries, not to, directly or indirectly,
participate or engage in, or assist any person that is engaged in, any business
or enterprise that is competitive with
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the MHE Business as conducted at the Recapitalization Closing. In addition,
the agreement provides for HII and its affiliates to maintain in confidence
and not use any confidential information of the MHE Business. The non-compete
covenants, which apply worldwide, will be in effect until the later of (i)
the fourth anniversary of the Recapitalization Closing or (ii) the third
anniversary of the date on which a director designated by HII or its
affiliates ceases to serve on the board of directors of Holdings. HII and its
affiliates also agreed not to induce or encourage any current employee of the
Company or any of its affiliates to leave the Company or its affiliates, and
not to employ certain specified officers and employees of the MHE Business
for 18 months after the Recapitalization Closing.
Tax Sharing Agreement
Holdings, its subsidiaries and MHE Investments have entered into a tax
sharing agreement (the "Tax Sharing Agreement") which provides for, among other
things, the allocation of federal, state and local tax liabilities between
Holdings, its subsidiaries and MHE Investments. In general, under the Tax
Sharing Agreement, Holdings and its subsidiaries will be responsible for paying
their allocable share of all income taxes shown to be due on the consolidated
federal (and any comparable state or local) income tax return filed by MHE
Investments.
Loans to Management
At the Recapitalization Closing, the Company made short-term loans in an
aggregate principal amount of $900,000 to members of the Company's senior
management to purchase equity interests in Niles L.L.C., an indirect minority
shareholder of Holdings, in accordance with the terms of certain promissory
notes, with proceeds from the debt portion of the Financings. The principal
amounts of the loans to Messrs. Erwin, Smith, Kerrick, Niespodiziani, Doolan,
Maddock, Norridge and Ditkof are $250,000, $110,000, $70,000, $70,000, $100,000,
$125,000, $125,000 and $50,000, respectively. In the case of Messrs. Erwin,
Smith and Doolan, the principal amount of the notes will be payable in part upon
their receipt of their respective Divestiture Bonuses (which is expected to
occur within six months of the Recapitalization Closing) and in part upon
payment of previously deferred amounts from the Harnischfeger Rabbi Trust or on
March 30, 1999 (whichever is earlier). In the case of Messrs. Kerrick,
Niespodziani, Maddock, Norridge and Ditkof, the principal amount of the notes
will be payable as a lump sum upon their receipt of their respective Divestiture
Bonuses (which is expected to occur within six months of the Recapitalization
Closing). Interest on each of the notes, at a rate per annum equal at all times
to the Federal Short-Term Rate in effect from time to time, from the date of
issuance until such note is repaid in full will be payable in arrears as a lump
sum on the date the remaining unpaid principal amount of such note is due in
full. The principal amounts of the loans and interest thereon will be payable in
full in the event the executive ceases to be employed by the Company as a result
of termination for Cause (as defined therein), or by reason of the executive's
death or resignation for other than Good Reason (as defined therein), or upon an
Event of Default (as defined therein). As collateral for the notes, each of the
executives granted to the Company a security interest in the equity interests in
Niles L.L.C. each of them acquired with the proceeds of the loans, in their
respective Divestiture Bonuses and in any proceeds therefrom.
Chartwell Financial Advisory Agreement
The Company entered into an agreement with Chartwell Investments Inc.,
providing for the payment of fees and reimbursement of expenses to Chartwell
Investments Inc. for acting as financial advisor with respect to the
Transactions, including soliciting, structuring and arranging the financing of
the Transactions. The fees, totaling $5.0 million, equal to 1% of the
consolidated capitalization of Holdings and the reimbursement of expenses, were
paid at the Recapitalization Closing. Mr. Berman and Mr. Shein are,
respectively, Chairman of the Board and a director of each of Holdings and the
Company and both are officers and directors of Chartwell Investments Inc.
Chartwell Management Consulting Agreement
The Company has entered into a management consulting agreement with
Chartwell Investments Inc. pursuant to which Chartwell Investments Inc. provides
the Company with certain management, advisory and consulting services for a fee
of $1.0 million for each fiscal year of the Company during the term of the
agreement, plus reimbursement of expenses. The term of the management consulting
agreement is 10 years commencing at the Recapitalization Closing and is
renewable for additional one year periods unless the Board of Directors of the
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Company gives prior written notice of non-renewal to Chartwell Investments Inc.
Mr. Berman and Mr. Shein are, respectively, Chairman of the Board and a director
of each of Holdings and the Company and both are officers and directors of
Chartwell Investments Inc.
DESCRIPTION OF THE NEW CREDIT FACILITY
Commitment
The Company has entered into the New Credit Facility dated March 30, 1998
with Credit Agricole Indosuez and Canadian Imperial Bank of Commerce
individually and as agents (the "Agents") for a group of lenders (the
"Lenders"), pursuant to which the Company has a $70.0 million Revolving Credit
Facility, a $30.0 million Acquisition Facility, a $20.0 million Term Loan A and
a $35.0 million Term Loan B.
The New Credit Facility contains representations and warranties, funding
and yield protection provisions, conditions precedent, financial and other
covenants and restrictions, events of default and other provisions customary for
bank credit agreements of this type. The following summaries of the material
provisions of the New Credit Facility do not purport to be complete, and such
provisions, including definitions of certain terms, are qualified in their
entirety by reference to the New Credit Facility.
General
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow, subject to compliance with certain conditions, including a borrowing
base test, up to $70.0 million (of which $15.0 million is required under the
Note Indenture to be reserved for issuance of letters of credit) at any time
until the fifth anniversary of the Recapitalization Closing, the proceeds of
which may be used for working capital, acquisitions and other corporate
purposes. Up to $20.0 million of the Revolving Credit Facility (of which $15.0
million would not be subject to a borrowing base) is available for the issuance
of standby and documentary letters of credit. The Acquisition Facility, the
proceeds of which will be used for acquisitions, permits the Company to borrow,
subject to compliance with certain conditions, up to $30.0 million at any time
until the third anniversary, and to repay the same in installments on or prior
to the seventh anniversary, of the Recapitalization Closing. Term Loan A is
repayable in 20 quarterly installments, commencing on June 30, 1998, and Term
Loan B is repayable in 28 quarterly installments commencing on June 30, 1998.
Mandatory Prepayments
The Company is required to make mandatory prepayments in an amount equal
to 50% of excess cash flow after permitted capital expenditures for the first
fiscal year after the Recapitalization Closing and 75% thereafter, subject to
reduction thereafter based on the ratio of total debt to EBITDA. In addition,
the Company is required to make mandatory prepayments in the amount of 100% of
net proceeds from certain assets sales, equity issuances, certain permitted new
debt issuances and insurance claims not reinvested. The Company is permitted to
make voluntary prepayments at any time.
Interest Rate and Fees
Borrowings under the Revolving Credit Facility and Term Loan A bear
interest at floating rates equal to: (i) 0.75% per annum over the higher of
the Agents' base rate or the Federal Funds Rate plus 0.50%; or (ii) 2.25% per
annum over the Eurodollar Rate. Borrowings under Term Loan B and the
Acquisition Facility bear interest at rates equal to: (i) 1.25% per annum
over the higher of the Agents' base rate or the Federal Funds Rate plus
0.50%; or (ii) 2.75% per annum over the Eurodollar Rate. Eurodollar Rates
will be calculated for interest periods of one, two, three or six months, as
applicable.
The New Credit Facility provides that the Company is to pay certain fees
and commissions to the Agents and Lenders, including an annual administrative
fee, a Revolving Credit Facility and Acquisition Facility unused commitment fee
and letter of credit fee.
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Amortization
Aggregate yearly term loan principal payments under the New Credit
Facility are as follows: (i) $675,000 in fiscal 1998; (ii) $2,100,000 in fiscal
1999; (iii) $3,600,000 in fiscal 2000 (iv) $5,100,000 in fiscal 2001; (v)
$6,600,000 in fiscal 2002; (vi) $11,988,000 in fiscal 2003; (vii) $16,625,000 in
fiscal 2004 and (viii) $8,313,000 in fiscal 2005.
Guarantees and Security
Borrowings under the New Credit Facility are (i) secured by substantially
all of the present and future assets of the Company and its subsidiaries located
in the United States and the United Kingdom, certain of the Company's
subsidiaries' present and future assets located in Canada and by a pledge of all
of the issued and outstanding shares of capital stock of the Company and its
current and future subsidiaries and (ii) guaranteed by Holdings and
substantially all of the Company's subsidiaries.
Covenants; Events of Default
The New Credit Facility contains a number of customary covenants,
including, among other things (i) prohibitions and/or limitations on the
incurrence of debt, liens, payment of dividends, redemption of securities,
investments, transactions with affiliates, mergers, acquisitions and asset
dispositions and (ii) financial covenants, including interest coverage,
leverage and capital expenditures. The financial covenants require, among
other things, that (i) the Company's ratio of EBITDA to interest expense not
be less than certain specified ratios ranging from 1.35 to 1 for the 12
months ending July 31, 1998 to 2.0 to 1 for the 12 months ending January 31,
2005, (ii) the Company's ratio of Indebtedness for borrowed money to EBITDA
not be less than certain specified ratios ranging from 6.75 to 1 for the 12
months ended October 31, 1998 to 4.0 to 1 for the 12 months ended January 31,
2005, (iii) the Company's ratio of EBITDA less capital expenditures to
interest expense not be less than certain specified ratios ranging from 1.05
to 1 for the 12 months ending July 31, 1998 to 1.1 to 1 for the 12 months
ending January 31, 2005, and (iv) the Company maintain EBITDA at certain
minimum levels, ranging from $39.5 million for the 12 months ending October
31, 1998 to $61.0 million for the 12 months ending January 31, 2005. The New
Credit Facility also contains customary events of default, including a change
of control (which is defined to include the definition of Change of Control
in the Indenture).
Conditions
The New Credit Facility contains a number of conditions to any subsequent
funding by the Lenders, including, among other things, satisfactory appraisals
and environmental reports and the Company's entry into interest rate protection
agreements satisfactory to the Agents.
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DESCRIPTION OF THE SURETY ARRANGEMENT
The Company has entered into the Surety Arrangement dated March 30, 1998
with Reliance Insurance Company and certain of its affiliates (collectively,
"Reliance") pursuant to which Reliance will provide up to $60.0 million of bid
bond, completion bond, warranty and other bonds on behalf of the Company, which
bonds will guarantee the obligations of the Company under bid and contract
arrangements with potential and existing customers of the Company. The Surety
Arrangement provides that the Company will reimburse Reliance for any payments
made by Reliance with respect to bonds issued by it.
Collateral for the surety lien will be a letter of credit issued pursuant
to the New Credit Facility and by a pledge of certain assets of the Company.
Obligations under the Surety Arrangement rank pari passu with the Notes.
THE SENIOR NOTE OFFERING
Concurrently with the Offering, MMH sold, on March 30, 1998, $200,000,000
principal amount of its 9 1/2% Senior Notes due 2008.
General. Interest accrues on the Senior Notes from March 30, 1998, the
date of issuance of the Senior Notes (the "Senior Notes Issue Date"), and is
payable semi-annually on each April 1 and October 1, commencing October 1,
1998. The Senior Notes will mature on April 1, 2008. The Senior Notes are
senior unsecured obligations of the Company and rank pari passu in right of
payment with all existing and future unsubordinated obligations of the
Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company.
Guarantees. The Senior Notes are unconditionally guaranteed on a senior
unsecured basis, as to payment of principal, premium, if any, and interest,
jointly and severally, by substantially all of the Company's subsidiaries
(the "Guarantors"). Each guarantee ranks pari passu with all existing and
future senior indebtedness of such Guarantor.
Optional Redemption. The Senior Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after April 1, 2003 at
the redemption prices set forth in the Note Indenture under which the Senior
Notes were issued, plus accrued and unpaid interest thereon to the redemption
date. In addition, the Company may redeem in the aggregate up to 35% of the
original principal amount of the Senior Notes at any time and from time to
time prior to April 1, 2001, at a redemption price equal to 109.5% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon
to the redemption date, with the net proceeds of one or more public equity
offerings; provided, that at least $130.0 million aggregate principal amount
of the Senior Notes originally issued remain outstanding immediately after
the occurrence of any such redemption and that any such redemption occurs
within 90 days following the closing of any such public equity offering.
Change of Control. Upon the occurrence of a change of control, the
Company will be required to make an offer to purchase all outstanding Senior
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon to the purchase date.
Covenants. The Note Indenture contains covenants for the benefit of the
holders of the Senior Notes that, among other things, restrict the ability of
the Company and its restricted subsidiaries to: (i) incur additional
indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of
subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi)
create liens; (vii) enter into transactions with affiliates; (viii) enter
into sale and leaseback transactions; (ix) create dividend or other payment
restrictions affecting Restricted Subsidiaries; (x) merge or consolidate in a
transaction involving all or substantially all of the assets of the Company
and its restricted subsidiaries, taken as a whole; and (xi) transfer or sell
assets. These covenants are subject to a number of important exceptions.
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Asset Sale Proceeds. The Company will be obligated in certain instances
to make offers to purchase the Senior Notes at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued and unpaid interest to
the date of purchase with the net cash proceeds of certain asset sales.
Exchange Offer, Registration Rights. Pursuant to a registration rights
agreement, the Company and the Guarantors must use their best efforts to file
within 60 days and cause to become effective within 135 days of the Senior
Notes Issue Date an exchange offer registration statement (the "Senior Notes
Exchange Offer Registration Statement") with respect to an offer to exchange
the Senior Notes (the "Senior Notes Exchange Offer") for senior notes of the
Company with terms substantially identical to the Senior Notes. In addition,
under certain circumstances the Company and the Guarantors may be required to
file a shelf registration statement (the "Senior Notes Shelf Registration
Statement"). Among other provisions, in the event that (i) the Senior Notes
Exchange Offer Registration Statement or the Senior Notes Shelf Registration
Statement has not been filed with the Commission within 60 days after the
Senior Notes Issue Date, (ii) the Senior Notes Exchange Offer Registration
Statement or the Senior Notes Shelf Registration Statement is not declared
effective within 135 days after the Senior Notes Issue Date, or (iii) the
Senior Notes Exchange Offer is not consummated within 45 days after the
Senior Notes Exchange Offer Registration Statement is declared effective
(each event referred to in clauses (i) through (iii) above is a "Senior Notes
Registration Default"), the sole remedy available to holders of the Senior
Notes will be the immediate assessment of additional interest ("Additional
Interest") as follows: the per annum interest rate on the Senior Notes will
increase by 50 basis points, and the per annum interest rate will increase by
an additional 25 basis points for each subsequent 90-day period during which
the Senior Notes Registration Default remains uncured, up to a maximum
additional interest rate of 200 basis points per year in excess of the
interest rate set forth on the cover page hereof. All Additional Interest
will be payable to holders of the Senior Notes in cash on each interest
payment date, commencing with the first such date occurring after any such
Additional Interest commences to accrue. On the date on which such Senior
Notes Registration Default is cured, the interest rate on the Senior Notes
will revert to the interest rate originally borne by the Senior Notes.
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DESCRIPTION OF NEW SERIES A SENIOR
PREFERRED STOCK AND EXCHANGE DEBENTURES
The New Series A Senior Preferred Stock
The following is a summary of the material terms and provisions of the
New Series A Senior Preferred Stock to be issued by Holdings in exchange for
the Old Series A Senior Preferred Stock in the Exchange Offer. This summary
does not purport to be a complete description of the New Series A Senior
Preferred Stock and is subject to the detailed provisions of, and qualified
in its entirety by reference to, the provisions of the Second Amended and
Restated Certificate of Incorporation of the Issuer and the Certificate of
Designations establishing the powers, preferences and relative,
participating, optional and other special rights of the Series A Senior
Preferred Stock (collectively, the "Restated Certificate"). The form of the
Restated Certificate is filed as an Exhibit to the Registration Statement of
which this Prospectus is a part and a copy may be obtained from the Issuer by
a holder or prospective investor upon request. Definitions relating to
certain capitalized terms are set forth under "--Certain Definitions" and
throughout this description. Capitalized terms that are used but not
otherwise defined herein have the meanings assigned to them in the Restated
Certificate and such definitions are incorporated herein by reference. For
purposes of this section, references to the "Issuer" mean MMH Holdings, Inc.,
excluding its Subsidiaries, references to the "Company" mean Morris Material
Handling, Inc., excluding its Subsidiaries, and references to Surety
Arrangements refer to all such arrangements as defined in this section
including those described in "Description of the Surety Arrangement."
General
The Old Series A Senior Preferred Stock was issued, and the New Series
A Senior Preferred Stock will be issued, pursuant to the terms of the
Restated Certificate. The shares of New Series A Senior Preferred Stock will
be issued solely in exchange for an equal liquidation preference of the
outstanding shares of Old Series A Senior Preferred Stock pursuant to the
Exchange Offer. The terms of the New Series A Senior Preferred Stock will be
identical in all material respects to the form and terms of the Old Series A
Senior Preferred Stock except that: (i) the shares of New Series A Senior
Preferred Stock will have been registered under the Securities Act and will
generally be freely transferable by holders thereof who are not a Restricted
Holder; and (ii) the registration rights and contingent interest rate
provisions applicable to the shares of Old Series A Senior Preferred Stock
are generally not applicable to the New Series A Senior Preferred Stock.
The Issuer is authorized to issue 500,000 shares of preferred stock,
$0.01 par value per share. The Restated Certificate of the Issuer authorizes
its Board of Directors, without stockholder approval, to issue classes of
preferred stock from time to time in one or more series, with such
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions as may be
determined by the Board of Directors of the Issuer, subject to certain
limitations. See "--Ranking." The Board of Directors of the Issuer has
adopted resolutions creating a maximum of 120,000 shares of Series A Senior
Preferred Stock and the Issuer has filed the Restated Certificate with the
Secretary of State of the State of Delaware as required by Delaware law. Of
the 120,000 authorized shares of Series A Senior Preferred Stock, 57,710
shares were issued in the Series A Unit Offering and may be reissued in the
Exchange Offer, and 62,290 shares of Series A Senior Preferred Stock are
reserved for issuance as dividends in the event the Issuer elects to pay
dividends on the Series A Senior Preferred Stock by issuing additional shares
of Series A Senior Preferred Stock. See "--Dividends" below. Subject to
certain conditions, the New Series A Senior Preferred Stock is exchangeable
for Exchange Debentures at the option of the Issuer on any dividend payment
date. The New Series A Senior Preferred Stock, when issued in accordance with
the terms and conditions of the Exchange Offer, will be fully paid and
nonassessable, and the holders thereof will not have any subscription or
preemptive rights.
Ranking
The New Series A Senior Preferred Stock will, with respect to dividend
distributions and distributions upon the liquidation, dissolution or
winding-up of the Issuer, (i) rank senior to all classes of Common Stock of
the Issuer and to each other class of Capital Stock or series of Preferred
Stock existing on or established after the Issue Date, including, without
limitation, Junior Capital Stock and (ii) on a parity with the Old Series A
Senior Preferred Stock, if any is not exchanged in the Exchange Offer. The
Issuer may not issue (i) any class or series of Capital Stock ranking senior
to or on a parity with the Series A Senior Preferred Stock (or amend the
provisions of any existing
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class of Capital Stock or series of Preferred Stock to make such class or
series rank senior to or on a parity with the Series A Senior Preferred
Stock) with respect to dividends or distributions upon liquidation,
dissolution or winding-up of the Issuer; provided, that the Issuer can issue,
from time to time, additional shares of Series A Senior Preferred Stock to
satisfy dividend payments on outstanding shares of Series A Senior Preferred
Stock; or (ii) any shares of Series B Junior Preferred Stock (other than
shares of Series B Junior Preferred Stock issued on the Issue Date and shares
of Series B Junior Preferred Stock issued as dividends thereon), in each
case, without the approval of the holders of at least a majority of the
shares of Series A Senior Preferred Stock then outstanding, voting or
consenting, as the case may be, together as one class.
Dividends
Holders of the New Series A Senior Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Issuer,
out of funds legally available therefor, dividends on the New Series A Senior
Preferred Stock at a rate per annum equal to 12% of the liquidation
preference per share of New Series A Senior Preferred Stock, payable
semiannually. All dividends will be cumulative, whether or not earned or
declared, on a daily basis from the Issue Date and will be payable
semiannually in arrears on April 1 and October 1 of each year, commencing on
October 1, 1998, to holders of record on the March 15 and September 15
immediately preceding the relevant dividend payment date. Dividends may be
paid, at the Issuer's option, on any dividend payment date occurring on or
prior to April 1, 2003 either in cash or by the issuance of additional shares
of New Series A Senior Preferred Stock (and, at the Issuer's option, payment
of a whole share (after rounding up) or cash in lieu of a fractional share)
having an aggregate liquidation preference equal to the amount of such
dividends. In the event that on or prior to April 1, 2003, dividends are
declared and paid through the issuance of additional shares of New Series A
Senior Preferred Stock, as provided in the previous sentence, such dividends
shall be deemed paid in full and will not accumulate. After April 1, 2003,
dividends must be paid in cash. The Restated Certificate prohibits the Issuer
from paying dividends in cash on any Junior Capital Stock unless dividends on
the Series A Senior Preferred Stock were paid in cash when required to be so
paid. In addition, the Restated Certificate prohibits the Issuer from paying
dividends in cash on any Junior Capital Stock during any period when cash
dividends (whether or not required to be paid) are not paid on the Series A
Senior Preferred Stock. The Indenture and the New Credit Facility restrict
the Company's and its Subsidiaries' ability to pay cash dividends on their
Capital Stock to the Issuer and will prohibit such payments in certain
instances and future agreements may provide the same. See "The Senior Note
Offering" and "Description of the New Credit Facility."
Unpaid dividends accumulating after April 1, 2003 on the New Series A
Senior Preferred Stock for any past dividend period and dividends in connection
with any optional redemption may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not more than 45 days prior to the payment thereof, as may be fixed by the
Board of Directors of the Issuer.
Redemption
Optional Redemption. The New Series A Senior Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect thereto and
to the legal availability of funds therefor) at any time or from time to time on
or after April 1, 2003, in whole or in part, at the option of the Issuer, at the
redemption prices (expressed in percentages of the then effective liquidation
preference thereof) set forth below, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date to the redemption date), if redeemed
during the 12-month period beginning on April 1 of each of the years set forth
below:
Year Percentage
- ---- ----------
2003............................................................. 106.000%
2004............................................................. 104.000%
2005............................................................. 102.000%
2006 and thereafter.............................................. 100.000%
Notwithstanding the foregoing, the Issuer may redeem in the aggregate all,
but not less than all, of the New Series A Senior Preferred Stock then
outstanding, at any time prior to April 1, 2001, at a redemption price equal to
112.000% of the then effective liquidation preference thereof, plus, without
duplication, an amount in cash equal to
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all accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the dividend payment date immediately
prior to the redemption date to the redemption date) out of the Net Proceeds
of one or more Public Equity Offerings; provided, that any such redemption
occurs within 90 days following the closing of any such Public Equity
Offering.
Mandatory Redemption. The New Series A Senior Preferred Stock will also be
subject to mandatory redemption (subject to contractual and other restrictions
with respect thereto and to the legal availability of funds therefor) in whole
on April 1, 2009 at a price equal to 100% of the liquidation preference thereof,
payable in cash, plus, without duplication, all accumulated and unpaid
dividends, which will also be paid in cash (whether or not otherwise payable in
cash) to the date of redemption.
In the event of redemption of fewer than all of the outstanding shares of
New Series A Senior Preferred Stock, the New Series A Senior Preferred Stock
will be redeemed on a pro rata basis, except that the Issuer may redeem such
shares held by holders of fewer than ten shares (or shares held by holders who
would hold less than ten shares as a result of such redemption). The New Series
A Senior Preferred Stock will be redeemable upon not less than 30 nor more than
60 days' prior written notice, mailed by first class mail to a holder's last
address as it shall appear on the register maintained by the Exchange Agent of
the New Series A Senior Preferred Stock. On and after any redemption date,
dividends will cease to accumulate on the New Series A Senior Preferred Stock or
portions thereof called for redemption unless the Issuer shall fail to redeem
any such New Series A Senior Preferred Stock. The Note Indenture and the New
Credit Facility restrict the ability of the Issuer to redeem the New Series A
Senior Preferred Stock and will prohibit any such redemption in certain
instances.
Exchange
The Issuer may at its option on any dividend payment date exchange, in
whole but not in part, the then outstanding shares of New Series A Senior
Preferred Stock for Exchange Debentures (including any shares of New Series A
Senior Preferred Stock issuable on such dividend payment date on the then
outstanding shares of New Series A Senior Preferred Stock); provided, that (i)
on the date of such exchange there are no accumulated and unpaid dividends on
the New Series A Senior Preferred Stock (including the dividend payable on such
date) or contractual impediments to such exchange; (ii) there shall be legally
available funds sufficient therefor; (iii) immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the Exchange
Indenture) would exist under the Exchange Indenture as if the Exchange Indenture
had been in effect as of the Issue Date and no default or event of default under
any other material instrument governing Indebtedness outstanding at the time of
such exchange would be caused thereby; and (iv) the Exchange Indenture has been
qualified under the Trust Indenture Act, if such qualification is required at
the time of exchange.
The Issuer will comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
The holders of outstanding shares of New Series A Senior Preferred
Stock will be entitled to receive, subject to the second succeeding sentence,
$1.00 principal amount of Exchange Debentures for each $1.00 liquidation
preference of New Series A Senior Preferred Stock held by them. The Exchange
Debentures will be issued in registered form, without coupons. Exchange
Debentures issued in exchange for New Series A Senior Preferred Stock will be
issued in principal amounts of $1,000 and integral multiples thereof to the
extent possible, and will also be issued in principal amounts less than
$1,000 so that each holder of New Series A Senior Preferred Stock will
receive certificates representing the entire amount of Exchange Debentures to
which such holder's shares of New Series A Senior Preferred Stock entitle
such holder; provided that the Issuer may pay cash in lieu of issuing an
Exchange Debenture in a principal amount less than $1,000. The Issuer will
send a written notice of exchange by mail to each holder of record of shares
of New Series A Senior Preferred Stock not less than 30 nor more than 60 days
before the date fixed for such exchange. On and after the exchange date,
dividends will cease to accumulate on the outstanding shares of New Series A
Senior Preferred Stock, and all rights of the holders of New Series A Senior
Preferred Stock (except the right to receive the Exchange Debentures, an
amount in cash equal to the accumulated and unpaid dividends to the exchange
date and, if the Issuer so elects, cash in lieu of any Exchange Debenture
which is in an amount that is not an integral multiple of $1,000) will
terminate. The person entitled to receive the Exchange Debentures issuable
upon such exchange will be treated for all purposes as the registered holder
of such Exchange Debentures. See "--The Exchange Debentures."
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Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Issuer, holders of shares of New Series A Senior Preferred Stock then
outstanding will initially be entitled to be paid, out of the assets of the
Issuer available for distribution, $1,000 per share, plus, without duplication,
an amount in cash equal to accumulated and unpaid dividends thereon to the date
fixed for liquidation, dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the immediately preceding dividend payment
date to the date fixed for liquidation, dissolution or winding-up), before any
distribution is made on any Junior Capital Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Issuer, the amounts
payable with respect to the New Series A Senior Preferred Stock (and the Old
Series A Senior Preferred Stock, if any is not exchanged in the Exchange Offer)
are not paid in full, the holders of the Series A Senior Preferred Stock will
share equally and ratably in any distribution of assets of the Issuer first in
proportion to the full liquidation preference to which each is entitled until
such preferences are paid in full, and then in proportion to their respective
amounts of accumulated but unpaid dividends. After payment of the full amount of
the liquidation preference and accumulated and unpaid dividends to which they
are entitled, the holders of shares of New Series A Senior Preferred Stock will
not be entitled to any further participation in any distribution of assets of
the Issuer. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Issuer nor the consolidation
or merger of the Issuer with one or more entities shall be deemed to be a
liquidation, dissolution or winding-up of the Issuer.
Voting Rights
Holders of the Series A Senior Preferred Stock will have no voting
rights with respect to general corporate matters except as provided by
Delaware law or as set forth in the Restated Certificate. The Restated
Certificate provides that if (i) after April 1, 2003, cash dividends on the
Series A Senior Preferred Stock are in arrears and unpaid for two or more
semiannual dividend periods (whether or not consecutive); (ii) the Issuer
fails to redeem the Series A Senior Preferred Stock on or before April 1,
2009; (iii) the Issuer fails to make or consummate a Change of Control Offer
in the event of a Change of Control; or (iv) a breach or violation of any of
the provisions described under the captions "--Certain Covenants," "--Merger,
Consolidation or Sale of Assets" or "Reports to Holders" below occurs, which
breach or violation continues for a period of 60 days or more after the
Issuer receives notice thereof specifying the default from the holders of at
least 25% of the then outstanding shares of Series A Senior Preferred Stock;
then the number of directors constituting the Board of Directors of the
Issuer will be adjusted to permit the holders of a majority of the aggregate
outstanding shares of Series A Senior Preferred Stock and Series B Junior
Preferred Stock (to the extent there exists a voting rights triggering event
with respect to the certificate of designations therefor), voting as a single
class, to elect the lesser of two directors and that number of directors
constituting at least 25% of the members of the Board of Directors of the
Issuer until such time as, in the case of a dividend default, all accumulated
and unpaid dividends on the Series A Senior Preferred Stock have been fully
paid in cash and, in all other cases, any failure, breach or default giving
rise to such voting rights is remedied, cured or waived by the holders of at
least a majority of the then outstanding shares of the Series A Senior
Preferred Stock and, with respect to a voting rights triggering event
relating to the Series B Junior Preferred Stock, the Series A Senior
Preferred Stock and the Series B Junior Preferred Stock, voting as a single
class, at which time the term of any directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (i) through (iv) above is referred to herein as a "Voting Rights
Triggering Event"; provided, that if the Issuer breaches or violates more
than one of the provisions constituting a Voting Rights Triggering Event, all
such breaches or violations shall not constitute more than one Voting Rights
Triggering Event. In addition, upon the occurrence and during the continuance
of a Voting Rights Triggering Event described in clause (iii) above, the per
annum dividend rate on the Series A Senior Preferred Stock will increase by
400 basis points per annum ("Special Dividends") in excess of the dividend
rate originally borne by the Series A Senior Preferred Stock as set forth
under "--Dividends." Except as set forth in the immediately preceding
sentence, the voting rights provided above shall be the holder's exclusive
remedy at law or in equity.
The Restated Certificate provides that the Issuer will not authorize any
additional shares of Series A Senior Preferred Stock or any class or series of
capital stock ranking prior to or on a parity with the Series A Senior Preferred
Stock with respect to dividend distributions or distributions upon liquidation,
dissolution or winding-up without the affirmative vote or consent of holders of
at least a majority of the then outstanding shares of Series A Senior Preferred
Stock of the Issuer which are entitled to vote thereon, voting or consenting, as
the case may be, as one class. The Restated Certificate also provides that the
Issuer may not amend the Restated Certificate so as to
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affect adversely the specified rights, preferences, privileges or voting
rights of the holders of shares of Series A Senior Preferred Stock, without
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of Series A Senior Preferred Stock which are entitled
to vote thereon, voting or consenting, as the case may be, as one class;
provided, that any increase in the amount of authorized preferred stock or
the creation and issuance (other than the Series A Senior Preferred Stock and
Series B Junior Preferred Stock as provided under "--Ranking") of any other
class of preferred stock or any increase in the amount of authorized shares
of such class or any other class of Junior Capital Stock, including Junior
Capital Stock which is preferred stock, will not be deemed to affect
adversely such rights, preferences or voting powers.
Under Delaware state law, holders of Series A Senior Preferred Stock,
under certain circumstances, are entitled to vote as a class upon a proposed
amendment to the certificate of incorporation of the Issuer, whether or not
entitled to vote thereon by the certificate of incorporation, if the amendment
would alter or change the powers, preferences, or special rights of the shares
of such class so as to affect them adversely.
Certain Covenants
The Restated Certificate contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Issuer will not, and will not cause or permit any Restricted
Subsidiary of the Issuer to, directly or indirectly, incur (as defined) any
Indebtedness (including any Acquired Indebtedness); provided, that if no Voting
Rights Triggering Event shall have occurred and be continuing at the time or as
a consequence of the incurrence of such Indebtedness, the Issuer or any
Restricted Subsidiary may incur Indebtedness (including any Acquired
Indebtedness) if the Issuer's Consolidated Interest Coverage Ratio is greater
than 2.0 to 1.
Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Issuer will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment after the
Issue Date, unless:
a) no Voting Rights Triggering Event shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
b) immediately after giving pro forma effect to such Restricted
Payment, the Issuer could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under "--Limitation on Additional
Indebtedness" covenant above; and
c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum (without duplication) of (1) 50% of the cumulative
Consolidated Net Income of the Issuer (or minus 100% of any cumulative
deficit in Consolidated Net Income) for the period (treated as one
accounting period) from the first day of the fiscal quarter in which the
Issue Date occurs through the last day of the fiscal quarter immediately
preceding such Restricted Payment, (2) 100% of the aggregate Net Proceeds
in cash received by the Issuer from the issuance or sale, after the Issue
Date (other than to a Restricted Subsidiary), of (A) Junior Capital Stock
(other than Disqualified Capital Stock) of the Issuer or (B) any
Indebtedness or other securities of the Issuer that are convertible into
or exercisable or exchangeable for Junior Capital Stock (other than
Disqualified Capital Stock) of the Issuer which have been so converted or
exercised or exchanged (other than by a Restricted Subsidiary of the
Issuer) and (3) 100% of the net reduction in Investments (other than
Permitted Investments), subsequent to the Issue Date, in any Person,
resulting from payments of interest on Indebtedness, dividends, repayments
of loans or advances or other transfers or distributions of Property or
return of capital (but only to the extent such interest, dividends or
repayments or other transfers or distributions of Property or return of
capital are not included in the calculation of Consolidated Net Income),
in each case, to the Issuer or any Restricted Subsidiary from any Person
(including Unrestricted Subsidiaries) or from redesignations (the
designation of which did not constitute a Permitted Investment) of
Unrestricted Subsidiaries as Restricted Subsidiaries in accordance with
the Restated
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Certificate, not to exceed in the case of any Person the
amount of Investments (other than Permitted Investments) previously made
by the Issuer or any Restricted Subsidiary in such Person. For purposes of
determining the amount expended for Restricted Payments under this clause
(c), Property other than cash (including a distribution of assets) shall
be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit:
(i) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the Restated Certificate;
(ii) the retirement of any shares of Junior Capital Stock of the
Issuer by conversion into, or by or in exchange for, shares of Junior
Capital Stock (other than Disqualified Capital Stock) of the Issuer, or
out of, the Net Proceeds of the substantially concurrent sale (other than
to a Restricted Subsidiary of the Issuer) of other shares of Junior
Capital Stock of the Issuer (other than Disqualified Capital Stock)
provided, that any such Net Proceeds are excluded from clause (c)(2) of
the immediately preceding paragraph for the purposes of this calculation
(and were not included therein at any time);
(iii) the retirement of any shares of Junior Capital Stock that is
Disqualified Capital Stock by conversion into, or by exchange for, shares
of Junior Capital Stock that is Disqualified Capital Stock of the Issuer,
or out of the Net Proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary of the Issuer) of other shares of Junior
Capital Stock that are Disqualified Capital Stock of the Issuer;
(iv) payments to MHE Investments or any other Person in respect of
which MHE Investments or such other Person is a member of the consolidated
tax group of the Issuer, for so long as MHE Investments or such other
Person owns such amount of the Capital Stock of the Issuer as will permit
it or a member of the consolidated tax group of MHE Investments or such
other Person to be entitled to file consolidated federal tax returns with
the Issuer, for income taxes pursuant to the Tax Allocation Agreement or
for the purpose of enabling MHE Investments or such other Person or any
such members to pay taxes other than income taxes, to the extent actually
owed and attributable to the operations of the Issuer and its Subsidiaries
or to MHE Investments' or such other Person's ownership thereof;
(v) payments to MHE Investments, for so long as it owns not less
than a majority of the outstanding Common Stock of the Issuer, in amounts
sufficient to pay the ordinary operating and administrative expenses of
MHE Investments (including all reasonable professional fees and expenses),
including in connection with its complying with the Issuer's reporting
obligations (including filings with the Commission and any exchange on
which the Issuer's securities are traded) and obligations to prepare and
distribute business records in the
ordinary course of business and the Issuer's costs and expenses relating
to taxes, other than those referred to in clause (iv) (which taxes are
attributable to the operations of the Issuer and its Restricted
Subsidiaries or to MHE Investments' ownership thereof); provided, that the
aggregate payments paid in each fiscal year pursuant to this clause (v)
will not exceed 0.20% of the consolidated net sales of the Issuer and its
Restricted Subsidiaries for such fiscal year;
(vi) the purchase, redemption, retirement or other acquisition for
value of Capital Stock of the Issuer or of any Person that directly or
indirectly controls (as defined in the definition of Affiliate) the Issuer
held by employees or former employees of the Issuer or any Restricted
Subsidiary (or their estates or beneficiaries under their estates) upon
death, disability, retirement, termination of employment and pursuant to
the terms of any agreement under which such Capital Stock was issued,
provided, that the aggregate Fair Market Value of the consideration paid
for such purchase, redemption, retirement or other acquisition of such
Capital Stock does not exceed $500,000 in any fiscal year;
(vii) payments due under the Permitted Affiliate Agreements (other
than payments pursuant to paragraph (iv) above) that would otherwise
constitute Restricted Payments; and
(viii) payments that would otherwise constitute Restricted Payments,
not to exceed $750,000 in the aggregate;
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provided, that in calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (c) of the immediately
preceding paragraph, amounts expended pursuant to clause (i) (but only if the
declaration thereof has not been counted in a prior period), (v) (other than to
the extent otherwise reducing Consolidated Net Income), (vi) and (viii) shall be
included, without duplication, in such calculation and (ii), (iii), (iv) and
(vii) shall not be included in such calculation. Nothing in the immediately
preceding proviso is meant to affect whether any amount expended pursuant to
clause (iv) should be reflected in Consolidated Net Income. Notwithstanding any
other provision of this covenant, no dividends or distributions may be paid on
any class of Common Stock of the Issuer unless the Issuer has paid in cash all
accumulated dividends due on the two dividend payment dates on or immediately
preceding such proposed date of such dividend or distribution.
If the Issuer or any Restricted Subsidiary makes a Restricted Payment
which, at the time of the making of such Restricted Payment, in the good faith
determination of the Board of Directors of the Issuer or the Company, would be
permitted under the requirements of the Restated Certificate, such Restricted
Payment shall be deemed to have been made in compliance with the Restated
Certificate notwithstanding any subsequent adjustment made in good faith to the
Issuer's or such Restricted Subsidiary's financial statements affecting
Consolidated Net Income.
Limitation on Transactions with Affiliates
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, Property or services) with any
Affiliate (each, an "Affiliate Transaction") or extend, renew, waive or
otherwise modify the terms of any Affiliate Transaction entered into prior to
the Issue Date unless (i) such Affiliate Transaction is between or among the
Issuer and the Restricted Subsidiaries or between or among Restricted
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair to the
Issuer or such Restricted Subsidiary, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Issuer or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions) involving an amount or having a Fair Market Value in excess of $2
million which is not permitted under clause (i) of the immediately preceding
sentence, the Issuer shall first obtain a resolution of a majority of the
disinterested members of its Board of Directors which reflects the approval of
such Affiliate Transaction and a determination that such Affiliate Transaction
complies with clause (ii) of the immediately preceding sentence. In any
Affiliate Transaction (or series of related Affiliate Transactions) which
includes the payment of fees of $1 million or more to Chartwell, the Issuer
shall obtain a resolution of a majority of the disinterested members of its
Board of Directors which reflects the approval of such Affiliate Transaction. In
addition, in any Affiliate Transaction (or any series of related Affiliate
Transactions) involving an amount or having a Fair Market Value in excess of $10
million which is not permitted under clause (i) of the immediately preceding
sentence, the Issuer must obtain, prior to the consummation of the transaction
or transactions, a written opinion from a nationally recognized investment
banking firm or other expert stating that such transaction or transactions are
fair to the Issuer or such Restricted Subsidiary, as the case may be, from a
financial point of view; provided, that no such opinion shall be required in
respect of the provision of services or sales of inventory or products by the
Issuer or any of its Restricted Subsidiaries to a Joint Venture in the ordinary
course of business.
The foregoing provisions will not apply to: (i) any transaction or series
of related transactions pursuant to the terms of the Permitted Affiliate
Agreements; (ii) reasonable fees and compensation paid to and indemnity provided
on behalf of officers, directors or employees of the Issuer or any Restricted
Subsidiary of the Issuer as determined in good faith by the Issuer's Board of
Directors or senior management; (iii) any payment that would be permitted under
the first paragraph or clauses (iv) or (v) of the second paragraph of the
Limitations on Restricted Payments covenant; (iv) any Permitted Investment
(other than Permitted Investments made pursuant to clause (x) of the definition
of Permitted Investments); or (v) loans or advances to employees and officers of
the Issuer or any of its Subsidiaries in the ordinary course of business to
provide for the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the Issuer or such Subsidiary or in
connection with any relocation. The aggregate management, consulting and similar
fees paid by the Issuer or its Subsidiaries (excluding expenses and amounts paid
pursuant to the last sentence of this covenant or pursuant to clause (iii) of
this paragraph) to Chartwell shall not exceed $1 million during any fiscal year;
provided, that any such fees may accrue but shall not be paid by the Issuer at
any time after the occurrence and during the continuance of a Voting Rights
Triggering Event until such Voting Rights Triggering Event is cured, whereupon
such accrued and unpaid fees may be paid in addition to other permitted fees. In
addition, the Issuer may pay advisory fees to an Affiliate of the Issuer
(including
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Chartwell) with respect to specific transactions, provided, that such
payments would be permitted under the first paragraph of the covenant under
"--Limitation on Restricted Payments." In addition, for purposes of this
"--Limitation on Transactions with Affiliates" covenant, any transaction or
series of related transactions between the Issuer or any Restricted Subsidiary
and an Affiliate of the Issuer that is approved by a majority of the
disinterested members of its Board of Directors shall be deemed to comply with
clause (ii) of the first sentence of the preceding paragraph. Notwithstanding
the provisions of this covenant, the Issuer may pay fees and expenses to
Affiliates of the Issuer on the Issue Date in connection with the consummation
of the Transactions as described in this Prospectus.
Limitation on Preferred Stock of Restricted Subsidiaries
The Issuer will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to the Issuer or a Wholly-Owned Subsidiary), other
than Permitted Foreign Restricted Subsidiary Preferred Stock, or permit any
Person (other than the Issuer or a Wholly-Owned Subsidiary) to hold any such
Preferred Stock unless the Issuer or such Restricted Subsidiary would be
entitled to incur or assume Indebtedness under the covenant described under
"--Limitation on Additional Indebtedness" in the aggregate principal amount
equal to the aggregate liquidation value of the Preferred Stock to be issued or
so held.
Change of Control Offer
Upon the occurrence of a Change of Control, the Issuer shall be obligated
to make an offer to purchase (the "Change of Control Offer") the outstanding New
Series A Senior Preferred Stock at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the liquidation preference thereof plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends thereon (including an amount in cash equal to a prorated dividend for
the period from the immediately preceding dividend payment date to the Change of
Control Payment Date (as hereinafter defined)) in accordance with the procedures
set forth in this covenant.
Within 30 days of the occurrence of a Change of Control, the Issuer shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to each holder of New
Series A Senior Preferred Stock, at the address appearing in the register
maintained by the Exchange Agent, a notice stating:
(a) that the Change of Control Offer is being made pursuant to this
covenant and that all New Series A Senior Preferred Stock validly tendered
will be accepted for payment;
(b) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day not earlier than 30 days nor later than 60
days from the date such notice is mailed (the "Change of Control Payment
Date"));
(c) that any New Series A Senior Preferred Stock not validly
tendered will continue to accumulate dividends;
(d) that, unless the Issuer defaults in the payment of the Change of
Control Purchase Price, any New Series A Senior Preferred Stock accepted
for payment pursuant to the Change of Control Offer shall cease to
accumulate dividends after the Change of Control Payment Date;
(e) that holders accepting the offer to have their New Series A
Senior Preferred Stock purchased pursuant to a Change of Control Offer
will be required to surrender their certificates representing New Series A
Senior Preferred Stock to the Issuer at the address specified in the
notice prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(f) that holders will be entitled to withdraw their acceptance if
the Issuer receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the number of shares of New Series A Senior Preferred Stock
delivered for purchase, and a statement that such holder is withdrawing
his election to have such New Series A Senior Preferred Stock purchased;
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(g) that holders whose New Series A Senior Preferred Stock is being
purchased only in part will be issued new certificates representing the
number of shares of New Series A Senior Preferred Stock equal to the
unpurchased portion of the certificates surrendered; and
(h) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Issuer shall, to the extent
lawful, accept for payment the number of shares of New Series A Senior Preferred
Stock validly tendered pursuant to the Change of Control Offer and promptly mail
to each holder of New Series A Senior Preferred Stock so accepted payment in an
amount equal to the purchase price for such New Series A Senior Preferred Stock,
and the Issuer shall execute and issue a new New Series A Senior Preferred Stock
certificate representing the number of shares of New Series A Senior Preferred
Stock equal to any unpurchased shares represented by a certificate surrendered.
The Restated Certificate provides that if any Credit Facility is in
effect or if the Senior Notes are outstanding or if any other Indebtedness of
the Issuer or its Restricted Subsidiaries that requires a payment upon a
Change of Control is outstanding, or any amounts are owing thereunder or in
respect thereof, at the time of the occurrence of a Change of Control, prior
to the mailing of the notice to holders described in the second preceding
paragraph, but in any event within 30 days following any Change of Control,
the Issuer shall be required to (i) cause the borrowers thereunder to repay
in full all obligations under or in respect of such Credit Facility or such
other Indebtedness or offer to repay in full all obligations under or in
respect of such Credit Facility or such other Indebtedness and repay within
such 30-day period the obligations under or in respect of such Credit
Facility or such other Indebtedness of each lender who has then irrevocably
accepted such offer and cause the Company to repay within such 30-day period
in full all obligations in respect of the Senior Notes or offer to repay in
full all obligations in respect of the Senior Notes of each holder who has
then irrevocably accepted such offer or (ii) cause such borrowers and the
Company to obtain the requisite consent under such Credit Facility or such
other Indebtedness, the holders of such other Indebtedness and from the
holders of the Senior Notes, respectively, to permit the repurchase of the
New Series A Senior Preferred Stock as described above. The Issuer must first
comply with the covenant described in the preceding sentence before it shall
be required to purchase New Series A Senior Preferred Stock in the event of a
Change of Control; provided, that the Issuer's failure to comply with the
covenant described in the preceding sentence constitutes a Voting Rights
Triggering Event described in clause (iii) under "--Voting Rights" above.
There can be no assurance that the Issuer will have adequate resources to
refinance or fund the repurchase of the New Series A Senior Preferred Stock
in the event of a Change of Control. The failure of the Issuer, following a
Change of Control, to make a Change of Control Offer or to pay when due the
Change of Control Purchase Price for shares of New Series A Senior Preferred
Stock tendered in conformity with any such Change of Control Offer will give
the holders of the New Series A Senior Preferred Stock the rights described
under "--Voting Rights." As a result of the foregoing, a holder of the New
Series A Senior Preferred Stock may not be able to compel the Issuer to
purchase the New Series A Senior Preferred Stock unless the Issuer, or such
borrower or the Company is able at the time to refinance all of the
obligations under or in respect of such Credit Facility, such Senior Notes or
such other Indebtedness or obtain requisite consent thereunder.
The Restated Certificate further provides that, (A) if the Issuer has
issued any outstanding Preferred Stock (other than the Series A Senior Preferred
Stock), and the Issuer is required to make a Change of Control Offer or to make
a distribution with respect to such Preferred Stock (other than the Series A
Senior Preferred Stock) in the event of a Change of Control, the Issuer shall
not consummate any such offer or distribution with respect to such Preferred
Stock (other than the Series A Senior Preferred Stock) until such time as the
Issuer shall have paid the Change of Control Purchase Price in full to the
holders of Series A Senior Preferred Stock that have validly accepted the
Issuer's Change of Control Offer and shall otherwise have consummated the Change
of Control Offer made to holders of the Series A Senior Preferred Stock and (B)
the Issuer will not issue Preferred Stock with change of control provisions
requiring the payment of such Preferred Stock prior to the payment of the Series
A Senior Preferred Stock in the event of a Change in Control under the Restated
Certificate.
In the event that a Change of Control occurs and the holders of Series A
Senior Preferred Stock exercise their right to require the Issuer to purchase
Series A Senior Preferred Stock, if such purchase constitutes a "tender offer"
for purposes of Rule l4e-1 under the Exchange Act at that time, the Issuer will
comply with the requirements of Rule l4e-1 as then in effect with respect to
such repurchase.
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The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes such Change of Control Offer
contemporaneously with or upon a Change of Control in the manner, at the times
and otherwise in compliance with the requirements of the Restated Certificate
and purchases all Series A Senior Preferred Stock validly tendered and not
withdrawn under such Change of Control Offer.
Merger, Consolidation or Sale of Assets
The Issuer will not consolidate or merge with or into any Person, or
sell, assign, lease, convey or otherwise dispose of (or cause or permit any
of its Restricted Subsidiaries to sell, assign, lease, convey or otherwise
dispose of (however effected, including, without limitation, by merger or
consolidation)) all or substantially all of the Issuer's assets (determined
on a consolidated basis for the Issuer and its Restricted Subsidiaries),
whether as an entirety or substantially an entirety in one transaction or a
series of related transactions, including by way of liquidation or
dissolution, to any Person unless, in each such case: (i)(x) the Issuer shall
be the continuing Person, or (y) the Person (if other than the Issuer) formed
by such consolidation or into which the Issuer or the Restricted Subsidiary,
as the case may be, is merged or to which the Properties and assets of the
Issuer or any Restricted Subsidiary, as the case may be, are transferred
(such Person, the "Surviving Entity") (1) shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and (2) the New Series A Senior Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor,
transferee or resulting Person, having in respect of such successor,
transferee or resulting Person the same powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the New Series A Senior Preferred
Stock had immediately prior to such transaction; (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred in connection
with or in respect of the transaction), no Voting Rights Triggering Event
shall have occurred and be continuing; and (iii) immediately after giving
effect to such transaction on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions)
the Issuer (or the Surviving Entity if the Issuer is not continuing) (A)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Issuer immediately prior to such transaction and (B) could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the covenant set forth under "--Certain
Covenants--Limitation on Additional Indebtedness" above; provided, that a
Restricted Subsidiary may merge with and into the Issuer without complying
with this clause (iii)(B).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the Properties or assets of one or more Subsidiaries of the
Issuer, the Capital Stock of which constitutes all or substantially all of the
Properties and assets of the Issuer, shall be deemed to be the transfer of all
or substantially all of the assets of the Issuer. In addition, the phrase "all
or substantially all" of the assets of the Issuer will likely be interpreted
under applicable law and will be dependent upon particular facts and
circumstances. As a result, there may be a degree of uncertainty in ascertaining
whether a sale or transfer of "all or substantially all" of the assets of the
Issuer or any Restricted Subsidiary has occurred.
For all purposes of the Restated Certificate and the New Series A Senior
Preferred Stock, Subsidiaries of any Surviving Entity will, upon such
transaction or series of transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries, to the extent and as provided pursuant to the
Restated Certificate.
Exchange Agent and Registrar
United States Trust Company of New York is the exchange agent (the
"Exchange Agent") and registrar for the New Series A Senior Preferred Stock.
Reports to Holders
The Restated Certificate provides that whether or not required by the
rules and regulations of the Commission, so long as any shares of Series A
Senior Preferred Stock are outstanding, the Issuer shall furnish to the holders
of the Series A Senior Preferred Stock within 10 days after it is or would have
been required to file them with the Commission, (i) all annual and quarterly
financial information that would be required to be contained in a filing with
the Commission on Forms 10-K and 10-Q (without exhibits) if the Issuer were
required to file such forms, including a section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
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Operations" and, with respect to the annual information only, a report
thereon by the Issuer's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on
Form 8-K (without exhibits) if the Issuer were required to file such reports.
In addition, whether or not required by the rules and regulations of the
Commission, the Issuer will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing). In addition, the Issuer shall furnish to the holders
of the Series A Senior Preferred Stock and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144(d)(4) under the Securities Act and the
exhibits omitted from the information furnished pursuant to the preceding
sentence, for so long as the Series A Senior Preferred Stock is not freely
transferable under the Securities Act.
The Exchange Debentures
The Exchange Debentures, if issued, will be issued under an Indenture
(the "Exchange Indenture"), among the Issuer and United States Trust Company
of New York, as Trustee (the "Debenture Trustee"). The terms of the Exchange
Debentures include those stated in the Exchange Indenture and those made a
part of the Exchange Indenture by reference to the Trust Indenture Act as in
effect on the date of the Exchange Indenture. The Exchange Debentures are
subject to all such terms, and holders are referred to the Exchange Indenture
and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act")
for a statement of the provisions of the Exchange Debentures. The following
is a summary of the material terms and provisions of the Exchange Debentures
and the Exchange Indenture. This summary does not purport to be a complete
description thereof and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Exchange Debentures and the
Exchange Indenture (including the definitions contained therein). A copy of
the form of Exchange Indenture may be obtained from the Issuer by any holder
or prospective investor upon request. Definitions relating to certain
capitalized terms are set forth under "--Certain Definitions" and throughout
this description. Capitalized terms that are used but not otherwise defined
herein have the meanings assigned to them in the Exchange Indenture and such
definitions are incorporated by reference herein. For purposes of this
section, references to the "Issuer" mean MMH Holdings, Inc., excluding its
Subsidiaries, references to the "Company" mean Morris Material Handling,
Inc., excluding its Subsidiaries, and references to Surety Arrangements refer
to all such arrangements as defined in this section including those described
in "Description of the Surety Arrangement."
General
The Exchange Debentures will be general unsecured obligations of the
Issuer and will be limited in aggregate principal amount to the liquidation
preference of the New Series A Senior Preferred Stock, plus, without
duplication, accumulated and unpaid dividends, on the date or dates on which it
is exchanged for Exchange Debentures (plus any additional Exchange Debentures
issued in lieu of cash interest as described herein). The Exchange Debentures
will be issued in fully registered form only, in denominations of $1,000 and
integral multiples thereof (other than as described in "--The New Series A
Senior Preferred Stock" or with respect to additional Exchange Debentures issued
in lieu of cash interest as described herein). The Exchange Debentures will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Issuer and will rank pari passu with or senior to all future Indebtedness
of the Issuer that expressly provides that it ranks pari passu with or junior to
the Exchange Debentures, as the case may be.
All of the operations of the Issuer are conducted through its
Subsidiaries and, therefore, the Issuer is dependent upon the cash flow of
its Subsidiaries to meet its obligations, including its obligations under the
Exchange Debentures. The Exchange Debentures will be effectively subordinated
to all Indebtedness and other liabilities (including trade payables, tort
claims and tax claims) of the Issuer's present and future Subsidiaries,
including present and future Unrestricted Subsidiaries. Any right of the
Issuer to receive assets of any of its Subsidiaries upon such Subsidiary's
liquidation or reorganization (and the consequent right of the holders of the
Exchange Debentures to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's third-party creditors, except
for any Indebtedness validly owed to the Issuer.
As of January 31, 1998, after giving pro forma effect to the Offering, the
application of the net proceeds therefrom and the Transactions, the Issuer and
its Subsidiaries would have had an aggregate of $259.3 million of Indebtedness
outstanding (including $200.0 million aggregate principal amount of Senior Notes
and $55.0 million of
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borrowings under the New Credit Facility) in respect of
which the Exchange Debentures will be effectively subordinated.
Maturity, Interest and Principal
The Exchange Debentures will mature on April 1, 2009. The Exchange
Debentures will bear interest at the rate of 12% per annum from the date of
exchange for the New Series A Senior Preferred Stock (the "Exchange Date")
until maturity. Interest will be payable semi-annually in cash (or, on or
prior to April 1, 2003, in additional Exchange Debentures, at the option of
the Issuer) in arrears on each April 1 and October 1, commencing with the
first such date after the Exchange Date, to holders of record of the Exchange
Debentures at the close of business on the immediately preceding March 15 and
September 15, respectively. Interest on the Exchange Debentures will be
computed on the basis of a 360-day year of twelve 30-day months.
Optional Redemption
The Exchange Debentures will be redeemable, at the option of the
Issuer, in whole or in part, at any time or from time to time on or after
April 1, 2003, at the following redemption prices (expressed as percentages
of principal amount), together, in each case, with accrued and unpaid
interest to the redemption date, if redeemed during the twelve-month period
beginning on April 1 of each year listed below:
Year Percentage
- ---- ----------
2003................................................................ 106.000%
2004................................................................ 104.000%
2005................................................................ 102.000%
2006 and thereafter................................................. 100.000%
Notwithstanding the foregoing, the Issuer may redeem in the aggregate
all, but not less than all, of the Exchange Debentures then outstanding at
any time prior to April 1, 2001, at a redemption price equal to 112.000% of
the aggregate principal amount so redeemed, plus accrued interest to the
redemption date out of the Net Proceeds of one or more Public Equity
Offerings; provided, that any such redemption occurs within 90 days following
the closing of any such Public Equity Offering.
In the event of redemption of fewer than all of the Exchange
Debentures, the Debenture Trustee shall select by lot or on a pro rata basis
or in such other manner as it shall deem appropriate the Exchange Debentures
to be redeemed. The Exchange Debentures will be redeemable in whole or in
part upon not less than 30 nor more than 60 days' prior written notice,
mailed by first class mail to a holder's last address as it shall appear on
the register maintained by the Registrar of the Exchange Debentures. On and
after any redemption date, interest will cease to accrue on the Exchange
Debentures or portions thereof called for redemption unless the Company shall
fail to redeem any such Exchange Debentures.
Subordination
The Indebtedness represented by, and all obligations under, the
Exchange Debentures are, to the extent and in the manner provided in the
Exchange Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash or Cash Equivalents of
all existing and future Senior Indebtedness of the Issuer.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case
or proceeding in connection therewith, relative to the Issuer or to its
creditors, as such, or to its assets, whether voluntary or involuntary, or
any liquidation, dissolution or other winding-up of the Issuer, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or any general assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Issuer (except in connection with
the merger or consolidation of the Issuer or its liquidation or dissolution
following the transfer of substantially all of its assets, upon the terms and
conditions permitted under the circumstances described under "--Merger,
Consolidation or Sale of Assets") (all of the foregoing referred to herein
individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of the Issuer will be
entitled to receive payment and satisfaction in full in cash or Cash
Equivalents of, or such payment provided for, all amounts due on or in
respect of all Senior Indebtedness of the Issuer before the holders of the
Exchange Debentures are
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entitled to receive or retain any payment or distribution of any kind (other
than a payment or distribution in the form of Permitted Junior Securities) on
account of the Exchange Debentures. In the event that, notwithstanding the
foregoing, the Debenture Trustee or any holder of Exchange Debentures
receives any payment or distribution of assets of the Issuer of any kind,
whether in cash, property or securities, including, without limitation, by
way of set-off or otherwise, in respect of the Exchange Debentures before all
Senior Indebtedness of the Issuer is paid and satisfied in full, then such
payment or distribution (other than a payment or distribution in the form of
Permitted Junior Securities) will be held by the recipient in trust for the
benefit of holders of Senior Indebtedness and will be immediately paid over
or delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment
or distribution, or provision therefor, to or for the holders of Senior
Indebtedness. By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Issuer who are holders of Senior Indebtedness
may recover more, ratably, than other creditors of the Issuer, and creditors
of the Issuer who are not holders of Senior Indebtedness or of the Exchange
Debentures may recover more, ratably, than holders of the Exchange Debentures.
No payment or distribution (other than a payment or distribution in the
form of Permitted Junior Securities) of any assets or securities of the Issuer
of any kind or character (including, without limitation, cash, property and any
payment or distribution which may be payable or deliverable by reason of the
payment of any other Indebtedness of the Issuer being subordinated to the
payment of the Exchange Debentures by the Issuer) may be made by or on behalf of
the Issuer, including, without limitation, by way of set-off or otherwise, for
or on account of the Exchange Debentures, or for or on account of the purchase,
redemption or other acquisition of the Exchange Debentures, and neither the
Debenture Trustee nor any holder or owner of any Exchange Debentures shall take
or receive from the Issuer, directly or indirectly in any manner, payment in
respect of all or any portion of Exchange Debentures following the delivery by
the representative of the holders of Designated Senior Indebtedness (the
"Representative") to the Debenture Trustee of written notice of the occurrence
of a Payment Default, and in any such event, such prohibition shall continue
until such Payment Default is cured, waived in writing or ceases to exist. At
such time as the prohibition set forth in the preceding sentence shall no longer
be in effect, subject to the provisions of the following paragraph, the Issuer
shall resume making any and all required payments in respect of the Exchange
Debentures, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default, no payment or
distribution (other than a payment or distribution in the form of Permitted
Junior Securities) of any assets of the Issuer of any kind may be made by the
Issuer, including, without limitation, by way of set-off or otherwise, on
account of the Exchange Debentures, or on account of the purchase or redemption
or other acquisition of Exchange Debentures, for a period (a "Payment Blockage
Period") commencing on the date of receipt by the Debenture Trustee of written
notice from the Representative of such Non-Payment Event of Default unless and
until (subject to any blockage of payments that may then be in effect under the
preceding paragraph) the earliest of (w) more than 179 days shall have elapsed
since receipt of such written notice by the Debenture Trustee, (x) such
Non-Payment Event of Default shall have been cured or waived in writing or shall
have ceased to exist, (y) such Designated Senior Indebtedness shall have been
paid in full or (z) such Payment Blockage Period shall have been terminated by
written notice to the Issuer or the Debenture Trustee from such Representative,
after which, in the case of clause (w), (x), (y) or (z), the Issuer shall resume
making any and all required payments in respect of the Exchange Debentures,
including any missed payments. Notwithstanding any other provision of the
Exchange Indenture, in no event shall a Payment Blockage Period commenced in
accordance with the provisions of the Exchange Indenture described in this
paragraph extend beyond 179 days from the date of the receipt by the Debenture
Trustee of the notice referred to above (such period, an "Initial Blockage
Period"). Any number of additional Payment Blockage Periods may be commenced
during the Initial Blockage Period; provided, however, that no such additional
Payment Blockage Period shall extend beyond the Initial Blockage Period. After
the expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced until at least 360 consecutive days have elapsed since the
commencement date of the Initial Blockage Period. Notwithstanding any other
provision of the Exchange Indenture, no Non-Payment Event of Default with
respect to Designated Senior Indebtedness which existed or was continuing on the
date of the commencement of any Payment Blockage Period initiated by the
Representative shall be, or be made, the basis for the commencement of a second
Payment Blockage Period initiated by the Representative, whether or not within
the Initial Blockage Period, unless such Non-Payment Event of Default shall have
been waived for a period of not less than 90 consecutive days.
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If the Issuer fails to make any payment on the Exchange Debentures when
due or within any applicable grace period, whether or not on account of payment
blockage provisions, such failure would constitute an Event of Default under the
Exchange Indenture and would enable the holders of the Exchange Debentures to
accelerate the maturity thereof. See "--Events of Default."
By reason of the subordination provisions described above, in the event of
insolvency of the Issuer, funds which would otherwise be payable to holders of
the Exchange Debentures will be paid to holders of Senior Indebtedness of the
Issuer to the extent necessary to repay such Senior Indebtedness in full, and
the Issuer may be unable to fully meet its obligations with respect to the
Exchange Debentures. Subject to the restrictions set forth in the Exchange
Indenture, in the future the Issuer may incur additional Senior Indebtedness.
See "Risk Factors--Ranking of New Series A Senior Preferred Stock; Subordination
of the Exchange Debentures; Pledge of Assets." The subordination provisions
described above will cease to be applicable to the Exchange Debentures upon any
defeasance or covenant defeasance described under "--Satisfaction and Discharge
of the Exchange Indenture; Defeasance."
A holder of Exchange Debentures by his acceptance of Exchange Debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Debenture Trustee, on his behalf, to take such action as may be necessary or
appropriate to effectuate the subordination provided for in the Exchange
Indenture and appoints the Debenture Trustee his attorney-in-fact for such
purpose.
Certain Covenants
The Exchange Indenture contains, among others, the following covenants:
Limitation on Other Senior Subordinated Indebtedness
The Issuer will not incur, contingently or otherwise, any Indebtedness
that is both (i) subordinate in right of payment to any Senior Indebtedness of
the Issuer and (ii) senior in right of payment to the Exchange Debentures. For
purposes of this covenant, Indebtedness is deemed to be senior in right of
payment to the Exchange Debentures if it is not explicitly subordinate in right
of payment to Senior Indebtedness at least to the same extent as the Exchange
Debentures are subordinate to Senior Indebtedness.
Limitation on Additional Indebtedness
The Issuer will not, and will not cause or permit any Restricted
Subsidiary of the Issuer to, directly or indirectly, incur (as defined) any
Indebtedness (including any Acquired Indebtedness); provided, that if no Default
or Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness, the Issuer or any Restricted
Subsidiary may incur Indebtedness (including any Acquired Indebtedness) if the
Issuer's Consolidated Interest Coverage Ratio is greater than 2.0 to 1.
Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Issuer will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment after the
Issue Date, unless:
a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
b) immediately after giving pro forma effect to such Restricted
Payment, the Issuer could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under "--Limitation on Additional
Indebtedness" covenant above; and
c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum (without duplication) of (1) 50% of the cumulative
Consolidated Net Income of the Issuer (or minus 100% of any cumulative
deficit in Consolidated
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Net Income) for the period (treated as one accounting period) from the
first day of the fiscal quarter in which the Issue Date occurs through
the last day of the fiscal quarter immediately preceding such
Restricted Payment, (2) 100% of the aggregate Net Proceeds in cash
received by the Issuer from the issuance or sale, after the Issue Date
(other than to a Restricted Subsidiary), of (A) Capital Stock (other
than Disqualified Capital Stock) of the Issuer or (B) any Indebtedness
or other securities of the Issuer that are convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Issuer which have been so converted or exercised
or exchanged (other than by a Restricted Subsidiary of the Issuer) and
(3) 100% of the net reduction in Investments (other than Permitted
Investments), subsequent to the Issue Date, in any Person, resulting
from payments of interest on Indebtedness, dividends, repayments of
loans or advances or other transfers or distributions of Property or
return of capital (but only to the extent such interest, dividends or
repayments or other transfers or distributions of Property or return of
capital are not included in the calculation of Consolidated Net
Income), in each case to the Issuer or any Restricted Subsidiary from
any Person (including Unrestricted Subsidiaries) or from redesignations
(the designation of which did not constitute a Permitted Investment) of
Unrestricted Subsidiaries as Restricted Subsidiaries in accordance with
the Exchange Indenture, not to exceed in the case of any Person the
amount of Investments (other than Permitted Investments) previously
made by the Issuer or any Restricted Subsidiary in such Person. For
purposes of determining the amount expended for Restricted Payments
under this clause (c), Property other than cash (including a
distribution of assets) shall be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit:
(i) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the Exchange Indenture;
(ii) the retirement of any shares of Capital Stock of the Issuer or
Subordinated Indebtedness by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock) of the
Issuer, or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary of the Issuer) of other shares of
Capital Stock of the Issuer (other than Disqualified Capital Stock)
provided, that any such Net Proceeds are excluded from clause (c)(2) of
the immediately preceding paragraph for the purposes of this calculation
(and were not included therein at any time);
(iii) the redemption, repayment or retirement of Subordinated
Indebtedness in exchange for, by conversion into, or out of the Net
Proceeds of, (x) a substantially concurrent sale or incurrence of
Subordinated Indebtedness (other than any Indebtedness owed to a
Restricted Subsidiary) or (y) a substantially concurrent sale (other than
to a Restricted Subsidiary of the Issuer) of shares of Capital Stock of
the Issuer provided, that any such Net Proceeds are excluded from clause
(c)(2) of the immediately preceding paragraph (and were not included
therein at any time);
(iv) the retirement of any shares of Disqualified Capital Stock by
conversion into, or by exchange for, shares of Disqualified Capital Stock
of the Issuer, or out of the Net Proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Issuer) of other shares
of Disqualified Capital Stock of the Issuer;
(v) payments to MHE Investments or any other Person in respect of
which MHE Investments or such other Person is a member of the consolidated
tax group of the Issuer, for so long as MHE Investments or such other
Person owns such amount of the Capital Stock of the Issuer as will permit
it or a member of the consolidated tax group of MHE Investments or such
other Person to be entitled to file consolidated federal tax returns with
the Issuer, for income taxes pursuant to the Tax Allocation Agreement or
for the purpose of enabling MHE Investments or such other Person or any
such members to pay taxes other than income taxes, to the extent actually
owed and attributable to the operations of the Issuer and its Subsidiaries
or to MHE Investments' or such other Persons' ownership thereof;
(vi) payments to MHE Investments, for so long as it owns not less
than a majority of the outstanding Common Stock of the Issuer, in amounts
sufficient to pay the ordinary operating and administrative expenses of
MHE Investments (including all reasonable professional fees and expenses),
including in connection with its complying with the Issuer's reporting
obligations (including filings with the Commission and any exchange on
which the Issuer's securities are traded) and obligations to prepare and
distribute business records in the ordinary course of business and the
Issuer's costs and expenses relating to taxes, other than those referred
to in
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clause (v) (which taxes are attributable to the operations of the
Issuer and its Restricted Subsidiaries or to MHE Investments' ownership
thereof); provided, that the aggregate payments paid in each fiscal year
pursuant to this clause (vi) will not exceed 0.20% of the consolidated net
sales of the Issuer and its Restricted Subsidiaries for such fiscal year;
(vii) the purchase, redemption, retirement or other acquisition for
value of Capital Stock of the Issuer or of any Person that directly or
indirectly controls (as defined in the definition of Affiliate) the Issuer
held by employees or former employees of the Issuer or any Restricted
Subsidiary (or their estates or beneficiaries under their estates) upon
death, disability, retirement, termination of employment and pursuant to
the terms of any agreement under which such Capital Stock was issued,
provided, that the aggregate Fair Market Value of the consideration paid
for such purchase, redemption, retirement or other acquisition of such
Capital Stock does not exceed $500,000 in any fiscal year;
(viii) payments due under the Permitted Affiliate Agreements (other
than payments pursuant to paragraph (v) above) that would otherwise
constitute Restricted Payments; and
(ix) payments that would otherwise constitute Restricted Payments,
not to exceed $750,000 in the aggregate;
provided, that in calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (c) of the immediately
preceding paragraph, amounts expended pursuant to clause (i) (but only if the
declaration thereof has not been counted in a prior period), (vi) (other than to
the extent otherwise reducing Consolidated Net Income), (vii) and (ix) shall be
included, without duplication, in such calculation and (ii), (iii), (iv), (v)
and (viii) shall not be included in such calculation. Nothing in the immediately
preceding proviso is meant to affect whether any amount expended pursuant to
clause (v) should be reflected in Consolidated Net Income.
If the Issuer makes a Restricted Payment which, at the time of the making
of such Restricted Payment, in the good faith determination of the Board of
Directors of the Issuer, would be permitted under the requirements of the
Exchange Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Exchange Indenture notwithstanding any subsequent adjustment
made in good faith to the Issuer's financial statements affecting Consolidated
Net Income.
Limitation on Transactions with Affiliates
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, Property or services) with any
Affiliate (each, an "Affiliate Transaction") or extend, renew, waive or
otherwise modify the terms of any Affiliate Transaction entered into prior to
the Issue Date, unless (i) such Affiliate Transaction is between or among the
Issuer and the Restricted Subsidiaries or between or among Restricted
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair to the
Issuer or such Restricted Subsidiary, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Issuer or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions) involving an amount or having a Fair Market Value in excess of $2
million which is not permitted under clause (i) of the immediately preceding
sentence, the Issuer shall deliver to the Debenture Trustee a resolution of a
majority of the disinterested members of the Board of Directors of the Issuer
which reflects the approval of such Affiliate Transaction and a determination
that such Affiliate Transaction complies with clause (ii) of the immediately
preceding sentence. In any Affiliate Transaction (or series of related Affiliate
Transactions) which includes the payment of fees of $1 million or more to
Chartwell, the Issuer shall deliver to the Debenture Trustee a resolution of a
majority of the disinterested members of its Board of Directors which reflects
the approval of such Affiliate Transaction. In addition, in any Affiliate
Transaction (or any series of related Affiliate Transactions) involving an
amount or having a Fair Market Value in excess of $10 million which is not
permitted under clause (i) of the immediately preceding sentence, the Issuer
must deliver to the Debenture Trustee, prior to the consummation of the
transaction or transactions, a written opinion from a nationally recognized
investment banking firm or other expert stating that such transaction or
transactions are fair to the Issuer or such Restricted Subsidiary, as the case
may be, from a financial point of view; provided, that no such opinion shall be
required in respect of the
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provision of services or sales of inventory or products by the Issuer or any
of its Restricted Subsidiaries to a Joint Venture in the ordinary course of
business.
The foregoing provisions will not apply to: (i) any transaction or series
of related transactions pursuant to the terms of the Permitted Affiliate
Agreements; (ii) reasonable fees and compensation paid to and indemnity provided
on behalf of officers, directors or employees of the Issuer or any Restricted
Subsidiary of the Issuer as determined in good faith by the Issuer's Board of
Directors or senior management; (iii) any payment that would be permitted under
the first paragraph or clauses (v) or (vi) of the second paragraph of the
Limitations on Restricted Payments covenant; (iv) any Permitted Investment
(other than Permitted Investments made pursuant to clause (x) of the definition
of Permitted Investments); or (v) loans or advances to employees and officers of
the Issuer or any of its Subsidiaries in the ordinary course of business to
provide for the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the Issuer or such Subsidiary or in
connection with any relocation. The aggregate management, consulting and similar
fees paid by the Issuer or its Subsidiaries (excluding expenses and amounts paid
pursuant to the last sentence of this covenant or pursuant to clause (iii) of
this paragraph) to Chartwell shall not exceed $1 million during any fiscal year;
provided, that any such fees may accrue but shall not be paid by the Issuer at
any time after the occurrence and during the continuance of a Default or Event
of Default until such Default or Event of Default is cured, whereupon such
accrued and unpaid fees may be paid in addition to other permitted fees. In
addition, the Issuer may pay advisory fees to an Affiliate of the Issuer
(including Chartwell) with respect to specific transactions, provided, that such
payments would be permitted under the first paragraph of the covenant under
"--Limitation on Restricted Payments." In addition, for purposes of this
"--Limitation on Transactions with Affiliates" covenant, any transaction or
series of related transactions between the Issuer or any Restricted Subsidiary
and an Affiliate of the Issuer that is approved by a majority of the
disinterested members of its Board of Directors shall be deemed to comply with
clause (ii) of the first sentence of the preceding paragraph. Notwithstanding
the provisions of this covenant, the Issuer may pay fees and expenses to
Affiliates of the Issuer on the Issue Date in connection with the consummation
of the Transactions as described in this Prospectus.
Limitation on Certain Asset Sales
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Issuer or any of its
Restricted Subsidiaries, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the Fair Market Value
thereof; (ii) not less than 85% of the consideration received by the Issuer or
any of its Restricted Subsidiaries, as the case may be, is in the form of (a)
cash or Cash Equivalents; provided, that the amount of any liabilities (as shown
on the Issuer's or such Restricted Subsidiary's most recent balance sheet) of
the Issuer or any Restricted Subsidiary (other than contingent liabilities or
liabilities (including Subordinated Indebtedness) subordinated to the Exchange
Debentures or Indebtedness without general recourse to the obligor thereof) that
are assumed or forgiven by the transferee of any such assets will be deemed to
be cash for the purposes of this clause (ii) if the Issuer or such Restricted
Subsidiary is released from any liability for such liabilities and (b)
Replacement Assets; and (iii) the Asset Sale Proceeds received by the Issuer or
such Restricted Subsidiaries are applied (a) either (x) to the extent the Issuer
elects, or is required, to the prepayment, repayment or purchase of Senior
Indebtedness of the Issuer or Indebtedness or Capital Stock of any Restricted
Subsidiary within 360 days following the receipt of the Asset Sale Proceeds from
any Asset Sale, provided, that any such repayment shall result in a permanent
reduction of the commitments thereunder in an amount equal to the principal
amount so repaid; or (y) to the extent the Issuer elects, to acquisitions of
assets (and Investments otherwise permitted to be made in accordance with the
terms of the Exchange Indenture) used or useful in businesses similar or
reasonably related to the business of the Issuer or its Restricted Subsidiaries
as conducted at the time of such Asset Sale, provided, that such acquisitions or
Investments occur on or prior to the 365th day following receipt of such Asset
Sale Proceeds (the "Reinvestment Date"); and (b) if on the Reinvestment Date
with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10
million, the Issuer shall apply an amount equal to such Available Asset Sale
Proceeds to an offer to repurchase the Exchange Debentures (and at its option,
to an offer to repurchase other pari passu Indebtedness; provided, that the
stated maturity date of such Indebtedness is no later than the stated maturity
date of the Exchange Debentures), at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (an "Excess Proceeds Offer"). To the extent that any amount
of Available Asset Sale Proceeds remains after the completion of such Excess
Proceeds Offer, the Issuer may use such remaining amount in any manner permitted
by the Exchange Indenture and the amount of Available Asset Sale Proceeds then
required to be otherwise applied in accordance with this covenant shall be reset
to zero.
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If the Issuer is required to make an Excess Proceeds Offer, the Issuer
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Issuer to apply the Available Asset Sale Proceeds to purchase such
Exchange Debentures (and stating whether the Issuer has elected to offer to
repurchase other pari passu Indebtedness described in clause (iii) (b) of the
immediately preceding paragraph) at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date; (2) the purchase date, which shall be not earlier than 30 days
and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Issuer, that each holder must follow in order to
have such Exchange Debentures purchased; and (4) the calculations used in
determining the amount of Available Asset Sale Proceeds to be applied to the
purchase of such Exchange Debentures. If at any time the Issuer is required to
make an Excess Proceeds Offer, the Issuer is also required to make one or more
similar offers (each, an "Additional Excess Proceeds Offer") for any of its
securities or those of any of its Affiliates, the Issuer shall be entitled to
make any such Additional Excess Proceeds Offers simultaneously with such Excess
Proceeds Offer; provided, that, to the extent the Issuer is required to purchase
any such other securities pursuant to such Additional Excess Proceeds Offers,
Available Asset Sale Proceeds shall be reduced by an amount equal to the
aggregate purchase price of all such other securities purchased pursuant to such
Additional Excess Proceeds Offers.
In the event that the Issuer makes an Excess Proceeds Offer, the Issuer
shall comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act.
Limitation on Preferred Stock of Restricted Subsidiaries
The Issuer will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to the Issuer or a Wholly-Owned Subsidiary), other
than Permitted Foreign Restricted Subsidiary Preferred Stock, or permit any
Person (other than the Issuer or a Wholly-Owned Subsidiary) to hold any such
Preferred Stock unless the Issuer or such Restricted Subsidiary would be
entitled to incur or assume Indebtedness under the covenant described under
"--Limitation on Additional Indebtedness" in the aggregate principal amount
equal to the aggregate liquidation value of the Preferred Stock to be issued or
so held.
Limitation on Capital Stock of Restricted Subsidiaries
The Issuer will not (i) sell or otherwise convey or dispose of any Capital
Stock of a Restricted Subsidiary other than to a Wholly-Owned Subsidiary, (ii)
permit any of its Restricted Subsidiaries to sell or otherwise convey or dispose
of any Capital Stock of a Restricted Subsidiary of the Issuer other than to the
Issuer or a Wholly-Owned Subsidiary or (iii) permit any of its Restricted
Subsidiaries to issue any Capital Stock, other than to the Issuer or a
Wholly-Owned Subsidiary of the Issuer. The foregoing restrictions shall not
apply to (a) an Asset Sale consisting of not less than 85% of the Capital Stock
of a Restricted Subsidiary owned by the Issuer made in compliance with
"--Limitation on Certain Asset Sales," (b) the issuance of Preferred Stock in
compliance with the covenant described under "--Limitation on Preferred Stock of
Restricted Subsidiaries," (c) the issuance of director's qualifying shares if
required by applicable law or (d) the issuance of Capital Stock of a Foreign
Restricted Subsidiary to third parties; provided, that, immediately after such
transaction such Foreign Restricted Subsidiary remains a Foreign Restricted
Subsidiary or (e) the pledge or hypothecation of, or creation of any security
interest on, any Capital Stock by the Issuer or any of its Restricted
Subsidiaries.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to (i) pay dividends or make any other
distributions to the Issuer or any of its Restricted Subsidiaries (A) on its
Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, (ii) pay any Indebtedness owed to the Issuer or
any of its Restricted Subsidiaries, (iii) make loans or advances or capital
contributions to the Issuer or any of its Restricted Subsidiaries that is a
stockholder of such Person or (iv) transfer any of its Properties or assets
to the Issuer or any of its Restricted Subsidiaries that is a stockholder of
such Person, except for such encumbrances or restrictions existing under or
by reason of:
(i) encumbrances or restrictions as in effect on the Issue Date;
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(ii) any Credit Facility (existing on the Issue Date), the Exchange
Indenture, the Exchange Debentures, the Indenture, the Senior Notes, the
Guarantees and any Surety Arrangement (existing on the Issue Date) or any Surety
Arrangement arising after the Issue Date which, in the good faith judgment of
the Board of Directors of the Issuer, contains substantially the same or less
restrictive encumbrances or restrictions than those contained in any Surety
Arrangements existing on the Issue Date and any permitted amendment,
modification or supplement thereto and any permitted renewal, refinancing,
replacement or refunding thereof provided, that, in the good faith judgment of
the Board of Directors of the Issuer, such encumbrances or restrictions are in
the aggregate no more restrictive than those contained in the agreements
governing the Indebtedness being amended, modified, supplemented, extended,
refinanced, renewed, replaced, defeased or refunded;
(iii) applicable law;
(iv) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Issuer or any of its Restricted Subsidiaries or of any Person
that becomes a Restricted Subsidiary as in effect at the time of such
acquisition or such Person becoming a Restricted Subsidiary (except to the
extent such Indebtedness was incurred in connection with or in contemplation of
such acquisition of such Person becoming a Restricted Subsidiary), which
encumbrance or restriction is not applicable to any Person, or the Properties or
assets of any Person, other than the Person, or the Property of assets of the
Person (including any Subsidiary of the Person), so acquired;
(v) customary non-assignment provisions in leases, licenses or other
agreements entered into in the ordinary course of business and consistent with
past practices;
(vi) Refinancing Indebtedness; provided, that, in the good faith judgment
of the Board of Directors of the Issuer, such encumbrances or restrictions are
in the aggregate no more restrictive than those contained in the agreements
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(vii) Indebtedness having restrictions and encumbrances no more
restrictive than those contained in the Exchange Indenture and the Exchange
Debentures or the Indenture, the Senior Notes and the Guarantees; provided, that
the Issuer or the Company is the primary obligor under such Indebtedness;
(viii) customary restrictions in security agreements or mortgages securing
Indebtedness of the Issuer or a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the Property subject to such security
agreements and mortgages;
(ix) customary restrictions in stock or asset purchase agreements to the
extent such restrictions apply to the Person selling stock or assets (and/or
such Person's Subsidiaries) solely during the period prior to the closing under
such agreements; or
(x) any encumbrance or restriction pursuant to an agreement relating to an
acquisition of Property, so long as the encumbrances or restrictions in any such
agreement relate solely to the Property so acquired (and are not or were not
created in anticipation of or in connection with the acquisition thereof).
Nothing contained in this covenant shall prevent the Issuer or any
Restricted Subsidiary from (i) creating, incurring, assuming or suffering to
exist any Liens or (ii) restricting the sale or other disposition of property or
assets of the Issuer or any of its Restricted Subsidiaries that secure
Indebtedness of the Issuer or any of its Restricted Subsidiaries incurred in
accordance with the Exchange Indenture.
Payments for Consent
Neither the Issuer nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Exchange Debentures for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Exchange Indenture or the Exchange Debentures unless such
consideration is offered to be paid or agreed to be paid to all holders of the
Exchange Debentures which so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
agreement.
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Change of Control Offer
Upon the occurrence of a Change of Control, the Issuer shall be obligated
to make an offer to purchase (the "Change of Control Offer") the outstanding
Exchange Debentures at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus any accrued and unpaid
interest thereon to the Change of Control Payment Date (as hereinafter defined)
in accordance with the procedures set forth in this covenant.
Within 30 days of the occurrence of a Change of Control, the Issuer shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Debenture Trustee and
to each holder of the Exchange Debentures, at the address appearing in the
register maintained by the Registrar of the Exchange Debentures, a notice
stating:
(a) that the Change of Control Offer is being made pursuant to this
covenant and that all Exchange Debentures validly tendered will be
accepted for payment;
(b) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day not earlier than 30 days nor later than 60
days from the date such notice is mailed (the "Change of Control Payment
Date"));
(c) that any Exchange Debenture not validly tendered will continue
to accrue interest;
(d) that, unless the Issuer defaults in the payment of the Change of
Control Purchase Price, any Exchange Debentures accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(e) that holders accepting the offer to have their Exchange
Debentures purchased pursuant to a Change of Control Offer will be
required to surrender the Exchange Debentures to the Paying Agent at the
address specified in the notice prior to the close of business on the
Business Day preceding the Change of Control Payment Date;
(f) that holders will be entitled to withdraw their acceptance if
the Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the principal amount of the Exchange Debentures delivered
for purchase, and a statement that such holder is withdrawing his election
to have such Exchange Debentures purchased;
(g) that holders whose Exchange Debentures are being purchased only
in part will be issued new Exchange Debentures equal in principal amount
to the unpurchased portion of the Exchange Debentures surrendered,
provided, that each Exchange Debenture purchased and each such new
Exchange Debenture issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof;
(h) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(i) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuer shall, to the extent
lawful, (i) accept for payment Exchange Debentures or portions thereof validly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Exchange Debentures or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Debenture Trustee Exchange Debentures or portions thereof so accepted for
cancellation. The Paying Agent shall promptly mail to each holder of Exchange
Debentures so accepted payment in an amount equal to the purchase price for such
Exchange Debentures, and the Issuer shall execute and issue, and the Debenture
Trustee shall promptly authenticate and mail to such holder, a new Exchange
Debenture equal in principal amount to any unpurchased portion of the Exchange
Debentures surrendered; provided, that each such new
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Exchange Debenture shall be issued in an original principal amount in
denominations of $1,000 and integral multiples thereof.
The Exchange Indenture will require that if any Credit Facility is in
effect or if the Senior Notes are outstanding or if any other Indebtedness of
the Issuer or its Restricted Subsidiaries that requires a payment upon a Change
of Control is outstanding, or any amounts are owing thereunder or in respect
thereof, at the time of the occurrence of a Change of Control, prior to the
mailing of the notice to holders described in the second preceding paragraph,
but in any event within 30 days following any Change of Control, the Issuer
shall be required to (i) cause the borrowers thereunder to repay in full all
obligations under or in respect of such Credit Facility or such other
Indebtedness or offer to repay in full all obligations under or in respect of
such Credit Facility or such other Indebtedness and repay within such 30-day
period the obligations under or in respect of such Credit Facility or such other
Indebtedness of each lender who has then irrevocably accepted such offer and
cause the Company to repay within such 30-day period in full all obligations in
respect of the Senior Notes or offer to repay in full all obligations in respect
of the Senior Notes of each holder who has then irrevocably accepted such offer
or (ii) cause such borrowers and the Company to obtain the requisite consent
under such Credit Facility or such other Indebtedness, the holders of such other
Indebtedness and from the holders of the Senior Notes, respectively, to permit
the repurchase of the Exchange Debentures as described above. The Issuer must
first comply with the covenant described in the preceding sentence before it
shall be required to purchase Exchange Debentures in the event of a Change of
Control; provided, that the Issuer's failure to comply with the covenant
described in the preceding sentence constitutes an Event of Default described in
clause (iii) under "Events of Default" below. There can be no assurance that the
Issuer will have adequate resources to refinance or fund the repurchase of the
Exchange Debentures in the event of a Change of Control. The failure of the
Issuer, following a Change of Control, to make a Change of Control Offer or to
pay when due the Change of Control Purchase Price of Exchange Debentures
tendered in conformity with any such Change of Control Offer will give the
Debenture Trustee and the holders of the Exchange Debentures the rights
described under "--Events of Default." As a result of the foregoing, a holder of
the Exchange Debentures may not be able to compel the Issuer to purchase the
Exchange Debentures unless the Issuer, or such borrower or the Company, is able
at the time to refinance all of the obligations under or in respect of such
Credit Facility, such Senior Notes or other such Indebtedness or obtain
requisite consent thereunder.
The Exchange Indenture will provide that, if the Issuer has issued any
outstanding (i) Subordinated Indebtedness or (ii) Capital Stock, and the Issuer
is required to make a Change of Control Offer or to make a distribution with
respect to such Subordinated Indebtedness or Capital Stock in the event of a
Change of Control, the Issuer shall not consummate any such offer or
distribution with respect to such Subordinated Indebtedness or Capital Stock
until such time as the Issuer shall have paid the Change of Control Purchase
Price in full to the holders of Exchange Debentures that have validly accepted
the Issuer's Change of Control Offer and shall otherwise have consummated the
Change of Control Offer made to holders of the Exchange Debentures.
In the event that a Change of Control occurs and the holders of Exchange
Debentures exercise their right to require the Issuer to purchase Exchange
Debentures, if such purchase constitutes a "tender offer" for purposes of Rule
14e-1 under the Exchange Act at that time, the Issuer will comply with the
requirements of Rule l4e-1 as then in effect with respect to such repurchase.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes such Change of Control Offer
contemporaneously with or upon a Change of Control in the manner, at the times
and otherwise in compliance with the requirements of the Exchange Indenture and
purchases all Exchange Debentures validly tendered and not withdrawn under such
Change of Control Offer.
Merger, Consolidation or Sale of Assets
The Issuer will not consolidate or merge with or into any Person, or sell,
assign, lease, convey or otherwise dispose of (or cause or permit any of its
Restricted Subsidiaries to sell, assign, lease, convey or otherwise dispose of
(however effected, including, without limitation, by merger or consolidation))
all or substantially all of the Issuer's assets (determined on a consolidated
basis for the Issuer and its Restricted Subsidiaries), whether as an entirety or
substantially an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution, to any Person
unless, in each such case: (i)(x) the Issuer shall be the continuing Person, or
(y) the Person (if other than the Issuer) formed by such consolidation or into
which the Issuer or the Restricted Subsidiary, as the case
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may be, is merged or to which the Properties and assets of the Issuer or any
Restricted Subsidiary, as the case may be, are transferred (such Person, the
"Surviving Entity") (1) shall be a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia and (2) shall expressly assume, by a supplemental indenture,
executed and delivered to the Debenture Trustee, in form satisfactory to the
Debenture Trustee, all of the obligations of the Issuer under the Exchange
Debentures, the Exchange Indenture and the Exchange Offer Registration Rights
Agreement, as the case may be (upon which assumption the Issuer shall be
discharged of any and all obligations on the Exchange Debentures, the
Exchange Indenture and the Exchange Offer Registration Rights Agreement), and
the obligations under the Exchange Indenture shall remain in full force and
effect; (ii) immediately before and immediately after giving effect to such
transaction (including, without limitation, giving effect to any Indebtedness
and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred and be continuing; and (iii) immediately after
giving effect to such transaction on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions)
the Issuer (or the Surviving Entity if the Issuer is not continuing) (A)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Issuer immediately prior to such transaction and (B) could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the covenant set forth under "--Certain
Covenants--Limitation on Additional Indebtedness" above; provided, that a
Restricted Subsidiary may merge with and into the Issuer without complying
with this clause (iii)(B).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuer shall deliver, or cause to be
delivered, to the Debenture Trustee, in form and substance reasonably
satisfactory to the Debenture Trustee, an Officers' Certificate and an opinion
of counsel, each stating that such consolidation, merger or transfer and the
supplemental indenture in respect thereto comply with this provision and that
all conditions precedent herein provided for relating to such transaction or
transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the Properties or assets of one or more Subsidiaries of the
Issuer, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Issuer, shall be deemed to be the transfer of all
or substantially all of the assets of the Issuer. In addition, the phrase "all
or substantially all" of the assets of the Issuer will likely be interpreted
under applicable law and will be dependent upon particular facts and
circumstances. As a result, there may be a degree of uncertainty in ascertaining
whether a sale or transfer of "all or substantially all" of the assets of the
Issuer or any Restricted Subsidiary has occurred.
For all purposes of the Exchange Indenture and the Exchange Debentures,
Subsidiaries of any Surviving Entity will, upon such transaction or series of
transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries, to
the extent and as provided pursuant to the Exchange Indenture.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, conditions described in
the immediately preceding paragraphs, the Surviving Entity shall succeed to,
and be substituted for, and may exercise every right and power of, the Issuer
under the Exchange Indenture with the same effect as if such Surviving Entity
had been named as the Issuer therein; and when a Surviving Entity duly
assumes all of the obligations and covenants of the Issuer pursuant to the
Exchange Indenture and the Exchange Debentures, except in the case of a
lease, the predecessor Person shall be relieved of all such obligations.
Events of Default
The following events are defined in the Exchange Indenture as "Events of
Default":
(i) default in payment of any principal of, or premium, if any, on
the Exchange Debentures when due (whether or not prohibited by the
provisions of the Exchange Indenture described under "Subordination");
(ii) default in the payment of any interest on any Exchange
Debentures when due, which default continues for 30 days or more (whether
or not prohibited by the provisions of the Exchange Indenture described
under "Subordination");
(iii) default by the Issuer in the observance or performance of any
other covenant in the Exchange Debentures or the Exchange Indenture for 60
days after written notice from the Debenture Trustee or the holders of not
less than 25% in aggregate principal amount of the Exchange Debentures
then outstanding
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(except in the case of a default with respect to the "--Certain
Covenants--Limitation on Certain Asset Sales," "--Change of Control
Offer" or "--Merger, Consolidation or Sale of Assets" covenants, which
shall constitute an Event of Default with such notice requirement but
without such passage of time requirement) (whether or not prohibited by
the provisions of the Exchange Indenture described under
"Subordination");
(iv) failure to pay when due (within any applicable grace period)
principal, interest or premium with respect to any Indebtedness of the
Issuer or any Restricted Subsidiary thereof in an aggregate principal
amount of $5 million of more, or the acceleration of any such Indebtedness
in an aggregate principal amount of $5 million or more which default shall
not be cured or waived;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5 million shall be rendered against
the Issuer or any Restricted Subsidiary thereof (in excess of amounts
covered by insurance and as to which the insurance company has
acknowledged coverage) by a court of competent jurisdiction, and shall not
be bonded (such that a judgment creditor cannot proceed against assets of
the Issuer or any Subsidiary), vacated, discharged or satisfied for any
period of 60 consecutive days during which a stay of enforcement shall not
be in effect; or
(vi) certain events involving bankruptcy, insolvency or
reorganization of the Issuer or any Significant Subsidiary thereof.
For purposes of clause (vi) above, any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Subsidiaries and as to which any event described in clause (vi)
above has occurred, would constitute a Significant Subsidiary.
The Exchange Indenture provides that the Debenture Trustee may withhold
notice to the holders of the Exchange Debentures of any default (except in
payment of principal or premium, if any, or interest on the Exchange Debentures
or a default in the observance or performance of the "Merger, Consolidation or
Sale of Assets" covenant) if the Debenture Trustee considers it to be in the
best interest of the holders of the Exchange Debentures to do so.
The Exchange Indenture provides that if an Event of Default (other than
an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization) shall have occurred and be continuing, then the Debenture
Trustee or the holders of not less than 25% in aggregate principal amount of
the Exchange Debentures then outstanding may declare to be immediately due
and payable, the entire principal amount of all the Exchange Debentures then
outstanding plus accrued interest to the date of acceleration, and such
amounts shall immediately become due and payable; provided, that after such
acceleration but before a judgment or decree based on acceleration is
obtained by the Debenture Trustee, the holders of a majority in aggregate
principal amount of outstanding Exchange Debentures may, under certain
circumstances, rescind and annul such acceleration if (i) all Events of
Default, other than nonpayment of principal, premium or interest, that has
become due solely because of acceleration, have been cured or waived as
provided in the Exchange Indenture, (ii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iii) if the Issuer has paid the Debenture
Trustee its reasonable compensation and reimbursed the Debenture Trustee for
its expenses, disbursements and advances and (iv) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the
first paragraph above, the Debenture Trustee shall have received an Officers'
Certificate and an opinion of counsel that such Event of Default has been
cured or waived. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the principal, premium
and interest amount with respect to all of the Exchange Debentures shall be
due and payable immediately without any declaration or other act on the part
of the Debenture Trustee or the holders of the Exchange Debentures. If, after
the delivery of any such notice of acceleration with respect to an Event of
Default under clause (iv) of the first paragraph above, any such payment
default or acceleration relating to such other Indebtedness shall have been
cured or rescinded or such Indebtedness shall have been discharged within 30
days of such default or acceleration in respect of such Indebtedness, then
such Event of Default specified in clause (iv) shall be deemed cured for all
purposes of the Exchange Indenture.
The holders of a majority in principal amount of the Exchange Debentures
then outstanding shall have the right to waive any existing Default or Event of
Default or compliance with any provision of the Exchange Indenture or the
Exchange Debentures and to direct the time, method and place of conducting any
proceeding for any remedy
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available to the Debenture Trustee, subject to certain limitations specified
in the Exchange Indenture and under the Trust Indenture Act.
No holder of any Exchange Debenture will have any right to institute any
proceeding with respect to the Exchange Indenture or for any remedy thereunder,
unless such holder shall have previously given to the Debenture Trustee written
notice of a continuing Event of Default and unless also the holders of at least
25% in aggregate principal amount of the outstanding Exchange Debentures shall
have made written request and offered reasonable indemnity to the Debenture
Trustee to institute such proceeding as a trustee, and unless the Debenture
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Exchange Debenture on or after the respective due dates
expressed in such Exchange Debenture.
Satisfaction and Discharge of the Exchange Indenture; Defeasance
The Issuer may terminate its obligations under the Exchange Indenture,
when (1) either: (A) all Exchange Debentures theretofore authenticated and
delivered have been delivered to the Debenture Trustee for cancellation, or (B)
all such Exchange Debentures not theretofore delivered to the Debenture Trustee
for cancellation (i) have become due and payable, or (ii) will become due and
payable within 60 days or are to be called for redemption within 60 days (a
"Discharge") under irrevocable arrangements satisfactory to the Debenture
Trustee for the giving of notice of redemption by the Debenture Trustee in the
name, and at the expense, of the Issuer, and the Issuer has irrevocably
deposited or caused to be deposited with the Debenture Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Exchange
Debentures, not theretofore delivered to the Debenture Trustee for cancellation,
for principal of, premium, if any, on and interest to the date of deposit or
stated maturity or date of redemption, whichever is later; (2) the Issuer has
paid or caused to be paid all other sums then due and payable hereunder by the
Issuer; and (3) the Issuer has delivered to the Debenture Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent under the Exchange Indenture relating to the satisfaction and
discharge of the Exchange Indenture have been complied with.
The Issuer may elect, at its option, to have its obligations discharged
with respect to the outstanding Exchange Debentures ("defeasance"). Such
defeasance means that the Issuer will be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Exchange Debentures
and its obligations under the Exchange Indenture, except for (1) the rights
of holders of such Exchange Debentures to receive payments in respect of the
principal of and any premium and interest on such Exchange Debentures when
payments are due, (2) the Issuer's obligations with respect to such Exchange
Debentures concerning issuing temporary Exchange Debentures, registration of
Exchange Debentures, mutilated, destroyed, lost or stolen Exchange Debentures
and the maintenance of an office or agency for payment and money for security
payments held in trust, (3) the rights, powers, trusts, duties and immunities
of the Debenture Trustee, (4) the Issuer's right of optional redemption, and
(5) the defeasance provisions of the Exchange Indenture. In addition, the
Issuer may elect, at its option, to have its obligations released with
respect to certain covenants, including without limitation their obligation
to make Excess Proceeds Offers in connection with Available Asset Sale
Proceeds and Change of Control Offers in connection with any Change of
Control, in the Exchange Indenture ("covenant defeasance") and any omission
to comply with such obligation shall not constitute a Default or an Event of
Default with respect to the Exchange Debentures. In the event covenant
defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Exchange Debentures.
In order to exercise either defeasance or covenant defeasance with respect
to outstanding Exchange Debentures: (1) the Issuer must irrevocably have
deposited or caused to be deposited with the Debenture Trustee (or other
qualifying trustee) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to the benefits of the holders of such Exchange Debentures: (A) money in an
amount, or (B) U.S. government obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an amount, or (C)
a combination thereof, in each case sufficient without reinvestment, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Debenture Trustee,
to pay and discharge, and which shall be applied by the Debenture Trustee (or
other qualifying trustee) to pay and discharge the entire indebtedness in
respect of the principal of, and premium, if any, and interest on, such Exchange
Debentures on the stated maturity thereof or (if the Issuer has made irrevocable
arrangements
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satisfactory to the Debenture Trustee for the giving of notice of redemption
by the Debenture Trustee in the name and at the expense of the Issuer) the
redemption date thereof, as the case may be, in accordance with the terms of
the Exchange Indenture and such Exchange Debentures; (2) in the case of
defeasance, the Issuer shall have delivered to the Debenture Trustee an
opinion of counsel stating that (A) the Issuer has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since the
date of the Exchange Indenture, there has been a change in the applicable
federal income tax law, in either case (A) or (B) to the effect that, and
based thereon such opinion shall confirm that, the holders of such Exchange
Debentures will not recognize gain or loss for federal income tax purposes as
a result of the deposit, defeasance and discharge to be effected with respect
to such Exchange Debentures and will be subject to federal income tax on the
same amount, in the same manner and at the same times as would be the case if
such deposit, defeasance and discharge were not to occur; (3) in the case of
covenant defeasance, the Issuer shall have delivered to the Debenture Trustee
an opinion of counsel to the effect that the holders of such outstanding
Exchange Debentures will not recognize gain or loss for federal income tax
purposes as a result of the deposit and covenant defeasance to be effected
with respect to such Exchange Debentures and will be subject to federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit and covenant defeasance were not to occur;
(4) no Default or Event of Default with respect to the outstanding Exchange
Debentures shall have occurred and be continuing at the time of such deposit
after giving effect thereto or, in the case of defeasance, either: (A) the
Issuer shall have delivered to the Debenture Trustee an opinion of counsel to
the effect that, based upon existing precedents, if the matter were properly
briefed, a court should hold that the deposit of moneys and/or U.S.
government obligations as provided in clause (1) would not constitute a
preference voidable under Section 547 or 548 of the federal bankruptcy laws;
or (B) no Default or Event of Default relating to bankruptcy or insolvency
shall have occurred and be continuing at any time on or prior to the 91st day
after the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 91st day); (5) such defeasance or
covenant defeasance shall not cause the Debenture Trustee to have a
conflicting interest within the meaning of the Trust Indenture Act (assuming
all Exchange Debentures are in default within the meaning of the Trust
Indenture Act); (6) such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Issuer is a party or by which it is
bound, (7) such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
and (8) the Issuer shall have delivered to the Debenture Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent with respect to such defeasance or covenant defeasance have been
complied with.
In the event of a defeasance or a Discharge, a holder whose taxable year
straddles the deposit of funds and the distribution in redemption to such holder
would be subject to tax on any gain (whether characterized as capital gain or
market discount) in the year of deposit rather than in the year of receipt. In
connection with a Discharge, in the event the Issuer becomes insolvent within
the applicable preference period after the date of deposit, monies held for the
payment of the Exchange Debentures may be part of the bankruptcy estate of the
Issuer, disbursement of such monies may be subject to the automatic stay of the
bankruptcy code and monies disbursed to holders of the Exchange Debentures may
be subject to disgorgement in favor of the estate of the Issuer. Similar results
may apply upon the insolvency of the Issuer during the applicable preference
period following the deposit of monies in connection with covenant defeasance.
Amendment, Supplement and Waiver
Without the consent of any holders of the Exchange Debentures, the Issuer
and the Debenture Trustee, at any time and from time to time, may enter into one
or more indentures supplemental to the Exchange Indenture for any of the
following purposes: (1) to evidence the succession of another Person to the
Issuer and the assumption by any such successor of the covenants of the Issuer
in the Exchange Indenture and in the Exchange Debentures; or (2) to add to the
covenants of the Issuer for the benefit of the holders of the Exchange
Debentures, or to surrender any right or power herein conferred upon the Issuer;
or (3) to add additional Events of Default; or (4) to provide for uncertificated
Exchange Debentures in addition to or in place of certificated Exchange
Debentures; or (5) to evidence and provide for the acceptance of appointment
under the Exchange Indenture by a successor Debenture Trustee; or (6) to secure
the Exchange Debentures; or (7) to cure any ambiguity, to correct or supplement
any provision in the Exchange Indenture which may be defective or inconsistent
with any other provision in the Exchange Indenture, or to make any other
provisions with respect to matters or questions arising under the Exchange
Indenture, provided, that such actions pursuant to this clause shall not
adversely affect the interests of the holders of the Exchange Debentures in any
material respect; or (8) to comply with any requirements of the
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Commission in order to effect and maintain the qualification of the Exchange
Indenture under the Trust Indenture Act.
With the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding Exchange Debentures, the Issuer and the
Debenture Trustee may enter into an indenture or indentures supplemental to the
Exchange Indenture for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Exchange Indenture or of
modifying, in any manner the rights of the holders of the Exchange Debentures
under the Exchange Indenture including the definitions therein; provided, that
no such supplemental indenture shall, without the consent of the holder of each
outstanding Exchange Debenture affected thereby, (1) change the stated maturity
of any Exchange Debenture or of any installment of interest on any Exchange
Debenture, or reduce the amount payable in respect of the principal thereof or
the rate of interest thereon or any premium payable thereon, or reduce the
amount that would be due and payable on acceleration of the maturity thereof, or
change the place of payment where, or the coin or currency in which, any
Exchange Debenture or any premium or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
stated maturity thereof, or (2) reduce the percentage in aggregate principal
amount of the outstanding Exchange Debentures, the consent of whose holders is
required for any such supplemental indenture, or the consent of whose holders is
required for any waiver (of compliance with certain provisions of the Exchange
Indenture or certain defaults thereunder and their consequences) provided for in
the Exchange Indenture, or (3) modify in any material respect the obligations of
the Issuer to make Change of Control Offers upon a Change of Control or Excess
Proceeds Offers from the Available Asset Sale Proceeds, or (4) modify or change
any provision of the Exchange Indenture affecting the contractual ranking in
right of payment of the Exchange Debentures in a manner adverse to the holders
of the Exchange Debentures, or (5) modify any of the provisions of this
paragraph or provisions relating to waiver of defaults or certain covenants,
except to increase any such percentage required for such actions or to provide
that certain other provisions of the Exchange Indenture cannot be modified or
waived without the consent of the holder of each outstanding Exchange Debenture
affected thereby.
The holders of not less than a majority in aggregate principal amount of
the outstanding Exchange Debentures may on behalf of the holders of all the
Exchange Debentures waive any past default under the Exchange Indenture and its
consequences, except a default (1) in any payment in respect of the principal of
(or premium, if any, on) or interest on any Exchange Debentures (including any
Exchange Debenture which is required to have been purchased pursuant to a Change
of Control Offer or an Excess Proceeds Offer which has been made by the Issuer),
or (2) in respect of a covenant or provision hereof which under the Exchange
Indenture cannot be modified or amended without the consent of the holder of
each outstanding Exchange Debenture affected.
Reports to Holders
The Exchange Indenture provides that whether or not required by the rules
and regulations of the Commission, so long as any Exchange Debentures are
outstanding, the Issuer shall furnish to the Debenture Trustee and to the
holders of the Exchange Debentures within 10 days after it is or would have been
required to file them with the Commission, (i) all annual and quarterly
financial information that would be required to be contained in a filing with
the Commission on Forms 10-K and 10-Q (without exhibits) if the Issuer were
required to file such forms, including a section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Issuer's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K (without exhibits) if the
Issuer were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Issuer will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing). In addition, the Issuer
shall furnish to the Debenture Trustee, the holders of the Exchange Debentures
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144(d)(4) under the
Securities Act and the exhibits omitted from the information furnished pursuant
to the preceding sentence, for so long as the Exchange Debentures are not freely
transferable under the Securities Act.
Compliance Certificate
The Issuer will deliver to the Debenture Trustee on or before 90 days
after the end of the Issuer's fiscal year and on or before 45 days after the end
of each of the first, second and third fiscal quarters in each year an Officers'
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Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default, its status and the intended method of cure, if any.
The Debenture Trustee
The Debenture Trustee under the Exchange Indenture will be the Registrar
and Paying Agent with regard to the Exchange Debentures. The Exchange Indenture
provides that, except during the continuance of an Event of Default, the
Debenture Trustee will perform only such duties as are specifically set forth in
the Exchange Indenture. During the existence of an Event of Default, the
Debenture Trustee will exercise such rights and powers vested in it under the
Exchange Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
Transfer and Exchange
Holders of the Exchange Debentures may transfer or exchange Exchange
Debentures in accordance with the Exchange Indenture. The Registrar under the
Exchange Indenture may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Exchange Indenture. The Registrar is not
required to transfer or exchange any Exchange Debenture selected for redemption.
Also, the Registrar is not required to transfer or exchange any Exchange
Debenture for a period of 15 days before selection of the Exchange Debentures to
be redeemed.
The registered holder of an Exchange Debenture may be treated as the owner
of it for all purposes.
Governing Law
The Exchange Indenture provides that the Exchange Indenture and the
Exchange Debentures will be governed by and construed in accordance with the
internal laws of the State of New York, without giving effect to the principles
of conflicts of laws to the extent the application of the laws of another
jurisdiction would be required thereby.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Restated Certificate and the Exchange Indenture. Reference is made to the
Restated Certificate and the Exchange Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means (a) Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person and (b) any Seller Note.
"Affiliate" of any specified Person means any other Person (including,
without limitation, such Person's issue, siblings and spouse) that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise. For purposes of the Exchange Indenture and the Restated Certificate,
the term "Affiliate," as it relates to the Issuer, shall (a) include HarnCo for
so long as HarnCo is entitled to designate at least one member of the Board of
Directors of the Issuer or any successor to the Issuer and (b) not include CIBC
Oppenheimer Corp. or Indosuez Capital or their respective Affiliates.
"Asset Acquisition" means (a) an Investment by the Issuer or any
Restricted Subsidiary of the Issuer in any other Person pursuant to which such
Person becomes a Restricted Subsidiary of the Issuer, or is merged with or into
the Issuer or any Restricted Subsidiary of the Issuer or (b) the acquisition by
the Issuer or any Restricted Subsidiary of the Issuer of the assets of any
Person (other than a Restricted Subsidiary of the Issuer) which constitute all
or substantially all of the assets of such Person or comprise any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
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"Asset Sale" means the sale, transfer or other disposition (including,
without limitation, by merger or consolidation) (other than to the Issuer or any
of its Restricted Subsidiaries) in any single transaction or series of related
transactions of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Issuer (other than directors' qualifying shares to
the extent required by applicable law), (b) all or substantially all of the
assets of the Issuer or of any Restricted Subsidiary thereof, (c) real property
or (d) all or substantially all of the assets, or any Property, or part thereof,
owned by the Issuer or any Restricted Subsidiary thereof, or a division, line of
business or comparable business segment of the Issuer or any Restricted
Subsidiary thereof; provided, that Asset Sales shall not include (i) sales,
leases, conveyances, transfers or other dispositions to the Issuer or to a
Restricted Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Restricted Subsidiary, (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Issuer and its
Restricted Subsidiaries taken as a whole as permitted under "--Merger,
Consolidation or Sale of Assets," (iii) any transfer, conveyance, sale, lease or
other disposition of property or assets, the gross proceeds of which (exclusive
of indemnities) do not exceed $500,000, (iv) any sales, leases, conveyances,
transfers or other dispositions of Property or equipment that has become worn
out, obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Issuer or any Restricted Subsidiary, as the case may be, (v) the
incurrence of any Liens, (vi) the making of any Restricted Payment permitted by
the covenant "--Certain Covenants--Limitation on Restricted Payments," (vii)
transfers of cash and sales of Cash Equivalents and (viii) sales, leases,
conveyances, transfers or other dispositions of Property or equipment in the
ordinary course of business.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash or
Cash Equivalents received by the Issuer or any Restricted Subsidiary from such
Asset Sale, after (a) provision for all income or other taxes measured by or
resulting from such Asset Sale, (b) payment of all brokerage commissions,
underwriting and other fees and expenses related to such Asset Sale, (c)
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale and (d) deduction of appropriate amounts to be provided by
the Issuer or a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Issuer or a Restricted Subsidiary after such
Asset Sale, including, without limitation, pension and other post employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with the assets sold or disposed of
in such Asset Sale, provided, that at such time as such amounts are no longer
reserved or such reserve is no longer necessary, any remaining amounts shall
become Asset Sale Proceeds to be allocated in accordance with the covenant
"--Certain Covenants--Limitation on Certain Asset Sales," and (ii) promissory
notes and other noncash consideration received by the Issuer or any Restricted
Subsidiary from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or noncash consideration into cash.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii) (a), and which has not yet been the basis for
an Excess Proceeds Offer in accordance with clause (iii)(b), of the first
paragraph of "--Certain Covenants--Limitation on Certain Asset Sales."
"Average Life" means, as of any date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(x) the number of years from the date of determination to the dates of each
successive scheduled principal payment (including any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (y) the
amount of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated and whether or not voting) of capital
stock, partnership interests or any other participation, right or other interest
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
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"Cash Equivalents" means any of the following Investments: (i)
marketable direct obligations issued by, or unconditionally guaranteed by,
the United States Government or issued by any agency thereof and backed by
the full faith and credit of the United States maturing within one year from
the date of acquisition thereof; (ii) marketable direct obligations issued by
any state of the United States of America or any foreign country recognized
by the United States or any political subdivision of any such state or
foreign country, as the case may be, or any public instrumentality thereof
(including any taxing authority) maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial
paper maturing no more than one year from the date of creation thereof and,
at the time of acquisition, having a rating of at least A-1 from S&P or at
least P-1 from Moody's; (iv) certificates of deposit, time deposit accounts,
operating accounts or bankers' acceptances maturing within one year from the
date of acquisition thereof issued or guaranteed by any commercial banking
institution organized under the laws of any jurisdiction recognized by the
United States of America and in which the Issuer or its Subsidiaries actively
conduct business, having at the date of acquisition thereof combined capital
and surplus of not less than U.S. $250,000,000 or the foreign currency
equivalent thereof; (v) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause
(iv) above; (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v) above; and (vii) foreign bank deposits and cash equivalents in
jurisdictions where the Issuer or its Subsidiaries are then actively
conducting business, provided, that (a) all such deposits are required to be
made in the ordinary course of business, (b) such deposits do not exceed
$1,000,000 in the aggregate, and (c) the funds so deposited do not remain in
such bank for more than 10 days.
A "Change of Control" of the Issuer will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates) or any Persons
acting together that would constitute a group (for purposes of Section 13(d) of
the Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of (a) 50%
or more of the total Voting Stock of the Issuer or (b) 50% of all classes of
Common Stock (whether voting or non-voting), taken as a whole, of the Issuer,
(iii) any Person (including a Person's Affiliates) or Group, other than a
Permitted Holder, becomes the beneficial owner of more than 30% of the total
Voting Stock of the Issuer, and the Permitted Holders beneficially own, in the
aggregate, a lesser percentage of the total Voting Stock of the Issuer than such
other Person or Group and the Permitted Holders do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Issuer, (iv) there shall be
consummated any consolidation or merger of the Issuer in which the Issuer is not
the continuing or surviving corporation or pursuant to which the Common Stock of
the Issuer would be converted into cash, securities or other Property, other
than a merger or consolidation of the Issuer in which the holders of the Common
Stock of the Issuer outstanding immediately prior to the consolidation or merger
hold, directly or indirectly, at least a majority of the Common Stock of the
surviving corporation immediately after such consolidation or merger, or (v)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Issuer (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Issuer has been approved by 66 2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Issuer.
"Chartwell" means Chartwell Investments Inc. and its Affiliates.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means all Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding-up
of such Person, to any other class of Capital Stock of such Person.
"Consolidated Interest Coverage Ratio" of any Person means the ratio of
(i) EBITDA of such Person for the four most recent consecutive fiscal quarters
for which financial statements are available or, if the Issuer is not in
compliance with its obligations under "--Reports to Holders" on the date of
determination, the four most recent consecutive quarters ending on or prior to
the date of determination (in either such case, the "Four Quarter Period") to
(ii) Consolidated Interest Expense of such Person for such Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "EBITDA" and "Consolidated Interest Expense" shall be
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calculated after giving effect on a pro forma basis to (i)(a) the incurrence
of any Indebtedness of such Person or any of its Restricted Subsidiaries (and
the application of the proceeds thereof) giving rise to the need to make such
calculation and (b) any incurrence or repayment of other Indebtedness (and
the application of the proceeds thereof), occurring on or after the first day
of the Four Quarter Period and on or prior to the date of determination, in
each case set forth in clauses (i)(a) and (b), as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period (except that
Indebtedness under any revolving credit facility shall be deemed to be the
average daily balance of such Indebtedness during such Four Quarter Period)
and (ii) any Asset Sales or Asset Acquisitions (including (x) any Person who
becomes a Restricted Subsidiary as a result of any such Asset Acquisition and
including any Asset Sale or Asset Acquisition during such Four Quarter Period
by any such Person determined as if such Person had been a Restricted
Subsidiary at the time of such transaction; provided, that all Indebtedness
of such Person and any such Restricted Subsidiaries shall be deemed to have
been incurred on the first day of the Four Quarter Period and (y) the
increase or decrease, as the case may be, in EBITDA directly attributable to
such Asset Sale or Asset Acquisition, as the case may be) occurring on or
after the first day of the Four Quarter Period and on or prior to the date of
determination, as if such Asset Sale or Asset Acquisition, as the case may
be, (including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. For
purposes of this definition, whenever pro forma effect is to be given to an
Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith shall be determined in good faith by a
responsible financial or accounting officer of the Issuer.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, without duplication, (i) the aggregate amount of interest charges
(excluding fees and expenses incurred in connection with the Transactions),
whether expensed or capitalized, incurred or accrued by such Person and its
Restricted Subsidiaries, determined on a consolidated basis in conformity with
GAAP for such period, plus (ii) to the extent not included in clause (i) above,
an amount equal to the sum of: (A) imputed interest included in Capitalized
Lease Obligations, (B) all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (C)
the net costs associated with Interest Rate Agreements, Currency Agreements and
other hedging obligations, (D) the interest portion of any deferred payment
obligations, (E) amortization of discount or premium on Indebtedness, if any,
(F) all capitalized interest and all accrued interest, (G) all other non-cash
interest expense, (H) all interest incurred or paid under any guarantee of
Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, and (I) all dividends or distributions on Disqualified
Capital Stock if payable to a Person other than the Issuer or a Restricted
Subsidiary (other than dividends paid or payable in shares of Capital Stock
(other than Disqualified Capital Stock) of the Issuer, in the case of Exchange
Indenture, and Junior Capital Stock (other than Disqualified Capital Stock) of
the Issuer, in the case of the Restated Certificate) declared and payable in
cash, minus (iii) to the extent included in clause (i) or (ii) above,
amortization or write-off of deferred financing costs (and original issue
discount to the extent it arises from the issuance of Capital Stock (other than
Disqualified Capital Stock) of the Issuer, in the case of the Exchange
Indenture, and Junior Capital Stock (other than Disqualified Capital Stock) of
the Issuer, in the case of the Restated Certificate) during such period and,
without duplication, any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness of the Issuer or its
Restricted Subsidiaries prior to the stated maturity thereof. If any
Indebtedness outstanding or to be incurred (x) bears a floating rate of
interest, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire Four Quarter Period (taking into account on a pro forma basis any
Interest Rate Agreement that has a remaining term as of the date of
determination in excess of 12 months), and/or (y) was incurred under a revolving
credit facility, the interest expense on such Indebtedness shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period. If any Indebtedness to be incurred bears, at the option of the Issuer or
a Restricted Subsidiary, a fixed or floating rate of interest, the interest
expense on such Indebtedness shall be computed by applying, at the option of the
Issuer or such Restricted Subsidiary, such fixed or floating rate.
"Consolidated Net Income" means with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, that (a) the Net Income of any Person that is not a
Restricted Subsidiary shall be included only to the extent of the amount of
dividends or other distributions representing the Issuer's proportionate share
of such Person's Net Income for such period actually paid in cash to the Issuer
or a Restricted Subsidiary (subject to clause (b) below) by such Person during
such period, (b) the Net Income of any Subsidiary of the Person in question that
is subject to any restriction or limitation on the payment of dividends or the
making of other distributions (other than pursuant to the New Credit Facility,
the Senior Notes, the Indenture, or any other Indebtedness of the Issuer or
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any Restricted Subsidiary of the Issuer containing, in the good faith
judgment of the Board of Directors of the Issuer, substantially the same or
less restrictive limitations on the payment of dividends or the making of
other distributions than those contained in such New Credit Facility, the
Senior Notes or the Indenture or the Exchange Debentures or the Exchange
Indenture) shall be excluded to the extent of such restriction or limitation
(regardless of any waiver thereof), (c)(i) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition and (ii) any net after tax gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) non-cash gains and losses due solely to fluctuations in currency values
shall be excluded, (e) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings (or losses) of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded, and (f) all
items classified as extraordinary, unusual or nonrecurring, including all
items relating to the Transactions and the pre-closing events relating
thereto shall be excluded (including the fees and expenses incurred in
connection with the Transactions and write-offs or other costs associated or
arising in connection with the Transactions). In computing Consolidated Net
Income under clause (c) under the "--Certain Covenants--Limitations on
Restricted Payments" covenant, the Issuer or such Restricted Subsidiary (i)
shall use audited financial statements for the portion of the relevant period
for which such statements are available on the date of determination and
unaudited financial statements and other current financial data based on the
books and records of the Issuer for the remaining portion of such period and
(ii) shall be permitted to rely in good faith for the balance of the relevant
period for which audited financial statements are not available on the
financial statements and other financial data derived from the books and
records of the Issuer or such Restricted Subsidiary that are available on the
date of determination.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its Restricted Subsidiaries determined
on a consolidated basis in accordance with GAAP, less (to the extent included)
amounts attributable to Disqualified Capital Stock of such Person.
"Consolidated Tangible Assets" of any Person means the consolidated
tangible assets of such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP as of the end of the most recent
fiscal quarter for which financial statements are available or, if the Issuer is
not in compliance with its obligations under "--Reports to Holders" on the date
of determination, the end of the most recent quarter ending on or prior to the
date of determination.
"Credit Facilities" means one or more senior secured or unsecured credit
facilities providing, inter alia, for revolving credit loans, term loans,
bankers' acceptances and/or letters of credit between the Issuer or its
Restricted Subsidiaries and one or more lenders, including, in each case, any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced, restated or refinanced in whole or in part from
time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any Restricted Subsidiary of the Issuer against fluctuations in
currency values.
"Designated Senior Indebtedness" as to the Issuer or any Subsidiary, as
the case may be, means any Senior Indebtedness (a) under the Credit Facilities,
(b) under any Surety Arrangements or (c) which has at the time of initial
issuance an aggregate principal amount outstanding or available under a
committed facility in excess of $10 million and which has been so designated as
Designated Senior Indebtedness by the Board of Directors of the Issuer at the
time of initial issuance in a resolution delivered to the Debenture Trustee.
"Disqualified Capital Stock" means any Capital Stock of the Issuer or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to (i) the mandatory redemption date of the Series A Senior Preferred
Stock or (ii) the maturity date of the Exchange Debentures, as the case may be,
for any consideration other than Capital Stock of the Issuer which is not
Disqualified Capital Stock; provided, that the Series A Senior Preferred Stock
shall not be deemed to be Disqualified Capital Stock and Preferred Stock of the
Issuer that is issued with the benefit of provisions requiring a change of
control offer to be made for such Preferred Stock in the event of a change of
control of the Issuer, which provisions have substantially the same effect as
the provisions of the Exchange Indenture or the Restated Certificate,
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as applicable, described under "--Change of Control Offer" shall not be
deemed to be Disqualified Capital Stock solely by virtue of such provisions.
Without limitation of the foregoing, Disqualified Capital Stock shall be
deemed to include any Preferred Stock of a Restricted Subsidiary of the
Issuer except for Permitted Foreign Restricted Subsidiary Preferred Stock.
"EBITDA" means, for any Person, for any period, an amount equal to (a)
the sum of (i) Consolidated Net Income for such period, plus (ii) the
provision for taxes for such period based on income or profits to the extent
such income or profits were included in computing Consolidated Net Income
(minus any provision for taxes utilized in computing net loss under clause
(i) hereof to the extent such provision reduced the net loss), plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for
such period on a consolidated basis to the extent reducing Consolidated Net
Income, plus (v) amortization of intangibles for such period on a
consolidated basis to the extent reducing Consolidated Net Income, plus (vi)
amortization of original issue discount to the extent it arises from the
issuance of Capital Stock (other than Disqualified Capital Stock) of the
Issuer, in the case of the Exchange Indenture, and Junior Capital Stock
(other than Disqualified Capital Stock) of the Issuer, in the case of the
Restated Certificate, to the extent reducing Consolidated Net Income, plus
(vii) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity to the
extent reducing Consolidated Net Income, plus (viii) any other non-cash items
reducing Consolidated Net Income for such period, minus (b) all non-cash
items increasing Consolidated Net Income for such period, minus (c) all cash
payments during such period relating to non-cash charges that were added back
in determining EBITDA in any prior period, (provided that payment of such
cash amounts did not reduce Consolidated Net Income) all for such Person and
its Restricted Subsidiaries determined in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or Property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair Market
Value shall be determined by the Board of Directors of the Issuer acting in good
faith and, in the case of determination involving assets or property in excess
of $2 million, shall be evidenced by a resolution of the Board of Directors of
the Issuer delivered to the Trustee.
"Foreign Restricted Subsidiary" of any specified Person means any
Restricted Subsidiary the jurisdiction of incorporation, organization or
formation of which is outside of the United States, Canada, the United Kingdom
and South Africa.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantee" means a guarantee of the Senior Notes by a guarantor under the
Indenture, as in effect from time to time.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit. A guarantee shall include, without
limitation, any agreement to preserve or maintain any other Person's financial
condition or to cause any other Person to achieve certain levels of operating
results.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided, that a change in GAAP that results in
an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an incurrence of such Indebtedness.
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"Indebtedness" means (without duplication), with respect to any Person,
any indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
Property (excluding, without limitation, any balances that constitute
accounts payable or trade payables or liabilities arising from advance
payments or customer deposits for goods and services sold by such Person or
its Restricted Subsidiaries in the ordinary course of business, and other
accrued liabilities, in each case, arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear
as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i)
any Capitalized Lease Obligations, (ii) guarantees of items of other Persons
which would be included within this definition for such other Persons
(whether or not such items would appear upon the balance sheet of the
guarantor), including, without limitation, guarantees of dividends for which
such Person may be liable directly or indirectly, (iii) all obligations for
the reimbursement of any obligor on any letter of credit, banker's acceptance
or similar credit transaction (provided that in the case of any such letters
of credit, the items for which such letters of credit provide credit support
are those of other Persons which would be included within this definition for
such other Persons), (iv) Disqualified Capital Stock of the Issuer or any
Restricted Subsidiary thereof, including, without limitation, any liquidation
preference and mandatory redemption payment obligations in respect thereof
and (v) obligations of any such Person under any Interest Rate Agreement or
Currency Agreement applicable to any of the foregoing (if and to the extent
such Interest Rate Agreement or Currency Agreement obligations would appear
as a liability upon a balance sheet of such Person prepared in accordance
with GAAP). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations included within
the definition of Indebtedness, the maximum liability upon the occurrence of
the contingency giving rise to the obligation, provided, that (i) the amount
outstanding at any time of any Indebtedness issued with original issue
discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at
such time as determined in conformity with GAAP but such Indebtedness shall
only be deemed to have been incurred on the date of original issuance thereof
and, in the case of any securities constituting Indebtedness, the payment of
interest upon which is in such securities, such Indebtedness shall only be
deemed to have been incurred on the date of issuance of the original
securities constituting such Indebtedness, (ii) Indebtedness shall not
include any liability for federal, state, local, foreign or other taxes and
(iii) contingent obligations of the Issuer or any of its Restricted
Subsidiaries under any Surety Obligation will be deemed to be Indebtedness
only upon the earlier of (a) the Issuer's or any Restricted Subsidiary's
obtaining knowledge of any payment by or in respect of any provider in
respect of any Surety Obligation, (b) the demand by any provider for any
reimbursement by the Issuer or any of its Restricted Subsidiaries of any
Surety Obligation or (c) the time at which the Issuer or any of its
Restricted Subsidiaries becomes obligated to make payment in respect of any
Surety Obligation as a result of the provider having made a payment in
respect of such Surety Obligation or as a result of such payment being
required to be made by such provider. Notwithstanding any other provision of
the foregoing definition, any trade or accounts payable arising from the
purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Issuer or
any Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Indenture" means the Indenture relating to the Senior Notes, as in effect
on the Issue Date.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance (or other
extension of credit), loan or capital contribution to (by means of transfers of
Property to others, payments for Property or services for the account or use of
others or otherwise), any guarantee of any obligations or Indebtedness of any
other Person, the purchase of any stock, bonds, notes, debentures, partnership
or joint venture interests or other securities of, the acquisition, by purchase
or otherwise, of any evidence of beneficial ownership of, or interest in, any
Person. Upon the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary or the acquisition by the Issuer or a Restricted Subsidiary of an
interest in any Person that, as a result thereof, becomes a Restricted
Subsidiary, the Issuer shall be deemed to have made an Investment equal to the
Fair Market Value of all Investments owned by such new Restricted Subsidiary.
Investments shall exclude (i) accounts receivable and other extensions of trade
credit, in each case, on
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commercially reasonable terms in accordance with normal trade practices, (ii)
prepaid expenses and workers' compensation, utility, lease and similar
deposits, in the ordinary course of business and (iii) acquisitions of
Property or assets paid for solely by the issuance of Capital Stock (other
than Disqualified Capital Stock) of the Issuer.
"Issue Date" means March 30, 1998, the date of original issuance of the
Old Series A Senior Preferred Stock.
"Joint Venture" of any specified Person means any corporation,
partnership, joint venture, limited liability company, association or other
business entity, whether now existing or hereafter organized or acquired, and
(a) which is engaged in a similar line of business as the Issuer or any
Restricted Subsidiary at the date of determination and (b)(i) in the case of a
corporation, of which not more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by the Issuer or
any of its Restricted Subsidiaries, or (ii) in the case of a partnership, joint
venture, limited liability company, association or other business entity, with
respect to which the Issuer or any of its Restricted Subsidiaries has not more
than 50% of the ownership and voting power relating to the policies, management
and affairs thereof.
"Junior Capital Stock" means Capital Stock of the Issuer, including the
Series B Junior Preferred Stock and the Series C Junior Voting Preferred Stock,
that does not rank, as to the payment of dividends or other comparable
distributions or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Issuer, prior to or on
a parity with the Series A Senior Preferred Stock.
"Lien" means with respect to any Property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"MHE Investments" means MHE Investments, Inc., a Delaware corporation.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP, plus the amount
of any decrease in the deferred tax asset for such period relating to the actual
cash tax benefit realized by such Person or the consolidated tax group of which
such Person is a member resulting from the election under Section 338(h)(10) of
the Code in respect of the Transactions.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Issuer, the aggregate net proceeds received by the Issuer, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in Property (valued at the Fair Market Value
thereof at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of outstanding securities of any kind for or into shares
of Capital Stock of the Issuer which is not Disqualified Stock, the net book
value of such outstanding securities on the date of such exchange, exercise,
conversion or surrender (plus any additional amount required to be paid by the
holder to the Issuer upon such exchange, exercise, conversion or surrender) less
any and all payments made to the holders, e.g., on account of fractional shares
and less all expenses incurred by the Issuer in connection therewith.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any then outstanding Designated Senior Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board, the Chief Executive Officer, the President
or any Vice President and the Chief Financial Officer or any Treasurer of such
Person that shall comply with applicable provisions of the Exchange Indenture.
"Payment Default" means any default in the payment of principal of (or
premium, if any) or interest on or any other amount payable in connection with
Designated Senior Indebtedness.
"Permitted Affiliate Agreements" means the agreements between or among the
Issuer and each of MHE Investments, HarnCo, Chartwell and their respective
Affiliates, listed in the Restated Certificate or the Exchange Indenture, as the
case may be, in effect immediately after the initial issuance of the Old Series
A Senior Preferred
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Stock on the Issue Date, and as the same may be amended from time to time
subject to the provisions of the covenant described under "--Certain
Covenants--Limitation on Transactions with Affiliates," provided, that
notwithstanding such covenant, such agreements may be extended from time to
time or otherwise amended, to the extent that a majority of the disinterested
members of the Board of Directors of the Issuer has determined in good faith
that no material adverse effect on the creditworthiness of the Issuer and its
Restricted Subsidiaries, taken as a whole, shall result as a consequence
thereby. See "Certain Relationships and Related Transactions" above.
"Permitted Foreign Restricted Subsidiary Preferred Stock" means securities
of Foreign Restricted Subsidiaries of the Issuer denominated in Preferred Stock
that (a) otherwise have substantially the same characteristics of voting or
non-voting Common Stock of a Delaware corporation, (b) do not obligate the
issuer to pay current dividends or distributions in cash or otherwise and (c)
are not subject to any requirement of redemption or repurchase.
"Permitted Holders" means Chartwell.
"Permitted Indebtedness" means:
(i) Indebtedness of the Issuer or any Restricted Subsidiary arising
under or in connection with the Credit Facilities or Acquired Indebtedness
in an aggregate principal amount at any one time outstanding not to exceed
the sum of (a) $55 million, less the aggregate amount of all Net Proceeds
of Asset Sales applied to permanently reduce the outstanding amount of
such Indebtedness, and (b) the greater of (1) $75 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the outstanding amount of such Indebtedness or (2) the sum of (x)
80% of the book value of accounts receivable of the Issuer and its
Restricted Subsidiaries and (y) 45% of the book value of consolidated
inventory of the Issuer and its Restricted Subsidiaries, in each case,
determined at the time of such incurrence, less the aggregate amount of
all Net Proceeds of Asset Sales applied to permanently reduce the
outstanding amount of such Indebtedness; provided, that $15 million of the
Indebtedness incurred under this clause (b) may be incurred solely to
obtain letters of credit and to fund draws thereunder to provide credit
support for the Surety Arrangement or other Surety Obligations or other
letters of credit reasonably necessary in the ordinary course of business;
(ii) Indebtedness under Surety Obligations and under the Surety
Arrangement, in either case, that are due not later than 10 days after the
earlier of (a) the Issuer's or any Restricted Subsidiary's obtaining
knowledge of any payment by or in respect of any provider in respect of
any Surety Obligation, (b) the demand by any provider for any
reimbursement by the Issuer or any of its Restricted Subsidiaries of any
Surety Obligation or (c) the time at which the Issuer or any of its
Restricted Subsidiaries becomes obligated to make payment in respect of
any Surety Obligation as a result of the provider having made a payment in
respect of such Surety Obligation or as a result of such payment being
required to be made by such provider;
(iii) Indebtedness under the Exchange Debentures, the Exchange
Indenture, the Senior Notes, the Indenture and the Guarantees;
(iv) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date other than under the South African
Credit Facility;
(v) Indebtedness of the Issuer to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Issuer or another
Restricted Subsidiary, provided that Indebtedness of the Issuer or any
Wholly-Owned Subsidiary to any Restricted Subsidiary (other than a
Wholly-Owned Subsidiary) is incurred for borrowed money; provided,
further, that any Indebtedness otherwise referred to in this clause (v)
that is no longer held by a Restricted Subsidiary or the Issuer (whether
(i) as a result of a sale or transfer of such Indebtedness, (ii) as a
result of such Person no longer being the Issuer or a Restricted
Subsidiary or (iii) otherwise), shall, in each case, be deemed incurred at
such time;
(vi) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire Property in the ordinary course of business, which
Indebtedness and Capitalized Lease Obligations, in the aggregate,
outstanding on any date of incurrence (and any Refinancing Indebtedness in
respect thereof), do not exceed 4% of the Consolidated Tangible Assets of
the Issuer and its Restricted Subsidiaries;
(vii) Interest Rate Agreements and Currency Agreements;
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(viii) guarantees of obligations of the Issuer or its Restricted
Subsidiaries;
(ix) additional Indebtedness of the Issuer or its Restricted
Subsidiaries not to exceed an aggregate of $10 million in principal amount
outstanding at any time; and
(x) Refinancing Indebtedness in respect of Indebtedness incurred
under clauses (iii), (iv), (v) and (vii) above or incurred pursuant to the
first paragraph of the covenant under "--Certain Covenants--Limitation on
Additional Indebtedness."
"Permitted Investments" means, for any Person, Investments made on or
after the Issue Date consisting of:
(i) Investments by the Issuer, or by a Restricted Subsidiary, in the
Issuer or a Restricted Subsidiary;
(ii) Cash Equivalents;
(iii) Investments by the Issuer, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Issuer or (b) such person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets (including the proceeds of such
Investment) to, or is liquidated into, the Issuer or a Restricted
Subsidiary thereof;
(iv) non-cash consideration received in conjunction with the
consummation of an Asset Sale that is otherwise permitted under the
covenant described under "--Certain Covenants--Limitation on Certain Asset
Sales";
(v) Interest Rate Agreements and Currency Agreements;
(vi) any Investment existing on the Issue Date;
(vii) Investments received in settlement of obligations owed to the
Issuer or any Restricted Subsidiary as a result of bankruptcy or
insolvency proceedings or upon the foreclosure or enforcement of any Lien
in favor of the Issuer or any Restricted Subsidiary;
(viii) Investments required pursuant to any agreement or obligation
of the Issuer or a Restricted Subsidiary to make such Investments in
effect on the Issue Date, as described in the Restated Certificate or the
Exchange Indenture, as the case may be;
(ix) Investments required to be made pursuant to the Transactions,
as described in the Restated Certificate or the Exchange Indenture, as the
case may be; and
(x) Investments by the Issuer or any Restricted Subsidiary not
otherwise permitted under this definition, in an aggregate amount not to
exceed $15 million at any one time outstanding.
For purposes of clause (x) above, the amount of any Investment
outstanding, in respect of any Investment and the issuer thereof (and its
Subsidiaries), shall be equal to the excess of (a) the aggregate amount of
all Investments made therein by the Issuer or any Restricted Subsidiary on or
after the Issue Date (including the Fair Market Value of all such Investments
not made in cash or Cash Equivalents, valued at the time of such Investment)
over (b) the aggregate amount returned in cash or Cash Equivalents on or with
respect to Investments in such Person (whenever such Investment was made)
whether through the sale or other disposition of the Investment in such
Person (or portion thereof) or through interest payments, principal payments,
dividends or other distributions or payments; provided, that such payments or
distributions shall not be (and have not been) included in clause (c)(3) of
the first paragraph of the covenant "--Certain Covenants--Limitation on
Restricted Payments" or otherwise included in Consolidated Net Income.
"Permitted Junior Securities" means debt or equity securities of the
Issuer or any successor corporation provided for by a plan of reorganization or
readjustment that are subordinated to the Exchange Debentures at least to
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the same extent that the Exchange Debentures are subordinated to the payment
of all Senior Indebtedness then outstanding.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means any underwritten public offering of shares
of Common Stock (however designated and whether voting or non-voting) of the
Issuer or the Company and any and all rights, warrants or options to acquire
such Common Stock pursuant to an effective registration statement (other than a
registration statement on Form S-4 or S-8) filed with the Commission in
accordance with the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including sales and
excise taxes, installation and delivery charges and other direct costs of, and
other direct expenses paid or charged in connection with, such purchase or
construction) of an item of Property, the principal amount of which Indebtedness
does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and
expenses of such Person incurred in connection therewith.
"Refinancing Indebtedness" means Indebtedness that refunds or refinances
any Indebtedness of the Issuer or its Restricted Subsidiaries outstanding on the
Issue Date or other Indebtedness permitted to be incurred by the Issuer or its
Restricted Subsidiaries pursuant to the terms of the Restated Certificate or the
Exchange Indenture, as the case may be, but only to the extent that (i) in the
case of Exchange Debentures, if the Indebtedness being refunded or refinanced is
Subordinated Indebtedness, the Refinancing Indebtedness is subordinated to
Exchange Debentures, to at least the same extent as the Indebtedness being
refunded or refinanced, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded or refinanced, or (b)
at least 91 days after (i) the mandatory redemption date of the Series A Senior
Preferred Stock or (ii) the final stated maturity date of the Exchange
Debentures, as the case may be, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to (i) the mandatory
redemption date of the Series A Senior Preferred Stock or (ii) the final stated
maturity date of the Exchange Debentures, as the case may be, has a weighted
average life to maturity at the time such Refinancing Indebtedness is incurred
that is equal to or greater than the weighted average life to maturity of the
portion of the Indebtedness being refunded or refinanced that is scheduled to
mature on or prior to (x) the mandatory redemption date of the Series A Senior
Preferred Stock or (y) the final stated maturity date of the Exchange
Debentures, as the case may be, and, in the case of clause (ii) above and this
clause (iii), such Refinancing Indebtedness by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, does not
permit redemption or other retirement (including pursuant to any required offer
to purchase to be made by the Issuer or a Restricted Subsidiary) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refinanced, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to a required offer to purchase made by the Issuer or a Restricted Subsidiary)
which is conditioned on a change of control of the Issuer pursuant to
provisions substantially similar to those contained in the Exchange Indenture
described under "--Change of Control" or "Asset Sales" or otherwise on terms
substantially similar to those in such Indebtedness being refinanced, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded or refinanced, (b) the amount of accrued and
unpaid interest, if any, and premiums owed, if any, not in excess of
pre-existing prepayment provisions on such Indebtedness being refunded or
refinanced and (c) the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness, and (v) such Refinancing
Indebtedness is incurred by the same Person that initially incurred the
Indebtedness being refunded or refinanced, except that the Issuer may incur
Refinancing Indebtedness to refund or refinance Indebtedness of any Wholly-Owned
Subsidiary of the Issuer and any Restricted Subsidiary may incur Refinancing
Indebtedness to refund or refinance Indebtedness of any other Restricted
Subsidiary.
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"Replacement Assets" means (x) Properties or assets (other than cash or
Cash Equivalents or any Capital Stock or other security) that will be used in a
business of the Issuer and the Restricted Subsidiaries conducted on the Issue
Date or in a business reasonably related thereto or (y) Capital Stock of any
Person that will become on the date of acquisition thereof a Restricted
Subsidiary as a result of such acquisition.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment of any kind or
character (whether in cash, Property or securities) on Junior Capital Stock of
the Issuer or Capital Stock of any Restricted Subsidiary, in the case of the New
Series A Senior Preferred Stock, or Capital Stock of the Issuer or any
Restricted Subsidiary of the Issuer, in the case of the Exchange Debentures, or
any payment made to the direct or indirect holders (in their capacities as such)
of Junior Capital Stock of the Issuer or Capital Stock of any Restricted
Subsidiary of the Issuer, in the case of the New Series A Senior Preferred
Stock, or Capital Stock of the Issuer or Capital Stock of any Restricted
Subsidiary of the Issuer, in the case of the Exchange Debentures (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) of the Issuer, in the case of the Exchange
Indenture, or Junior Capital Stock (other than Disqualified Capital Stock) of
the Issuer, in the case of the Restated Certificate, and (y) dividends or
distributions payable to the Issuer or to a Restricted Subsidiary of the Issuer
and (z) dividends or distributions from a Restricted Subsidiary of the Issuer
that are paid ratably to all Persons holding the Capital Stock of such
Restricted Subsidiary in proportion to the Capital Stock held by such Persons),
(ii) the purchase, redemption or other acquisition or retirement for value of
any Junior Capital Stock of the Issuer or any Capital Stock of any of its
Restricted Subsidiaries or any options, warrants or rights to purchase or
acquire such shares or any securities convertible or exchangeable into such
shares (other than any such shares, options, warrants, rights or securities (a)
that are owned by the Issuer or a Restricted Subsidiary of the Issuer; provided,
that such options, warrants, rights or securities are purchased, redeemed or
otherwise acquired for value by the issuer thereof, or (b) the issuer of which
is a Restricted Subsidiary; provided, that, for purposes of this clause (b),
such purchase, redemption or other acquisition or retirement for value is (A)
permitted under clauses (viii) or (x) of the definition of Permitted Investments
or (B) in an amount, which, when added to all other Restricted Payments made
pursuant to this clause (b), is not greater than 10% of Consolidated Tangible
Assets of the Issuer and its Restricted Subsidiaries), (iii) as to the Exchange
Debentures, the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Subordinated Indebtedness (other than Subordinated Indebtedness acquired
in anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition), (iv) the making of any Investment other than a Permitted
Investment, (v) any designation (other than pursuant to clause (x) of the
definition of Permitted Investments) of a Restricted Subsidiary as an
Unrestricted Subsidiary (a "Designation"), provided, that the Designation of a
Subsidiary of the Issuer as an Unrestricted Subsidiary shall be deemed to
include the Designation of all of the Subsidiaries of such Subsidiary that were
Restricted Subsidiaries, (vi) forgiveness of any Indebtedness of an Affiliate of
the Issuer to the Issuer or a Restricted Subsidiary and (vii) any advisory fee
paid to an Affiliate with respect to a specific transaction (other than fees
payable on the Issue Date upon consummation of the Transactions). For purposes
of determining the amount expended for Restricted Payments, (a) cash distributed
or invested shall be valued at the face amount thereof and Property other than
cash shall be valued at its Fair Market Value, except that in determining the
amount of any Restricted Payment made under clause (v) above, the amount of such
Restricted Payment shall be equal to the greater of (i) the book value or (ii)
the Fair Market Value of the Issuer's direct and indirect proportionate interest
in such Subsidiary on such date and (b) upon the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary, or the acquisition by the Issuer or a
Restricted Subsidiary of an interest in any Person that, as a result thereof,
becomes a Restricted Subsidiary, the Issuer shall be deemed to have made a
Restricted Payment equal to the Fair Market Value of the Capital Stock or, with
respect to the Exchange Debentures, Subordinated Indebtedness of the Issuer or
its Restricted Subsidiaries owned by such new Restricted Subsidiaries.
"Restricted Subsidiary" means a Subsidiary of the Issuer other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Issuer
existing as of the Issue Date. The Board of Directors of the Issuer may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), (i) no Voting Rights Triggering Event or Default or Event
of Default, as the case may be, shall have occurred and be continuing, (ii)
Indebtedness of such Person and its Subsidiaries outstanding immediately
following such redesignation would, if incurred at such time, be permitted to be
incurred under the Restated Certificate or the Exchange Indenture and (iii) the
provisions referred to in clause (b) of the last sentence of the definition of
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Restricted Payment is complied with and any Investments pursuant to the second
sentence of the definition of Investments are permitted to be made pursuant to
the Restated Certificate or the Exchange Indenture.
"Seller Note" means any Indebtedness of the Issuer or any Restricted
Subsidiary issued to a seller as a portion of the purchase price in any Asset
Acquisition by the Issuer or such Restricted Subsidiary from such seller.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including post-petition interest) on, and any and all other fees,
expense reimbursement obligations and other amounts due pursuant to the terms of
all agreements, documents and instruments providing for, creating, securing or
evidencing or otherwise entered into in connection with (a) all Indebtedness of
the Issuer owed to lenders under any Credit Facility or any Surety Arrangement,
(b) all obligations of the Issuer with respect to any Interest Rate Agreement or
any Currency Agreement, (c) all obligations of the Issuer to reimburse any bank
or other person in respect of amounts paid under letters of credit, banker's
acceptances or other similar instruments, (d) all other Indebtedness of the
Issuer which does not provide that it is to rank in right of payment pari passu
with or subordinate to the Exchange Debentures, and (e) all deferrals, renewals,
extensions and refundings of, and amendments, modifications and supplements to,
any of the Senior Indebtedness described above. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness
of the Issuer to any of its Subsidiaries, (ii) Indebtedness represented by the
Exchange Debentures, (iii) any Indebtedness which by the express terms of the
agreement or instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness (including,
without limitation, Indebtedness represented by Disqualified Stock), (iv) any
trade payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business, (v) Indebtedness incurred in
violation of the Exchange Indenture or (vi) any Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such Person.
"Senior Notes" means the $200,000,000 aggregate principal amount of 9 1/2%
Senior Notes due 2008 of the Company.
"Series B Junior Preferred Stock" means the 12 1/4% Series B Junior
Exchangeable Preferred Stock of the Issuer, liquidation preference $1,000 per
share.
"Series C Junior Voting Preferred Stock" means the 12 1/2% Series C Junior
Exchangeable Voting Preferred Stock of the Issuer, liquidation preference $1,000
per share.
"Significant Subsidiary" has the meaning set forth in Rule 1-02 of
Regulation S-X under the Securities Act and the Exchange Act, but shall not
include any Unrestricted Subsidiary.
"South African Credit Facility" means a Credit Facility in an aggregate
principal amount or with aggregate commitments not to exceed $5 million to be
entered into by Morris Mechanical Handling (Pty) Ltd.
"Subordinated Indebtedness" of the Issuer means any Indebtedness (whether
outstanding on the date hereof or hereafter incurred) which is by its terms
expressly subordinate or junior in right of payment to the Exchange Debentures
to substantially the same extent as the Exchange Debentures are subordinated to
Senior Indebtedness.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, limited liability company, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total Voting Stock is held by such
first-named Person or any of its Subsidiaries or (ii) in the case of a
partnership, joint venture, limited liability company, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has at least a majority ownership and voting power relating to the
policies, management and affairs thereof.
"Surety Arrangement" means one or more surety arrangements providing,
inter alia, for the issuance of Surety Obligations between the Issuer or any of
its Restricted Subsidiaries and one or more providers, provided to the Issuer or
its Restricted Subsidiaries including, in each case, any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced, restated or refinanced from time to time.
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"Surety Obligations" means any bonds, including bid bonds, advance bonds,
or performance bonds, letters of credit, warranties, and similar arrangements
between the Issuer and any of its Restricted Subsidiaries and one or more
providers, for the benefit of the Issuer's or any Restricted Subsidiary's
suppliers, vendors, insurers or customers including, in each case, any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced, restated or refinanced from time to time.
"Tax Allocation Agreement" means a tax allocation agreement among the
Issuer, the Company and MHE Investments, as in effect on the Issue Date and as
the same may be amended from time to time subject to the provisions of the
covenant described under "--Certain Covenants--Limitation on Transactions with
Affiliates" and provided, that no material adverse effect on Issuer or on the
holders of the New Series A Senior Preferred Stock or the Exchange Debentures,
as the case may be, shall result as a consequence thereby.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Issuer which is classified (whether on
or after the Issue Date) as an Unrestricted Subsidiary by a resolution adopted
by the Board of Directors of the Issuer; provided, that a Subsidiary may be so
classified as an Unrestricted Subsidiary only if (i) such classification in
compliance with the covenant set forth under "--Certain Covenants--Limitation on
Restricted Payments," (ii) such Subsidiary does not own beneficially any Capital
Stock of the Issuer or any Restricted Subsidiary (other than any Restricted
Subsidiary of such Subsidiary that is being designated as an Unrestricted
Subsidiary at the time of such classification) and (iii) all Indebtedness of the
Issuer or any Restricted Subsidiary to such Subsidiary is deemed incurred at the
time of such classification or at the time such Capital Stock is no longer so
owned. The Debenture Trustee shall be given prompt notice by the Issuer of each
resolution adopted by the Board of Directors of the Issuer under this provision,
together with a copy of each such resolution adopted. The Restated Certificate
and the Exchange Indenture will provide that the Issuer shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, at any time, (a) be
liable for any Indebtedness of any Unrestricted Subsidiary or (b) be liable for
any Indebtedness that provides that the holder thereof may (upon notice, lapse
of time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final maturity upon the occurrence of a
default with respect to any Indebtedness of any Unrestricted Subsidiary.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding Voting Stock (other than directors' qualifying shares) of which are
owned, directly or indirectly, by the Issuer.
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PREFERRED STOCK EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the issuance of the Old Series A Senior Preferred
Stock, the Issuer entered into the Exchange Offer Registration Rights Agreement
pursuant to which it agreed, for the benefit of the holders of the Old Series A
Senior Preferred Stock, that it would, at its cost, (i) within 60 days after the
date of original issue of the Old Series A Senior Preferred Stock, file a
registration statement (the "Series A Senior Preferred Stock Exchange Offer
Registration Statement") with the Commission with respect to a registered offer
to exchange the Old Series A Senior Preferred Stock for preferred stock of the
Issuer of the same series with terms substantially identical in all material
respects to the Old Series A Senior Preferred Stock, and (ii) within 135 days
after the Issue Date, use its best efforts to cause the Series A Senior
Preferred Stock Exchange Offer Registration Statement to be declared effective
under the Securities Act. The form and terms of the shares of New Series A
Senior Preferred Stock are identical in all material respects to the form and
terms of the shares of Old Series A Senior Preferred Stock except (i) that the
shares of New Series A Senior Preferred Stock have been registered under the
Securities Act, (ii) that the shares of New Series A Senior Preferred Stock are
not entitled to certain registration rights which are applicable to the shares
of Old Series A Senior Preferred Stock and (iii) certain contingent interest
rate provisions applicable to shares of Old Series A Senior Preferred Stock are
generally not applicable to the shares of New Series A Senior Preferred Stock.
Upon the Series A Senior Preferred Stock Exchange Offer Registration Statement
being declared effective, the Issuer has agreed to offer the New Series A Senior
Preferred Stock in exchange for surrender of the Old Series A Senior Preferred
Stock. The Issuer has agreed to keep the Exchange Offer open for not less than
30 days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Series A Senior Preferred
Stock. For each share of Old Series A Senior Preferred Stock surrendered to the
Issuer pursuant to the Exchange Offer, the holder of such share of Old Series A
Senior Preferred Stock will receive such New Series A Senior Preferred Stock
having a liquidation preference equal to that of the surrendered shares of Old
Series A Senior Preferred Stock. Dividends on the New Series A Senior Preferred
Stock will accrue from March 30, 1998. The Exchange Offer is being made to
satisfy the contractual obligations of the Issuer under the Exchange Offer
Registration Rights Agreement.
Under existing Commission interpretations, the New Series A Senior
Preferred Stock would in general be freely transferable after the Exchange Offer
without further registration under the Securities Act; provided that in the case
of broker-dealers, a prospectus meeting the requirements of the Securities Act
be delivered as required. The Issuer has agreed for a period of 180 days after
consummation of the Exchange Offer to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such New Series A Senior Preferred Stock acquired as
described below. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act, and will be bound by the
provisions of the Exchange Offer Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Old Series A Senior Preferred Stock that wishes to exchange
such Old Series A Senior Preferred Stock for New Series A Senior Preferred Stock
in the Exchange Offer will be required to make certain representations including
representations that (i) any New Series A Senior Preferred Stock to be received
by it will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Series
A Senior Preferred Stock and (iii) it is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Issuer, or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the New Series A Senior Preferred Stock. If the holder is a broker-dealer that
will receive New Series A Senior Preferred Stock for its own account in exchange
for Old Series A Senior Preferred Stock that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Series A Senior Preferred Stock.
In the event that applicable interpretations of the staff of the
Commission do not permit the Issuer to effect such a Exchange Offer, or if
for any other reason the Exchange Offer is not consummated within 180 days of
the date of the Exchange Offer Registration Rights Agreement, the Issuer
will, at its own expense, (a) as promptly as practicable, file A Senior
Preferred Stock Shelf Registration Statement covering resales of the Old
Series A Senior Preferred Stock (the "Series A Senior Preferred Stock Shelf
Registration Statement"), (b) use its best efforts to cause
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the Series A Senior Preferred Stock Shelf Registration Statement to be
declared effective under the Securities Act and (c) use its best efforts to
keep effective the Series A Senior Preferred Stock Shelf Registration
Statement until two years after its effective date. The Issuer will, in the
event of the Series A Senior Preferred Stock Shelf Registration Statement,
provide to each holder of the Old Series A Senior Preferred Stock copies of
the prospectus which is a part of the Series A Senior Preferred Stock Shelf
Registration Statement, notify each such holder when the Series A Senior
Preferred Stock Shelf Registration Statement for the Old Series A Senior
Preferred Stock has become effective and take certain other actions as are
required to permit unrestricted resales of the Old Series A Senior Preferred
Stock. A holder of the Old Series A Senior Preferred Stock that sells such
Old Series A Senior Preferred Stock pursuant to the Series A Senior Preferred
Stock Shelf Registration Statement generally would be required to be named as
a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange Offer Registration Rights Agreement
which are applicable to such a holder (including certain indemnification
rights and obligations).
Although the Issuer intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Issuer fails to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional dividends shall become
payable in respect of the Old Series A Senior Preferred Stock as follows:
If (i) the Series A Senior Preferred Stock Exchange Offer
Registration Statement is not filed within 60 days after the Issue Date;
(ii) the Series A Senior Preferred Stock Exchange Offer Registration
Statement or Preferred Stock Shelf Registration Statement is not declared
effective within 135 days after the Issue Date; and
(iii) either (A) the Issuer has not exchanged the New Series A
Senior Preferred Stock for all Old Series A Senior Preferred Stock validly
tendered in accordance with the terms of the Exchange Offer on or prior to
45 days after the date on which the Series A Senior Preferred Stock
Exchange Offer Registration Statement was declared effective or (B) the
Series A Senior Preferred Stock Exchange Offer Registration Statement
ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Series A Senior Preferred
Stock Shelf Registration Statement has been declared effective and such
Series A Senior Preferred Stock Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of its effective
date;
(each such events referred to in clauses (i) through (iii) above is a "Preferred
Stock Registration Default"), the sole remedy available to holders of the Old
Series A Senior Preferred Stock will be the immediate assessment of additional
dividends ("Additional Dividends") as follows: the per annum dividend rate on
the Old Series A Senior Preferred Stock will increase by 50 basis points; and
the per annum dividend rate will increase by an additional 25 basis points for
each subsequent 90-day period during which the Preferred Stock Registration
Default remains uncured, up to a maximum additional dividend rate of 200 basis
points per annum in excess of the dividend rate originally borne by the Old
Series A Senior Preferred Stock. All Additional Dividends will be payable to
holders of the Old Series A Senior Preferred Stock in cash or, at the option of
the Issuer, in additional shares of Old Series A Senior Preferred Stock on any
dividend payment date occurring on or prior to April 1, 2003 (and, at the
Issuer's option, payment of cash in lieu of fractional shares) on the same
original dividend payment dates commencing with the first such date occurring
after any such Additional Dividend commences to accrue, until such Preferred
Stock Registration Default is cured. After the date on which such Preferred
Stock Registration Default is cured, the dividend rate on the Old Series A
Senior Preferred Stock will revert to the dividend rate originally borne by the
Old Series A Senior Preferred Stock.
The summary herein of certain provisions of the Exchange Offer
Registration Rights Agreement does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Exchange Offer Registration Rights Agreement, a copy of which will be available
upon request to the Issuer.
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DESCRIPTION OF THE OTHER CAPITAL STOCK
The following summary of the capital stock of the Issuer does not purport
to be complete and is qualified in its entirety by reference to the detailed
provisions of the Issuer's Restated Certificate, the Certificates of
Designations and by-laws.
The Issuer's authorized capital stock consists of 120,000 shares of
non-voting Unit Common Stock, $.01 par value, 900,000 shares of voting Common
Stock, $.01 par value and 500,000 shares of preferred stock. The Certificates of
Designations governing Holdings' preferred stock (the "Certificates of
Designation") provide for 120,000 shares of Series A Senior Preferred Stock,
10,000 shares of Series B Junior Preferred Stock and 60,000 shares of Series C
Junior Voting Preferred Stock.
Unit Common Stock
Currently, 720 shares of Unit Common Stock, representing approximately
6.6% of all classes of the Common Stock are outstanding. All of such shares of
Unit Common Stock are validly issued, fully paid and nonassessable. The rights
of holders of shares of Unit Common Stock and voting Common Stock are identical
except for voting rights and certain contractual rights. The rights, preferences
and privileges of holders of Unit Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock, including the Series A Senior Preferred Stock, the Series B
Junior Preferred Stock and the Series C Junior Voting Preferred Stock
outstanding at the Issue Date or which the Issuer may designate in the future.
Voting Rights. Holders of Unit Common Stock are not entitled to vote
except as otherwise required by law. Upon consummation of an initial public
offering of the Common Stock of the Issuer, each share of Unit Common Stock may
be exchanged at the option of the holder thereof for one share of voting Common
Stock.
Dividends. The Issuer does not currently anticipate paying dividends on
its Common Stock. Holders of Unit Common Stock are entitled, when and if
declared by the board of directors of the Issuer out of funds legally available
therefor, to receive dividends on each outstanding share of Unit Common Stock
ratably with the voting Common Stock. The New Credit Facility, the Senior Notes,
the Note Indenture, the Exchange Indenture, and the Certificates of Designations
restrict the ability of the Issuer to pay dividends on its Common Stock,
including the Unit Common Stock.
Unit Common Stock Registration Rights and Stockholders' Agreement
Registration, Tag-Along and Drag-Along Rights. The Issuer, Chartwell and
the Initial Purchaser have entered into a Common Stock Registration Rights and
Stockholders' Agreement (the "Common Stock Registration Rights Agreement") with
respect to the shares of Unit Common Stock issued in the Offering. The Common
Stock Registration Rights Agreement provides that the Initial Purchaser and
persons to whom Unit Common Stock are transferred (collectively, "Holders") have
the registration rights and other rights and obligations with respect to the
Unit Common Stock described below. Unit Common Stock must be exchanged for
voting Common Stock (the "Registrable Securities") prior to any registration
pursuant to the Common Stock Registration Rights Agreement.
Demand Registration Rights. Holders of at least 25% of the Unit Common
Stock will be entitled on or after April 1, 2003 to require the Issuer to
effect one registration under the Securities Act of Registrable Securities
("Demand Registration"), subject to certain limitations. Upon a demand, the
Issuer is required to prepare, file with the Commission within 40 days
(subject to a delay of up to 60 days under certain limited circumstances) and
cause to be effective within 120 days of such demand, a registration
statement in respect of all of the Registrable Securities; provided, that in
lieu of filing such registration statement the Issuer or its designee may
make an offer to repurchase all of the Unit Common Stock at a price per share
equal to the fair market value per share of Unit Common Stock (without any
discount for lack of liquidity, the amount of Unit Common Stock proposed to
be sold, the fact that the shares of Unit Common Stock held by the Holders
may represent a minority interest in a private company or the fact that the
Unit Common Stock is non-voting) determined by a nationally recognized
investment banking firm mutually acceptable to the Issuer and the Holders of
a majority of the Registrable Securities to be registered.
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Piggy-Back Registration Rights. Holders of Registrable Securities also
have the right to include such Registrable Securities in any registration
statement covering Common Stock under the Securities Act filed by the Issuer for
its own account or for the account of any of its securityholders (other than (i)
a registration statement on Form S-4 or S-8 or any successor form having similar
effect or (ii) a registration statement filed in connection with an offer of
securities solely to existing securityholders) for sale on the same terms and
conditions as the securities of the Issuer or any other selling securityholder
included therein (a "Piggy-Back Registration"). In the case of a Piggy-Back
Registration, the number of Registrable Securities requested to be included
therein is subject to reduction to the extent that the Issuer is advised by the
managing underwriter therefor that the total number of shares proposed to be
included therein is such as to materially and adversely affect the success of
the offering.
The Common Stock Registration Rights Agreement includes customary
covenants on the part of the Issuer and provides that the Issuer will indemnify
the Holders of Registrable Securities included in any registration statement and
any underwriter with respect thereto against certain liabilities.
Tag-Along Rights. In the event of any proposed transfer, sale or other
disposition of voting Common Stock by Chartwell (or any of its Affiliates) in
any transaction, or a series of related transactions involving shares of voting
Common Stock, which when added to the shares previously transferred, constitutes
more than 15% of the shares of voting Common Stock owned by Chartwell and its
Affiliates, (other than to entities, all of the equity interests of which are
directly or indirectly owned by the ultimate parent of Chartwell or to another
similar investment fund, the principal partners or managers of which are Todd R.
Berman or Michael S. Shein), to a person other than an Affiliate of Chartwell
and its Affiliates (for purposes hereof, being a Person as to which Chartwell
and its Affiliates own, directly or indirectly, less than 10% of the common
equity interests and is not otherwise affiliate with Chartwell) (such other
person being hereinafter referred to as the "proposed purchaser"), each of the
Holders shall have the right, subject to certain exceptions, to require the
proposed purchaser to purchase from each of them up to a percentage of the
number of Unit Common Stock owned by such Holder equaling the percentage derived
by dividing the total number of shares of voting Common Stock Chartwell and its
Affiliates propose to transfer (as reduced after giving effect to the exercise
of these tag-along rights) by the total number of shares of voting Common Stock
outstanding. Any Unit Common Stock purchased from the Holders pursuant to such
provision shall be paid for at the same price per security and upon the same
terms and conditions of such proposed transfer by Chartwell and/or its
Affiliates. The provisions of these tag-along rights do not apply to the
transfer by Chartwell, within 60 days after the Recapitalization Closing, of up
to $1.5 million of its interests in Frasier L.L.C. to unaffiliated third parties
at the price paid therefor by Chartwell.
The Issuer shall notify, or cause to be notified, each Holder in writing
of each such proposed transfer at least 30 days prior to the date thereof. Such
notice shall set forth therein in detail the terms and conditions of such sale.
Each Holder shall, upon not less than 10 days' notice following their receipt of
the notice specified in the preceding paragraph, be entitled to sell its shares
pro rata with Chartwell and its Affiliates.
In the event that the proposed purchaser does not purchase Unit Common
Stock from the Holders and on the same terms and conditions as purchased from
Chartwell and/or its Affiliates, then Chartwell and/or its Affiliates shall
purchase such Unit Common Stock if the Transfer occurs.
Tag-along rights shall terminate upon the consummation of offerings
pursuant to one or more effective registration statements filed with the
Commission with respect to shares of Common Stock in one or more public
offerings generating at least $50 million in aggregate gross proceeds of the
Issuer's Common Stock (a "Qualified Public Offering").
Drag-Along Rights. If, at any time prior to the consummation of a
Qualified Public Offering of the Issuer, Chartwell and its Affiliates determine
to sell not less than 85% of the Common Stock of the Issuer beneficially owned
by Chartwell and its Affiliates to a Person other than an Affiliate of Chartwell
or an underwriter in a Qualified Public Offering of the Issuer or any of its
Subsidiaries, Chartwell shall have the right to require the holders of the
voting Common Stock to sell a like percentage of such voting Common Stock of
such holders to such transferee; provided that, the consideration to be received
by such holders is the same as that to be received by Chartwell and its
Affiliates and, in any event, shall be cash and/or securities registered under
the Securities Act and listed on a national security exchange or authorized for
quotation on the NASDAQ National Market Systems and provided, further, that
after giving effect to such transaction, Chartwell shall not beneficially own,
directly or indirectly, more than 15% of the Common Stock of the Issuer. Any
shares of voting Common Stock purchased
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pursuant to this paragraph shall be purchased at the same price per share of
voting Common Stock and upon the same terms and conditions of such proposed
transfer by Chartwell and its Affiliates.
Common Stock
All of the outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Holders of Common Stock, other than Unit Common Stock,
are entitled to one vote for each share held on all matters submitted to a vote
of stockholders. Each share of Series C Junior Voting Preferred Stock is
entitled to .314 votes per share and the holders thereof are entitled to vote as
a class with the holders of voting Common Stock on all matters as to which the
voting Common Stock is entitled to vote. Neither holders of the Common Stock nor
holders of the Series C Junior Voting Preferred Stock have cumulative voting
rights. Accordingly, holders of a majority of the shares entitled to vote in any
election of directors may elect all of the directors standing for election
unless a Voting Rights Triggering Event has occurred. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors of the Issuer out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock. Upon
the liquidation, dissolution or winding-up of the Issuer, the holders of Common
Stock are entitled to receive ratably the net assets of the Issuer available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock, including the Series A Senior Preferred Stock, the Series B
Junior Preferred Stock and the Series C Junior Voting Preferred Stock
outstanding at the Issue Date or which the Issuer may designate in the future.
Common Stock Stockholders' Agreement
Issuer, MHE Investments and HarnCo entered into the Stockholders'
Agreement simultaneously with the Recapitalization Closing. Pursuant to the
Stockholders' Agreement, HarnCo has the right to appoint a representative,
reasonably acceptable to MHE Investments, to the Issuer's Board of Directors, so
long as HarnCo continues to own at least 5% of the Common Stock. The
Stockholders' Agreement also provides HarnCo the right to purchase its pro rata
share of future issuances of Common Stock, subject to certain limitations.
In addition, the Stockholders' Agreement provides for the following:
Demand Registration. Subsequent to the completion of an initial public
offering of the Common Stock of the Issuer or any of its subsidiaries, HarnCo
shall have two demand registration rights with respect to the Common Stock,
subject to certain limitations.
Piggy Back Rights. HarnCo has an unlimited number of rights to include its
Common Stock in any registration of Common Stock pursuant to the Securities Act,
subject to certain limitations.
Drag-Along Rights. If MHE Investments proposes to sell at least 85% of its
equity securities in the Issuer to an independent third party, MHE Investments
can require HarnCo to sell that same percentage of its equity securities in the
same transaction on the same terms.
Tag Along Rights. If MHE Investments proposes to sell in excess of 10% of
its Common Stock to an independent third party, HarnCo has the right to sell a
pro rata portion of its Common Stock to the third party in the same transaction
on the same terms.
Preferred Stock
There currently are 57,710 shares of Old Series A Senior Preferred Stock
outstanding, 4,809 shares of Series B Junior Preferred Stock outstanding and
28,855 shares of Series C Junior Voting Preferred Stock outstanding. See
"Description of New Series A Senior Preferred Stock and Exchange Debentures"
above for a description of the terms of the Series A Senior Preferred Stock.
Series B Junior Preferred Stock. The Series B Junior Preferred Stock was
issued to HarnCo in connection with the Recapitalization. Each share of Series B
Junior Preferred Stock has a liquidation preference of $1,000 per share plus
accumulated and unpaid dividends. Dividends on the Series B Junior Preferred
Stock are cumulative from the
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Issue Date, at an annual rate of 12 1/4%, to be paid annually in arrears on
each April 1 and October 1, commencing October 1 1998. Dividends are payable
at the option of the Issuer, on any dividend date occurring on or prior to
April 1, 2003, either in cash or in additional shares of Series B Junior
Preferred Stock. Thereafter, dividends will be payable in cash.
The Series B Junior Preferred Stock ranks (i) junior to the Series A
Senior Preferred Stock, (ii) senior to the Series C Junior Voting Preferred
Stock, (iii) junior to any other preferred stock not ranking junior to the
Series A Senior Preferred Stock and (iv) senior to any class of Common Stock
with respect to dividend rights and rights upon liquidation, dissolution or
winding up of the Issuer.
The Issuer will be required to redeem in cash all of the Series B Junior
Preferred Stock outstanding on April 1, 2010 at a redemption price equal to 100%
of the liquidation preference thereof plus accumulated and unpaid dividends to
the redemption date.
The Series B Junior Preferred Stock will be redeemable at the option of
the Issuer, in whole or in part, at any time on or after April 1, 2003, at the
redemption prices set forth in the Certificate of Designations with respect to
the Series B Junior Preferred Stock, together with accumulated and unpaid
dividends thereon, if any, to the redemption date. In addition, the Issuer, at
its option, may redeem all, but not less than all, of the Series B Junior
Preferred Stock outstanding at any time on or prior to April 1, 2001 at a
redemption price equal to 112.250% of the liquidation preference thereof
together with accumulated and unpaid dividends thereon, if any, to the
redemption date, out of the net proceeds of one or more Public Equity Offerings;
provided, however, that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering.
Upon the occurrence of a Change of Control, each holder of the Series B
Junior Preferred Stock will be entitled to require the Issuer to make an
offer to purchase (a "Change of Control Offer") such holder's Series B Junior
Preferred Stock at a purchase price equal to 101% of the liquidation
preference, together with accumulated and unpaid dividends thereon, if any,
to the repurchase date. The Certificate of Designations with respect to the
Series B Junior Preferred Stock provides that if the Issuer fails to make or
consummate a Change of Control Offer, the dividend rate on the Series B
Junior Preferred Stock will increase by 400 basis points per annum until such
time as the Issuer makes or consummates a Change of Control Offer.
Holders of the Series B Junior Preferred Stock do not have voting
rights, except under certain limited circumstances or as required by law;
provided, that upon the occurrence of a Voting Rights Triggering Event (which
definition includes the failure of the Issuer, after April 1, 2003, to have
paid cash dividends for two or more semi-annual dividend periods (whether or
not consecutive), the failure of the Issuer to redeem all the then
outstanding shares of Series B Junior Preferred Stock on or before April 1,
2010, and the failure of the Issuer to make or consummate a Change of Control
Offer if such Change of Control Offer is required), the holders of the then
outstanding shares of Series B Junior Preferred Stock, voting as a class with
the holders of the Series A Senior Preferred Stock, are entitled to elect the
lesser of two directors and that number of directors constituting at least
25% of the members of the Board of Directors of the Issuer.
The Certificate of Designations with respect to the Series B Junior
Preferred Stock contains covenants for the benefit of the holders of the Series
B Junior Preferred Stock substantially similar to those of the Series A Senior
Preferred Stock.
Subject to certain provisions, the Series B Junior Preferred Stock is
exchangeable in whole, but not in part, at the option of the Issuer into
subordinated debentures (the "Series B Exchange Debentures") with substantially
the same terms as the Exchange Debentures. The Series B Exchange Debentures, if
issued, will be issued pursuant to an indenture that will contain covenants for
the benefit of the holders of the Series B Exchange Debentures substantially
similar to those contained in the Exchange Indenture, but will be subordinated
in right of payment to the Exchange Debentures.
Series C Junior Voting Preferred Stock. The Series C Junior Preferred
Voting Stock was acquired by MHE Investments in connection with the
Recapitalization. Each share of Series C Junior Preferred Voting Stock has a
liquidation preference of $1,000 per share plus accumulated and unpaid
dividends. Dividends on the Series C Junior Voting Preferred Stock are
cumulative from the Issue Date, at an annual rate of 12 1/2%, to be paid
semi-annually in arrears on each April 1 and October 1, commencing October 1,
1998. Dividends are payable at the option of Issuer,
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on any dividend date occurring on or prior to April 1, 2003, either in cash
or in additional shares of Series C Junior Voting Preferred Stock.
Thereafter, dividends will be payable in cash.
The Series C Junior Voting Preferred Stock ranks junior to the Series A
Senior Preferred Stock, the Series B Junior Preferred Stock and any other
preferred stock not ranking senior to the Series A Junior Preferred Stock and
the Series B Junior Preferred Stock, and senior to any class of Common Stock of
the Issuer with respect to dividend rights and rights upon liquidation,
dissolution or winding-up of the Issuer.
The Issuer will be required to redeem in cash all of the Series C Junior
Voting Preferred Stock outstanding on April 1, 2010 at a redemption price equal
to 100% of the liquidation preference thereof plus accumulated and unpaid
dividends to the redemption date.
The Series C Junior Voting Preferred Stock will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after April 1,
2003, at the redemption prices set forth in the Certificate of Designations with
respect to the Series C Junior Preferred Voting Stock, together with accumulated
and unpaid dividends thereon, if any, to the redemption date. In addition, the
Issuer, at its option, may redeem all, but not less than all, of the Series C
Junior Preferred Stock outstanding at any time on or prior to April 1, 2001 at a
redemption price equal to 112.500% of the liquidation preference thereof
together with accumulated and unpaid dividends thereon, if any, to the
redemption date, out of the net proceeds of one or more Public Equity Offerings;
provided, that any such redemption occurs within 90 days following the closing
of any such Public Equity Offering.
Upon the occurrence of a Change of Control, each holder of the Series C
Junior Voting Preferred Stock will be entitled to require the Issuer to make an
offer to purchase such holder's Series C Junior Voting Preferred Stock at a
purchase price equal to 101% of the liquidation preference, together with
accumulated and unpaid dividends thereon, if any, to the repurchase date. The
Certificate of Designations with respect to the Series C Junior Voting Preferred
Stock provides that if the Issuer fails to make or consummate a Change of
Control Offer (as defined therein), the dividend rate on the Series C Junior
Voting Preferred Stock will increase by 400 basis points per annum until such
time as the Issuer makes or consummates a Change of Control Offer.
Each share of Series C Junior Voting Preferred Stock has voting rights
of 0.314 votes per share and the holders thereof are entitled to vote as a
class with the holders of Common Stock on all matters as to which voting
Common Stock is entitled to vote. MHE Investments, through its ownership of
all of the Series C Junior Voting Preferred Stock, is entitled to
approximately 49.0% of the voting power of the Issuer, and through its
ownership of Common Stock, has 88.2% of the voting power of the Issuer in the
aggregate. Holders of Series C Junior Preferred Voting Stock are entitled,
upon the occurrence and during the continuance of a Voting Rights Triggering
Event to elect one director of the board of directors of the Issuer. Upon the
transfer by MHE Investments to a third party other than Chartwell or any
Affiliate of Chartwell, the Series C Junior Voting Preferred Stock will be
exchanged for Series C Junior Preferred Stock (the "Series C Junior Preferred
Stock") identical to the Series C Junior Voting Preferred Stock in all
respects except that it will not have voting rights, other than as required
by law.
The Certificate of Designations with respect to the Series C Junior Voting
Preferred Stock contains covenants for the benefit of the holders of the Series
C Junior Preferred Voting Stock substantially similar to the Series A Senior
Preferred Stock.
Subject to certain provisions, the Series C Junior Voting Preferred Stock
and the Series C Junior Preferred Stock are exchangeable in whole, but not in
part, at the option of the Issuer into subordinated debentures (the "Series C
Exchange Debentures") with substantially the same terms as the Exchange
Debentures. The Series C Exchange Debentures, if issued, will be issued pursuant
to an indenture that will contain covenants for the benefit of the holders of
the Series C Exchange Debentures substantially similar to those contained in the
Exchange Debenture, but will be subordinated in right of payment to the Exchange
Debentures and the Series B Exchange Debentures.
Delaware Law and Certain Charter and By-Law Provisions
The Restated Certificate contains certain provisions permitted under the
General Corporation Law of the State of Delaware (the "DGCL") relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing
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violation of law. Further, the Restated Certificate and the Issuer's By-Laws
contain provisions to indemnify the Issuer's directors and officers to the
fullest extent permitted by the DGCL, including payment in advance of a final
disposition of a director's or officer's expenses and attorneys' fees
incurred in defending any action, suit or proceeding. The Issuer believes
that these provisions will assist the Issuer in attracting and retaining
qualified individuals to serve as directors.
BOOK-ENTRY, DELIVERY AND FORM
The Series A Units, the Old Series A Senior Preferred Stock and the Unit
Common Stock (collectively, the "Securities") were sold to QIBs (as defined) in
reliance on Rule 144A of the Securities Act ("Rule 144A Securities"). The Old
Series A Senior Preferred Stock may subsequently have been sold in offshore
transactions in reliance on Regulation S ("Regulation S Securities") or
transferred to institutional "accredited investors" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act
("Institutional Accredited Investors") in transactions exempt from registration
under the Securities Act not made in reliance on Rule 144A or Regulation S under
the Securities Act ("Other Securities").
Rule 144A Securities initially were represented by one certificate in
registered, global form (the "Old Global Certificate"). The Old Global
Certificate was deposited upon issuance with the Transfer Agent as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC's nominee. Regulation S Securities and Other Securities held by
Institutional Accredited Investors, if any, are represented by one or more
shares of certificated Securities.
The Old Global Certificate, to the extent directed by holders thereof in
their Letters of Transmittal, will be exchanged through book-entry electronic
transfer for one or more certificates in registered, global form representing
the New Series A Senior Preferred Stock (collectively, the "New Global
Certificate") registered in the name of DTC or its nominee. No service charge
will be made for any registration of transfer or exchange of Series A Senior
Preferred Stock, but the Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Shares of New Series A Senior Preferred Stock issued to non-qualified
institutional buyers in exchange for shares of Old Series A Senior Preferred
Stock held by such investors, if any, will be issued only in certificated,
fully registered, definitive form. The New Global Certificate will, upon
request, be exchangeable for other shares of New Series A Senior Preferred
Stock in definitive, fully registered form in whole shares, but only in
accordance with DTC's customary procedures. The New Global Certificate will
also be exchangeable in certain other limited circumstances. The Issuer, the
Transfer Agent and any other agent thereof will be entitled to treat the
DTC's nominee as the sole owner and holder of the unexchanged portion of the
New Global Certificate for all purposes.
Depositary Procedures
DTC has advised the Issuer that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and the Indirect Participants.
DTC has also advised the Issuer that pursuant to procedures established by
it, (i) upon deposit of the New Global Certificate, DTC will credit the shares
of New Series A Senior Preferred Stock to the accounts of Participants
designated by the Participants and (ii) ownership of such interests in the New
Global Certificate will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the New Global Certificate).
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Investors in the New Global Certificate may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations which are Participants in such system. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in Series A Senior Preferred Stock and Exchange Debentures to such
persons may be limited to that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect Participants and
certain banks, the ability of a person having beneficial interests in Series A
Senior Preferred Stock or Exchange Debentures to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Except as described below, owners of interests in the New Global
Certificate will not have New Series A Senior Preferred Stock registered in
their names, will not receive physical delivery of New Series A Senior Preferred
Stock in certificated form and will not be considered the registered owners or
holders thereof under the Restated Certificate for any purpose.
Payments in respect of the principal of (and premium, if any) and
dividends on the New Global Certificate registered in the name of DTC or its
nominee will be payable to DTC or its nominee in its capacity as the registered
holder thereof. The Issuer and the Exchange Agent will treat the persons in
whose names the New Series A Senior Preferred Stock or Exchange Debentures,
including the New Global Certificate, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Issuer or the Exchange Agent or any agent
of the Issuer or the Exchange Agent has or will have any responsibility or
liability for (i) any aspect or accuracy of DTC's records or any Participant's
or Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the New Global Certificate, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the New Global Certificate, or (ii) any other matter relating to the actions
and practices of DTC or any of the Participants or the Indirect Participants.
DTC has advised the Issuer that its current practice, upon receipt of any
payment in respect of securities such as the New Series A Senior Preferred Stock
or Exchange Debentures (including dividends, principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of DTC. Payments by the Participants and the Indirect Participants to the
beneficial owners of the New Series A Senior Preferred Stock or Exchange
Debentures will be governed by standing instructions and customary practices and
will not be the responsibility of DTC, the Exchange Agent or the Issuer. Neither
the Issuer nor the Exchange Agent will be liable for any delay by DTC or any of
the Participants in identifying the beneficial owners of the New Series A Senior
Preferred Stock or Exchange Debentures, and the Issuer and the Exchange Agent
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the New Global Certificate for all
purposes.
Interests in the New Global Certificate will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and the Participants. Transfers between Participants
in DTC will be effected in accordance with DTC's procedures and will be settled
in same-day funds.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Series A Senior Preferred Stock or Exchange Debentures only
at the direction of one or more Participants to whose account with DTC interests
in the Old Global Certificate or the New Global Certificate are credited and
only in respect of such portion of the aggregate principal amount of the Series
A Senior Preferred Stock or Exchange Debentures as to which such Participant or
Participants has or have given such direction. However, if any of the events
described under "--Exchange of Book-Entry Securities for Certificated
Securities" occurs, DTC reserves the right to exchange the New Global
Certificate for New Series A Senior Preferred Stock or Exchange Debentures in
certificate form and to distribute such New Series A Senior Preferred Stock or
Exchange Debentures to its Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuer believes
to be reliable, but the Issuer takes no responsibility for the accuracy thereof.
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Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the Old Global Certificate and the New Global
Certificate among accountholders in DTC, it is under no obligation to perform or
to continue to perform such procedures, and such procedures may be discontinued
at any time. None of the Issuer or the Exchange Agent nor any agent of the
Issuer or the Exchange Agent will have any responsibility for the performance by
DTC or its participants, indirect participants or accountholders of its
obligations under the rules and procedures governing its operations.
Exchange of Book-Entry Securities for Certificated Securities
The New Global Certificate is exchangeable for definitive New Series A
Senior Preferred Stock or Exchange Debentures in registered certificated form if
(i) DTC (x) notifies the Exchange Agent that it is unwilling or unable to
continue as depository for the New Global Certificate and the Issuer thereupon
fails to appoint a successor depository or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Issuer, at its option,
notifies the Exchange Agent in writing that it elects to cause the issuance of
the New Series A Senior Preferred Stock or the Exchange Debentures in
certificated form or (iii) there shall have occurred and be continuing a Voting
Rights Triggering Event with respect to the New Series A Senior Preferred Stock
or the Exchange Debentures. In all cases, certificated New Series A Senior
Preferred Stock or Exchange Debentures delivered in exchange for any New Global
Certificate or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depository (in accordance with its customary procedures). In addition, subject
to certain restrictions on the transferability of the Series A Senior Preferred
Stock, Series A Senior Preferred Stock in definitive form will be issued upon
the resale, pledge or other transfer of any Series A Senior Preferred Stock or
interest therein to any person or entity that is not a qualified institutional
buyer or that does not participate in DTC.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
Subject to the qualifications set forth below, in the opinion of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., tax counsel to Holdings, the
following accurately sets forth the anticipated U.S. federal income tax
consequences applicable to the exchange of the New Series A Senior Preferred
Stock for Old Series A Senior Preferred Stock in the Exchange Offer; the
ownership and disposition of the New Series A Senior Preferred Stock by
holders who acquire the New Series A Senior Preferred Stock pursuant to the
Exchange Offer; the acquisition of Exchange Debentures in exchange for New
Series A Senior Preferred Stock; and the ownership and disposition of the
Exchange Debentures by holders who acquire the Exchange Debentures in
exchange for New Series A Senior Preferred Stock. This discussion does not
purport to be a complete analysis of all potential tax considerations to
prospective purchasers. The discussion is limited solely to U.S. federal
income tax matters and is based upon the Code, Treasury regulations
(including proposed regulations), administrative rulings and pronouncements
of the Internal Revenue Service ("IRS"), and judicial decisions, all as of
the date hereof and all of which are subject to change at any time, possibly
with retroactive effect. In particular, potential investors should be aware
that certain relevant provisions of the Code have not been subject to
definitive interpretation by the IRS or the courts.
This discussion is limited to those potential investors who would hold the
New Series A Senior Preferred Stock as a "capital asset" within the meaning of
Section 1221 of the Code. This discussion does not purport to address federal
income tax consequences that may be applicable to particular categories of
investors, including insurance companies, tax-exempt persons, financial
institutions, dealers in securities, persons that own in excess of 10 percent of
Holdings' stock, persons that hold New Series A Senior Preferred Stock or
Exchange Debentures as part of a straddle, hedge, or conversion transaction,
persons that have a functional currency other than the U.S. dollar, holders
subject to the alternative minimum tax, and non-United States persons, including
foreign corporations and nonresident alien individuals, some of which may be
subject to special rules. This discussion does not address any tax
considerations under the laws of any state, locality or jurisdiction, or foreign
country.
Holdings has not sought, nor does it intend to seek, a ruling from the IRS
as to any of the matters covered by this discussion, and there can be no
assurance that the IRS will not successfully challenge the conclusions reached
in this discussion. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED
BELOW DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON
U.S. FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE
SUBJECT TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF AN INVESTMENT IN THE NEW SERIES A SENIOR PREFERRED STOCK.
Exchange
The Exchange Offer will not be a taxable event for U.S. federal income
tax purposes. As a result, there will be no material U.S. federal income tax
consequences to holders receiving New Series A Senior Preferred Stock for Old
Series A Senior Preferred Stock under the Exchange Offer, and a holder will
have the same adjusted tax basis and holding period in the New Series A
Senior Preferred Stock as it had in the Old Series A Senior Preferred Stock
immediately before the exchange.
Distributions on New Series A Senior Preferred Stock
Based on current information and projections, it is likely that
Holdings will not have current or accumulated earnings and profits ("earnings
and profits") as determined for U.S. federal income tax purposes prior to
1999. As a result, during such time as Holdings does not have earnings and
profits, distributions on the New Series A Senior Preferred Stock will first
be treated as a nontaxable return of capital and then will be applied against
and reduce the adjusted tax basis of the New Series A Senior Preferred Stock
in the hands of each holder (but not below zero), thereby increasing the
amount of any gain (or reducing the amount of any loss) which would otherwise
be realized by such holder upon a taxable disposition of such New Series A
Senior Preferred Stock. The amount of any such distribution which exceeds the
adjusted tax basis of the New Series A Senior Preferred Stock in the hands of
the holder will be treated as capital gain. Such gain generally will be taxed
at a reduced rate for a holder who is not a corporation and who holds such
stock for more than one year and at a further reduced rate for a holder who
is not a corporation and who holds such stock for more than eighteen months.
Accordingly, distributions on the New Series A Senior Preferred Stock which
are not out of earnings and profits will not be characterized as a dividend
for
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U.S. federal income tax purposes with the additional result that corporate
stockholders will not be entitled to claim the dividends received deduction
with respect to such distributions. See the discussion below under
"--Dividends Received Deduction." The amount of any distribution will be
equal to the amount of cash or the fair market value of the New Series A
Senior Preferred Stock distributed.
Treatment of Distributions Out of Earnings and Profits
In the event that Holdings does have earnings and profits, distributions
by Holdings with respect to the New Series A Senior Preferred Stock (whether
paid in cash or by distribution of additional shares of New Series A Senior
Preferred Stock) will be characterized as dividends that are taxable as ordinary
income to the extent of Holdings' earnings and profits.
Dividends Received Deduction
Subject to important restrictions, dividends received out of earnings and
profits by a corporate holder generally will qualify for the 70 percent
dividends received deduction provided by Section 243(a)(1) of the Code. Under
Section 246(b) of the Code, the aggregate dividends received deduction permitted
a corporate holder may not exceed 70 percent of such holder's "taxable income,"
as specially computed under that section. Under Section 246(c) of the Code, the
70 percent dividends received deduction will not be available with respect to
shares of stock which are not held for at least 46 days (at least 91 days in the
case of a dividend attributable to a period or periods aggregating in excess of
366 days), including the day of disposition, but excluding the day of
acquisition or any day which is at least 46 days (at least 91 days in the case
of the more than 366 day period) after the date on which the stock becomes
ex-dividend. The length of time that a holder is deemed to have held shares for
these purposes is reduced for periods during which the holder's risk of loss
with respect to the stock is diminished by reason of the existence of certain
options, contracts to sell, short sales and other similar transactions. Section
246(c) of the Code also denies the dividends received deduction to the extent
that a corporate holder is under an obligation with respect to substantially
similar or related property to make payments corresponding to the dividend
received. Moreover, under Section 246A of the Code, to the extent that a
corporate holder incurs indebtedness "directly attributable" to investment in
the stock and the stock constitutes "debt-financed portfolio stock" as defined
in Section 246A(c)(1) of the Code, the percentage of the dividends received
deduction available to such holder is proportionately reduced.
Extraordinary Dividends. Section 1059 of the Code requires a corporate
holder to reduce (but not below zero) its basis in the New Series A Senior
Preferred Stock by the "nontaxed portion" of any "extraordinary dividend" if the
holder has not held such stock, subject to a risk of loss, for more than two
years before the date Holdings declares, announces, or agrees to, the amount or
payment of such dividend, whichever is earliest. In addition, upon a sale or
disposition of such stock, a holder will recognize gain, in addition to any gain
otherwise required to be recognized, in any amount equal to so much of the
nontaxed portion of all extraordinary dividends as did not cause a reduction in
stock basis due to the limitation on reducing basis below zero. Generally, the
nontaxed portion of an extraordinary dividend is the amount effectively excluded
from income by application of the dividends received deduction. An extraordinary
dividend on preferred stock, such as the New Series A Senior Preferred Stock, is
a dividend that (i) equals or exceeds 5 percent of the holder's adjusted tax
basis in the stock, treating all dividends having ex-dividend dates within an
85-day period as one dividend, or (ii) exceeds 20 percent of the holder's
adjusted tax basis in the stock, treating all dividends having ex-dividend dates
within the same 365-day period as one dividend. A stockholder may elect to
determine whether a dividend on the New Series A Senior Preferred Stock is
extraordinary by reference to the fair market value of the stock on the day
before the ex-dividend date (rather than by reference to the stockholder's
adjusted tax basis) for purposes of the 5 percent or 20 percent tests described
above if the holder is able to establish the fair market value of the New Series
A Senior Preferred Stock as of such date to the satisfaction of the IRS. An
extraordinary dividend may also include any amount treated as a dividend in the
case of a redemption that is either non-pro rata as to all stockholders or in
partial liquidation of the Holdings, regardless of the relative size of the
dividend and regardless of the corporate holder's holding period for the New
Series A Senior Preferred Stock.
The extraordinary dividend rules do not apply with respect to certain
"qualified preferred dividends." A qualified preferred dividend is any fixed
dividend payable with respect preferred stock which (i) provides for fixed
preferred dividends payable no less often than annually, and (ii) is not in
arrears as to dividends when acquired, provided the actual rate of return, as
determined under Section 1059(e)(3) of the Code, does not exceed 15 percent.
Where a qualified preferred dividend exceeds the 5 percent (or 20 percent)
threshold for extraordinary
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dividend status described above, (a) the extraordinary dividend rules will
not apply if the holder holds the stock for more than five years, and (b) if
the holder disposed of the stock before it has been held for more than five
years, the aggregate reduction in basis cannot exceed the excess of the
qualified preferred dividends paid on such stock during the period held by
the taxpayer over the qualified preferred dividends which would have been
paid during such period on the basis of the stated rate of return, as
determined under Section 1059(e)(3) of the Code. The length of time that a
taxpayer is deemed to have held stock for this purpose is determined under
principles similar to those contained in Section 246(c) of the Code
(discussed above).
Based upon the issue price of the Series A Senior Preferred Stock, regular
semi-annual distributions should not constitute extraordinary dividends. Under
certain circumstances, however, the redemption of the New Series A Senior
Preferred Stock for cash or in exchange for Exchange Debentures may be treated
as a distribution taxable as a dividend. See the discussion below under "--Sale,
Exchange or Redemption of New Series A Senior Preferred Stock." To the extent
any such redemption constitutes a dividend, it is likely to constitute an
extraordinary dividend to a corporate holder.
Proposed Legislation. The Clinton Administration's Budget Proposal for
Fiscal Year 1999, released February 2, 1998 (the "Administration's Proposal"),
includes a provision that would eliminate the dividends received deduction for
dividends on limited term preferred stock issued after the date of enactment of
legislation. For this purpose, limited preferred stock generally includes any
preferred stock if the issuer or a related person is required to redeem or
purchase the stock within 20 years of the issue date. It is not clear whether
such proposal will be enacted or, if enacted, whether it will be enacted in the
form proposed. However, if the proposal to eliminate the dividends received
deduction on limited term preferred stock is enacted in its current form, the
dividends received deduction may be eliminated with respect to New Series A
Senior Preferred Stock issued after the date of enactment of legislation.
Prospective purchasers of the New Series A Senior Preferred Stock are urged to
consult their tax advisors with respect to the effect of any proposed
legislation.
CORPORATE HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR OWNERSHIP AND
DISPOSITION OF THE NEW SERIES A SENIOR PREFERRED STOCK.
Redemption Premium
If the redemption price of redeemable preferred stock exceeds its issue
price, all or a portion of such excess may, pursuant to Section 305(c) of the
Code, constitute an excess premium (the "Series A Senior Preferred Stock
Discount") that is treated as a series of constructive distributions of property
(and thus as dividends to the extent of Holdings' earnings and profits, and
otherwise as distributions subject to the treatment described above) over the
period during which the New Series A Senior Preferred Stock cannot be called for
redemption under an economic accrual method similar to the method described
under "--Taxation of Stated Interest and Original Issue Discount on Exchange
Debentures" below. For this purpose, Series A Senior Preferred Stock Discount
will generally be treated as zero if it is less than 1/4 of 1 percent of the
redemption price multiplied by the number of complete years from the date of
issuance of the stock until the stock is to be redeemed.
Under the Treasury regulations promulgated under Section 305 of the
Code, Series A Senior Preferred Stock Discount will arise due to the optional
redemption feature only if, based on all of the facts and circumstances as of
the date the New Series A Senior Preferred Stock is issued, redemption
pursuant to the optional redemption is more likely than not to occur.
Constructive distribution treatment would not result, however, if the
redemption treatment were solely in the nature of a penalty for premature
redemption. For this purpose, a penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which
neither the issuer nor the holder has legal or practical control, such as
changes in prevailing dividend rates. The Treasury regulations provide a safe
harbor pursuant to which constructive distribution treatment will not result
from an issuer call right if (i) the issuer and the holder are unrelated,
(ii) there are no arrangements that effectively require the issuer to redeem
the stock, and (iii) exercise of the option to redeem would not reduce the
yield of the stock. Holdings believes that, under the foregoing criteria, the
optional redemption feature does not give rise to Series A Senior Preferred
Stock Discount, and accordingly Holdings will not report redemption premium
associated with the optional redemption feature as a constructive
distribution. However, because of the factual nature of this determination,
there can be no assurance that such treatment will be sustained.
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Under the Treasury regulations promulgated under Section 305 of the Code,
Series A Senior Preferred Stock Discount will arise due to a change in control
redemption feature only if, (i) under the same criteria discussed above with
regard to the optional redemption feature, a change in control redemption is
more likely than not to occur and in addition the redemption premium associated
with such redemption is other than solely in the nature of a penalty for
premature redemption, or (ii) triggering Holdings' obligation to redeem under
the change of control redemption feature is within the legal or practical
control of the holders of the New Series A Senior Preferred Stock (or parties
related thereto) and based on all the facts and circumstances on the issue date
such possibility of redemption is more than remote. Holdings believes that,
under the foregoing criteria, the change of control redemption feature does not
give rise to Series A Senior Preferred Stock Discount, and accordingly Holdings
will not report redemption premium associated with the change of control
redemption feature as a constructive distribution. However, because of the
factual nature of this determination, there can be no assurance that such
treatment will be sustained.
The mandatory redemption and the debenture exchange features should result
in no Series A Senior Preferred Stock Discount for the New Series A Senior
Preferred Stock to the extent of the liquidation preference of $1,000 per share
because the redemption price associated with the mandatory redemption and the
debenture exchange is equal to the liquidation preference of the New Series A
Senior Preferred Stock, and because the initial issue price for the New Series A
Senior Preferred Stock is equal to its liquidation preference of $1,000 per
share. However, shares of New Series A Senior Preferred Stock distributed to
holders of New Series A Senior Preferred Stock in lieu of paying cash dividends
may bear Series A Senior Preferred Stock Discount depending on the issue price
of such shares (i.e., the fair market value of such shares on the date of their
issuance).
Sale, Exchange or Redemption of New Series A Senior Preferred Stock
A holder's sale of New Series A Senior Preferred Stock generally will
result in taxable capital gain or loss equal to the difference between the
amount of cash received and the holder's adjusted basis in the New Series A
Senior Preferred Stock sold. Such gain generally will be capital gain and will
be taxed at a reduced rate for a holder who is not a corporation and who holds
the New Series A Senior Preferred Stock for more than one year and at a further
reduced rate for a holder who is not a corporation and who holds such stock for
more than eighteen months.
Redemptions of New Series A Senior Preferred Stock for cash or in exchange
for Exchange Debentures will be a taxable event to the redeemed stockholder. The
amount received in the redemption will be treated as a distribution taxable as a
dividend (to the extent of Holdings' earnings and profits) to the redeemed
stockholder under Section 302 of the Code (and may constitute an extraordinary
dividend under Section 1059 of the Code) unless the redemption: (a) is treated
as a distribution "not essentially equivalent to a dividend" with respect to the
stockholder under Section 302(b)(1); (b) is "substantially disproportionate"
with respect to the stockholder under Section 302(b)(2); (c) "completely
terminates" the stockholder's equity interest in Holdings pursuant to Section
302(b)(3); or (d) is of stock held by a noncorporate stockholder and is in
partial liquidation of Holdings pursuant to Section 302(b)(4). In determining
whether any of these tests has been met, there generally must be taken into
account shares actually owned by the stockholder and shares considered to be
owned by the stockholder by reason of certain constructive ownership rules set
forth in Section 318 of the Code. A distribution will be "not essentially
equivalent to a dividend" as to a particular stockholder only if it results in a
"meaningful reduction" in the stockholder's interest in Holdings, but there
cannot always be certainty as to when such "meaningful reduction" has occurred
because the applicable test is not based on numerical criteria. Prospective
holders of New Series A Senior Preferred Stock should consult their own tax
advisors as to the application of this rule. Satisfaction of the "complete
termination" and "substantially disproportionate" exceptions is dependent upon
compliance with the objective tests set forth in Sections 302(b)(3) and
302(b)(2) of the Code, respectively.
If any of these tests is met as to a holder, the redemption of the New
Series A Senior Preferred Stock (whether paid in cash or by an exchange of
Exchange Debentures for the New Series A Senior Preferred Stock) generally would
be treated as to that holder as an exchange under Section 302(a) of the Code
giving rise to capital gain or loss (measured by the excess of the amount
received (cash or the issue price of the Exchange Debentures) over the holder's
tax basis in the redeemed stock). Such gain generally will be capital gain and
will be taxed at a reduced rate for a holder who is not a corporation and who
holds such stock for more than one year and at a further reduced rate for a
holder who is not a corporation and who holds the Holdings Preferred Stock for
more than eighteen months. Payments received upon redemption that represent an
amount equal to the cumulative unpaid dividends generally should be treated in
the same manner as other redemption payments if such amount is paid but no
dividend is
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declared. Under limited circumstances, however, the extraordinary dividend
and/or the redemption premium rules discussed above might nonetheless apply.
If, however, these tests are not met and a redemption of the New Series A
Senior Preferred Stock is treated as a distribution that is taxable as a
dividend, the amount of the distribution will be measured by the amount of cash
or the issue price of the Exchange Debentures, as the case may be, received by
the holder. The holder's adjusted tax basis in the redeemed New Series A Senior
Preferred Stock will be transferred to any remaining stock holdings in Holdings.
If the holder does not retain any actual stock holding in Holdings (only holding
shares constructively), the holder may lose such basis entirely. Under the
"extraordinary dividend" provisions of Section 1059 of the Code, a corporate
holder may, under certain circumstances, be required to reduce its basis in the
remaining shares of stock of Holdings (and possibly recognize gain upon a
disposition of such shares) to the extent the holder claims the dividends
received deduction with respect to the dividend. See the discussion above under
"--Treatment of Distributions Out of Earnings and Profits."
Depending upon the circumstances, the treatment of the redemption of the
New Series A Senior Preferred Stock as a dividend, in particular upon its
exchange for Exchange Debentures, may produce undesirable federal income tax
consequences, including the requirement to pay substantial federal income tax
prior to the receipt of cash. Prospective purchasers are therefore urged to
consult their own tax advisors regarding satisfaction of the tests described
above in their particular circumstances, including the possibility that a
substantially contemporaneous sale of all or a portion of the purchasers'
interest in the New Series A Senior Preferred Stock or other equity interest
might be regarded as reducing the purchasers' interest in Holdings, thereby
satisfying one or more of the tests of Section 302(b) of the Code.
Depending upon a holder's particular circumstances, the tax consequences
of holding Exchange Debentures may be less advantageous than the tax
consequences of holding New Series A Senior Preferred Stock. Interest payments
and, potentially, original issue discount ("OID") (discussed below in
"--Original Issue Discount on Exchange Debentures") will be currently includible
in the holder's income when paid or accrued. On the other hand, in the absence
of earnings and profits, a holder will not be required to include in income
distributions paid in respect of the New Series A Senior Preferred Stock until
the aggregate amount of such distributions exceeds the holder's tax basis in
such New Series A Senior Preferred Stock. Moreover, if Holdings does have
adequate earnings and profits, a corporate holder may be eligible for the
dividends received deduction with respect to such dividend payments.
PROSPECTIVE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
APPLICATION OF SECTION 302 OF THE CODE IN THE EVENT OF A REDEMPTION.
Original Issue Discount on Exchange Debentures
In the event that the New Series A Senior Preferred Stock is exchanged for
Exchange Debentures and the "stated redemption price at maturity" of the
Exchange Debentures exceeds their "issue price" by more than a de minimis amount
(0.25 percent of the stated redemption price at maturity multiplied by the
number of complete years to maturity) the Exchange Debentures will be treated as
having OID equal to the entire amount of such excess.
If the Exchange Debentures are traded on an established securities market
within the 60 day period ending 30 days after the exchange date, the issue price
of the Exchange Debentures will be their fair market value as of their issue
date. Subject to certain limitations described in the Treasury regulations, the
Exchange Debentures will be deemed to be traded on an established securities
market if, among other things, price quotations will be readily available from
dealers, brokers or traders. If the New Series A Senior Preferred Stock, but not
the Exchange Debentures issued and exchanged therefor, is traded on an
established securities market within the 60 day period ending 30 days after the
exchange, then the issue price of each Exchange Debenture should be the fair
market value of the New Series A Senior Preferred Stock exchanged therefor at
the time of the exchange. The New Series A Senior Preferred Stock generally will
be deemed to be traded on an established securities market if, among other
things, it appears on a system of general circulation that provides a reasonable
basis to determine fair market value based on either recent price quotations or
recent sales transactions. In the event that neither the New Series A Senior
Preferred Stock nor the Exchange Debentures are traded on an established
securities market within the applicable period, the issue price of the Exchange
Debentures will be their stated principal amount--namely, their face
value--unless either (i) the Exchange Debentures do not bear "adequate stated
interest" within the meaning of Section 1274 of the Code, which is unlikely, or
(ii) also unlikely, the Exchange Debentures are issued in a so called
"potentially
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abusive situation" as defined in the Treasury regulations under Section 1274
of the Code (including a situation involving a recent sales transaction), in
which case the issue price of such Exchange Debentures generally will be the
fair market value of the New Series A Senior Preferred Stock surrendered in
exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures will
equal the total of all payments under the Exchange Debentures, other than
payments of "qualified stated interest." "Qualified stated interest" generally
is stated interest that is unconditionally payable in cash or other property
(other than an additional debt instrument of the issuer) at least annually at a
single fixed rate. Exchange Debentures that are issued when Holdings has the
option to pay interest for certain periods in additional Exchange Debentures
should be treated as having been issued without any qualified stated interest.
Accordingly, the sum of all interest payable pursuant to the stated interest
rate on such Exchange Debentures over the entire term should be included (along
with stated principal) in the stated redemption price at maturity of such
Exchange Debentures. On the other hand, if the Exchange Debentures are issued
after the period for paying interest in additional Exchange Debentures has
passed, then stated interest would qualify as qualified stated interest and none
of such stated interest would be included in the stated redemption price at
maturity of the Exchange Debentures. Whether or not stated interest on the
Exchange Debentures qualifies as qualified stated interest, the Exchange
Debentures will have OID, subject to the de minimis exception, if their stated
redemption price at maturity exceeds their issue price.
Taxation of Stated Interest and Original Issue Discount on Exchange Debentures
Each holder of an Exchange Debenture with OID will be required to include
in gross income an amount equal to the sum of the "daily portions" of the OID
for all days during the taxable year in which such holder holds the Exchange
Debenture, even though the cash to which such income is attributable may not be
received until sale, redemption or maturity of the Exchange Debenture. The daily
portions of OID required to be included in a holder's gross income in a taxable
year will be determined under a constant yield method by allocating to each day
during the taxable year in which the holder holds the Exchange Debenture a pro
rata portion of the OID thereon which is attributable to the accrual period in
which such day is included. The amount of the OID attributable to each accrual
period will be the product of the "adjusted issue price" of the Exchange
Debenture at the beginning of such accrual period multiplied by the "yield to
maturity" of the Exchange Debenture (properly adjusted for the length of the
accrual period). The adjusted issue price of an Exchange Debenture at the
beginning of an accrual period is the original issue price of the Exchange
Debenture plus the aggregate amount of OID that accrued in all prior accrual
periods, less any cash payments on the Exchange Debenture. The "yield to
maturity" is the discount rate that, when used in computing the present value of
all principal and interest payments to be made under the Exchange Debenture,
produces an amount equal to the issue price of the Exchange Debenture.
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture
(an "Initial Debenture") will not be considered as a payment made on the
Initial Debenture and will instead be aggregated with the Initial Debenture
for purposes of computing and accruing OID on the Initial Debenture. As
between the Initial Debenture and the Secondary Debenture, the adjusted issue
price of the Initial Debenture would be allocated between the Initial
Debenture and the Secondary Debenture in proportion to their respective
principal amounts. That is, upon the issuance of a Secondary Debenture with
respect to an Initial Debenture, the Initial Debenture and the Secondary
Debenture derived from the Initial Debenture are treated as initially having
the same adjusted issue price and inherent amount of OID per dollar of
principal amount. The Initial Debenture and the Secondary Debenture derived
therefrom also would be treated as having the same yield to maturity. Similar
treatment would be applied when additional Secondary Debentures are issued in
lieu of paying interest. The issue date of the Initial Debenture will also be
the issue date of the Secondary Debenture.
In the event that the Exchange Debentures are issued after April 1, 2003,
when Holdings no longer has the option to pay interest thereon in additional
Exchange Debentures, stated interest would be included in income by a holder in
accordance with such holder's usual method of accounting. In all other cases,
all stated interest will be treated as payments on the Exchange Debentures under
the rules discussed above.
Holdings will furnish annually to the IRS and to certain record holders of
the Exchange Debentures information relating to the OID, if any, accruing during
the calendar year. Such information will be based on the amount of OID that
would have accrued to a holder who acquired the Exchange Debenture on original
issue.
137
<PAGE>
Bond Premium on Exchange Debentures
If the holder's basis in the Exchange Debentures exceeds the amount
payable at the maturity date (or earlier call date, if appropriate), such excess
will be deductible by the holder of the Exchange Debentures as amortizable bond
premium over the term of the Exchange Debentures (taking into account earlier
call dates, as appropriate), under a yield-to-maturity formula, if an election
by the holder under Section 171 of the Code is made or is already in effect. An
election under Section 171 of the Code is available only if the Exchange
Debentures are held as capital assets. This election is revocable only with the
consent of the IRS and applies to all obligations owned or subsequently acquired
by the holder on or after the first day of the taxable year to which the
election applies. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the Exchange Debentures will be
reduced. The amortizable bond premium is treated as an offset to interest income
on the Exchange Debentures rather than as a separate deduction item. Final
regulations coordinate these amortizable bond premium rules with the acquisition
premium rules in "--Acquisition Premium on Exchange Debentures" below, and in
general would defer to the operation of the acquisition premium rules in the
case of Exchange Debentures issued on or before April 1, 2003, when Holdings has
the option to pay interest on Exchange Debentures in additional Exchange
Debentures (thus precluding stated interest thereon from being qualified stated
interest).
Acquisition Premium on Exchange Debentures
A holder of an Exchange Debenture issued with OID who purchases such
Exchange Debenture for an amount that is greater than its then adjusted issue
price but equal to or less than the sum of all amounts payable on the Exchange
Debenture after the purchase date (other than payments, if any, of qualified
stated interest) will be considered to have purchased such Exchange Debenture at
an "acquisition premium." Under the acquisition premium rules, the amount of OID
which such holder must include in income with respect to such Exchange Debenture
for any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
Market Discount on Exchange Debentures
Purchasers of New Series A Senior Preferred Stock should be aware that
the disposition of Exchange Debentures may be affected by the market discount
provisions of the Code. The market discount rules generally provide that if a
holder of a debt instrument purchases it at a "market discount" and
thereafter realizes gain upon a disposition or a retirement of the debt
instrument, the lesser of such gain or the portion of the market discount
that has accrued on a straight line basis (or on a constant interest rate
basis, if such alternative rate of accrual has been elected by the holder
under Section 1276(b) of the Code) while the debt instrument was held by such
holder will be taxed as ordinary income at the time of such disposition.
"Market discount" with respect to the Exchange Debentures will be the amount,
if any, by which the "revised issue price" of an Exchange Debenture (or its
stated redemption price at maturity if the Exchange Debenture has no OID)
exceeds the holder's basis in the Exchange Debenture immediately after such
holder's acquisition, subject to a de minimis exception. The "revised issue
price" of an Exchange Debenture is its issue price increased by the portion
of OID previously includible in the gross income of prior holders for periods
prior to the acquisition of the Exchange Debenture by the holder (without
regard to any acquisition premium exclusion) and reduced by prior payments
other than payments of qualified stated interest.
A holder who acquires an Exchange Debenture at a market discount also may
be required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the holder disposes of the Exchange Debenture in a
taxable transaction. Similarly, to the extent of any accrued market discount on
such Exchange Debenture, otherwise unrecognized gain in the Exchange Debenture
will be includible as ordinary income upon disposition of such Exchange
Debenture in certain otherwise non-taxable transfers (such as gifts).
A holder of Exchange Debentures acquired at a market discount may elect
for federal income tax purposes to include market discount in gross income as
the discount accrues, either on a straight-line basis or on a constant interest
rate basis. This current inclusion election, once made, applies to all market
discount obligations acquired on or after the first date of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of Exchange Debentures makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such debt instruments, and with respect to the
138
<PAGE>
deferral of interest deductions on indebtedness incurred or maintained to
purchase or carry such debt instruments, would not apply.
Election to Treat All Interest as Original Issue Discount
A holder may elect to include in gross income all interest that accrues on
an Exchange Debenture using the constant yield method described above under the
heading "--Taxation of Stated Interest and Original Issue Discount on Exchange
Debentures." Holders should consult their own tax advisors regarding the manner
and advisability of making this election.
Applicable High Yield Discount Obligation Consequences
The Exchange Debentures will constitute "applicable high yield discount
obligations" ("AHYDOs") if the yield to maturity of such Exchange Debentures is
equal to or greater than the sum of the relevant applicable federal rate (the
"AFR") for debt instruments at the time the Exchange Debentures are issued plus
five percentage points and they have "significant" OID. A debt instrument is
treated as having significant OID if the aggregate amount that would be included
in gross income with respect to such debt instrument for periods before the
close of any accrual period ending after the date five years after the date of
issue exceeds the sum of (i) the aggregate amount of interest to be paid in cash
under the debt instrument before the close of such accrual period and (ii) the
product of the initial issue price of such debt instrument and its yield to
maturity. It is currently impossible to determine whether the Exchange
Debentures will be treated as AHYDOs because the amount of OID, if any,
attributable to the Exchange Debentures cannot be determined until they are
issued.
If the Exchange Debentures are AHYDOs, a portion of the tax deductions
that would otherwise be available to the Company in respect of the Exchange
Debentures will be deferred or disallowed, which, in turn, might reduce the
after-tax cash flows of Holdings. More particularly, if the Exchange
Debentures constitute AHYDOs, Holdings will not be entitled to deduct OID
that accrues with respect to such Exchange Debentures until amounts
attributable to OID are paid in cash. In addition, if the yield to maturity
of the Exchange Debentures exceeds the sum of the relevant AFR plus six
percentage points (the "Excess Yield"), the "disqualified portion" of the OID
accruing on the Exchange Debenture will be characterized as a non-deductible
dividend with respect to Holdings and also may be treated as a dividend
distribution solely for purposes of the dividends received deduction with
respect to holders that are U.S. corporations. In general, the "disqualified
portion" of OID for any accrual period will be equal to the product of (i) a
percentage determined by dividing the Excess Yield by the yield to maturity
and (ii) the OID for the accrual period. Subject to otherwise applicable
limitations, such a corporate holder will be entitled to a dividends received
deduction (generally at a 70% rate) with respect to the disqualified portion
of the accrued OID if Holdings has sufficient earnings and profits. To the
extent that Holdings' earnings and profits are insufficient, any portion of
the OID that otherwise would have been recharacterized as a dividend for
purposes of the dividends received deduction will continue to be taxed as
ordinary OID income in accordance with the rules described above in
"--Taxation of Stated Interest and Original Issue Discount on Exchange
Debentures."
Redemption or Sale of Exchange Debentures
Generally, any redemption or sale of the Exchange Debentures by a holder
would result in taxable gain or loss equal to the difference between the sum of
the amount of cash and the fair market value of other property received (except
to the extent attributable to accrued, but previously untaxed, interest, which
portion of the consideration would be taxed as ordinary income) and the holder's
adjusted basis in the Exchange Debentures. The adjusted tax basis of a holder
who receives an Exchange Debenture in exchange for New Series A Senior Preferred
Stock will generally be equal to the issue price of the Exchange Debenture
increased by any OID with respect to the Exchange Debenture included in the
holder's income prior to sale or redemption of the Exchange Debenture, reduced
by any amortizable bond premium applied against the holder's income prior to
sale or redemption of the Exchange Debenture and by any cash payments other than
payments of qualified stated interest. Except to the extent that an intention to
call the Exchange Debentures prior to their maturity existed at the time of
their original issue as an agreement or understanding between Holdings and the
original holders of a substantial amount of the Exchange Debentures (which
Holdings believes is unlikely, but might nonetheless be asserted by the IRS
under a theory that the optional redemption and the change in control redemption
in respect of the Exchange Debentures manifests such an intention), and subject
to the above discussion of market discount, such gain or loss would be capital
gain or loss and would be long term capital gain or loss.
139
<PAGE>
Backup Withholding
Federal income tax backup withholding at a rate of 31 percent on
dividends, interest payments (including accrued OID), and proceeds from a sale,
exchange, or redemption of New Series A Senior Preferred Stock or Exchange
Debentures, will apply unless the holder (i) is a corporation or comes within
certain other exempt categories (and, when required, demonstrates this fact) or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. The amount of any backup
withholding from a payment to a holder will be allowed as a credit against the
holder's federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION OF FEDERAL INCOME TAX CONSIDERATIONS DOES NOT
CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE HOLDER'S
SITUATION OR STATUS, AND ACCORDINGLY DOES NOT CONSTITUTE TAX ADVICE. EACH
PURCHASER OF NEW SERIES A SENIOR PREFERRED STOCK SHOULD CONSULT ITS OWN TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT, INCLUDING THOSE UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND UNDER ANY RECENT OR PROSPECTIVE
CHANGES IN APPLICABLE TAX LAWS.
140
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Securities Purchase
Agreement (the "Purchase Agreement") dated March 23, 1998, Holdings sold to CIBC
Oppenheimer Corp. (the "Initial Purchaser"), and the Initial Purchaser purchased
from Holdings 57,710 Series A Units, consisting of 57,710 shares of Old Series A
Senior Preferred Stock and 720 shares of Unit Common Stock.
The purchase price for the Series A Units was $1,039.68 per share (the
"Unit Offering Price") less the Initial Purchaser's discount of 4.0% per Series
A Unit. The Initial Purchaser sold the Series A Units at the Unit Offering Price
to "Qualified Institutional Buyers" within the meaning of Rule 144A of the
Securities Act.
The Issuer reimbursed the Initial Purchaser for certain expenses and
agreed to indemnify the Initial Purchaser against certain liabilities, including
liabilities under the Securities Act.
The Initial Purchaser acted as a co-agent under the New Credit Facility
and as an initial purchaser in the Senior Note Offering and received customary
fees and had expenses reimbursed in connection with such services.
An affiliate of the Initial Purchaser invested an aggregate of $13.5
million in Frasier L.L.C. and in Niles L.L.C., to acquire indirect equity
interests in Holdings, on arm's length terms concurrent with the Offering.
Each broker-dealer that receives shares of New Series A Senior
Preferred Stock (or any Exchange Debentures issued in exchange therefor) for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such shares of New Series A Senior
Preferred Stock (or any Exchange Debentures issued therefor). This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of shares of New Series A Senior
Preferred Stock (or any Exchange Debentures issued in exchange therefor)
received in exchange for shares of Old Series A Senior Preferred Stock only
where such shares of Old Series A Senior Preferred Stock were acquired as a
result of market-making activities or other trading activities. Holdings has
agreed that it will make this Prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale for a period
until 180 days after the Registration Statement has been declared effective, or
such shorter period as will terminate when all shares of Old Series A Senior
Preferred Stock acquired by broker-dealers for their own accounts as a result of
market-making activities or other trading activities have been exchanged for
shares of New Series A Senior Preferred Stock and such shares of New Series A
Senior Preferred Stock (or any Exchange Debentures issued in exchange therefor)
have been resold by such broker-dealers.
Holdings will not receive any proceeds from any sale of New Series A
Senior Preferred Stock (or any Exchange Debentures issued in exchange therefor)
by broker-dealers. Shares of New Series A Senior Preferred Stock received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the shares of New
Series A Senior Preferred Stock (or any Exchange Debentures issued in exchange
therefor) or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any shares of New Series A Senior Preferred Stock (or any Exchange Debentures
issued in exchange therefor). Any broker-dealer that resells shares of New
Series A Senior Preferred Stock (or any Exchange Debentures issued in exchange
therefor) that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
shares of New Series A Senior Preferred Stock (or any Exchange Debentures issued
in exchange therefor) may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of shares of New Series A
Senior Preferred Stock (or any Exchange Debentures issued in exchange therefor)
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period until 180 days after the Registration Statement has been
declared effective, or such shorter period as will terminate when all shares of
Old Series A Senior Preferred Stock acquired by broker-dealers for their own
141
<PAGE>
accounts as a result of market-making activities or other trading activities
have been exchanged for shares of New Series A Senior Preferred Stock and such
shares of New Series A Senior Preferred Stock (or any Exchange Debentures issued
in exchange therefor) have been resold by such broker-dealers, Holdings will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Holdings has agreed to pay all expenses incident
to the Exchange Offer other than commissions or concessions of any brokers or
dealers and the fees of any counsel or other advisors or experts retained by the
holders of the Series A Senior Preferred Stock, except as expressly set forth in
the Exchange Offer Registration Rights Agreement, and will indemnify the holders
of the Series A Senior Preferred Stock (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
EXPERTS
The combined financial statements of the Material Handling Equipment
Business of Harnischfeger Industries, Inc. as of October 31, 1997 and 1996
and for each of the three fiscal years in the period ended October 31, 1997,
included in this Prospectus, have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the New Series A Senior Preferred Stock will be passed
upon for Holdings by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington,
D.C., counsel to Holdings.
142
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Reference
---------
MMH HOLDINGS, INC.
Condensed Balance Sheets As of October 31, 1997
and April 30, 1998 (Unaudited)............................... F-2
Unaudited Condensed Statements of Income for the Three Months
Ended April 30, 1998 and April 30, 1997 and for the Six
Months Ended April 30, 1998 and April 30, 1997............... F-3
Unaudited Condensed Statements of Cash Flows for the Six Months
Ended April 30, 1998 and April 30, 1997...................... F-4
Statement of Preferred Stock and Shareholders' Equity
(unaudited) ................................................. F-5
Notes to Unaudited Financial Statements (unaudited).............. F-6
MATERIAL HANDLING EQUIPMENT BUSINESS OF HARNISCHFEGER INDUSTRIES, INC.
Report of Independent Accountants............................... F-16
Combined Balance Sheets as of October 31, 1997
and October 31, 1996......................................... F-17
Combined Statements of Income for the Years Ended
October 31, 1997, October 31, 1996 and
October 31, 1995............................................. F-18
Combined Statements of Cash Flows for the Years
Ended October 31, 1997, October 31, 1996
and October 31, 1995......................................... F-19
Notes to Combined Financial Statements.......................... F-20
For purposes hereof, it is assumed that Holdings has historically owned
the capital stock of Morris Material Handling, Inc., that all of the assets of
the MHE Business were owned by subsidiaries thereof and that immediately prior
to the consummation of the Recapitalization, the historical combined financial
statements of Holdings were identical to those of the MHE Business which are
presented herein.
F-1
<PAGE>
MMH HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
April 30, October 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current Assets
Cash $ 2,825 $ 1,532
Accounts receivable--net 78,791 82,209
Inventories 35,338 33,497
Other current assets 4,093 4,765
--------- ---------
Total current assets 121,047 122,003
Property, Plant and Equipment
Cost 64,437 60,763
Less accumulated depreciation (24,993) (21,396)
--------- ---------
39,444 39,367
--------- ---------
Other Assets
Goodwill 32,158 32,229
Debt financing costs 18,098 --
Deferred income taxes 73,242 --
Other 5,856 6,001
--------- ---------
129,354 38,230
--------- ---------
Total assets $ 289,845 $ 199,600
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY/ PARENT INVESTMENT
Current Liabilities
Short-term notes payable and current
portion of long-term obligations $ 5,124 $ 752
Bank overdrafts 1,249 4,293
Trade accounts payable 24,438 32,656
Advance payments and progress billings 8,035 7,685
Accrued warranties 2,781 3,998
Other current liabilities 22,281 21,376
--------- ---------
Total current liabilities 63,908 70,760
Senior Notes 200,000 --
Term Loans 53,650 --
Other Long-Term Debt 1,046 1,043
Deferred Income Taxes 2,597 3,088
--------- ---------
Total liabilities 321,201 74,891
Minority Interest 353 391
Mandatorily Redeemable Preferred Stock 89,443 --
Shareholders' Equity/Parent Investment (121,152) 124,318
--------- ---------
Total liabilities and shareholders'
equity/parent investment $ 289,845 $ 199,600
========= =========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended April 30, Ended April 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 80,766 $ 97,072 $ 157,249 $ 177,054
Other income - net 442 247 726 1,501
-------- --------- --------- ---------
81,208 97,319 157,975 178,555
Cost of Sales 58,519 72,840 115,172 133,632
Selling, General and Administrative
Expenses 15,154 14,024 29,514 27,272
HII Management Fee 478 786 1,155 1,434
Non-Recurring Employee Benefit Costs 1,786 -- 1,906 --
-------- --------- --------- ---------
Operating income 5,271 9,669 10,228 16,217
Interest Expense - Net
HII Affiliates (761) (259) (1,448) (69)
Third party (2,545) (111) (2,703) (159)
-------- --------- --------- ---------
Income Before Income Taxes and Minority Interest 1,965 9,299 6,077 15,989
Provision for Income Taxes (459) (3,713) (2,446) (6,384)
Minority Interest 24 5 38 (3)
-------- --------- --------- ---------
Net income $ 1,530 $ 5,591 $ 3,669 $ 9,602
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended April 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities
Net Income $ 3,669 $ 9,602
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 3,408 3,085
Minority interest (38) 3
Deferred income taxes - net 57 (171)
Divestiture bonus 1,216 --
Gain on fire insurance claim -- (1,100)
Other -- (400)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 3,646 6,309
Inventories (1,968) (1,960)
Other current assets (1,903) 187
Trade accounts payable and bank overdrafts (11,579) 426
Advance payments and progress billings 542 (10,901)
Accrued warranties (1,246) 96
Other current liabilities 929 (3,717)
Activity with parent and other affiliates 1,213 11,064
--------- ---------
Net cash provided by (used for) operating activities (2,054) 12,523
--------- ---------
Investment and Other Transactions
Fixed asset additions - net (2,446) (2,486)
Acquisition of businesses - net of cash acquired (319) (11,787)
Fire insurance claim activity - net -- 1,100
Issuance of loans to senior management (900) --
Other - net 72 (314)
--------- ---------
Net cash used for investment and other transactions (3,593) (13,487)
--------- ---------
Financing Activities
Changes in short-term notes payable 3,065 (667)
Proceeds from Senior Note Offering 200,000 --
Proceeds from New Credit Facility 55,000 --
Redemption of common stock and preferred stock (287,000) --
Net proceeds from issuance of Series A preferred
stock and related common shares 57,094 --
Stock redemption transaction costs (2,939) --
Debt financing costs (18,179) --
Repayments of debt -- (46)
--------- ---------
Net cash provided by (used for) financing activities 7,041 (713)
--------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (101) 2
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 1,293 (1,675)
Cash and Cash Equivalents
Beginning of Period 1,532 3,821
--------- ---------
End of Period $ 2,825 $ 2,146
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MMH HOLDINGS, INC.
STATEMENT OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Preferred Stock
--------------------------------------------------------------------------------------
Series A Series B Series C
----------------------- ---------------------- ---------------------- -----------
Shares Carrying Shares Carrying Shares Carrying
Outstanding Value Outstanding Value Outstanding Value Total
------------ -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997 -- $ -- -- $ -- -- $ -- $ --
Net Income -- -- -- -- -- -- --
Change in foreign currency
translation -- -- -- -- -- -- --
Exchange of 450 common shares
outstanding for 100,000
shares of new common stock
and 30,000 shares of Series
C preferred stock -- -- -- -- 30,000 30,000 99,550
Issue Series A preferred and
common shares for
$60 million (net of $2.906
million fees) 57,710 54,804 -- -- -- -- 54,804
Redemption of shares from Harnco
and related costs -- -- -- -- (1,145) (1,145) (1,145)
Exchange of 1,512 common shares
for Series B preferred shares -- -- 4,809 4,809 -- -- 4,809
Preferred stock dividends -- 577 -- 49 -- 301 927
Amortization of preferred stock discount -- 48 -- -- -- -- 48
Capital contribution from HII -- -- -- -- -- -- --
Issuance of loans to senior
management -- -- -- -- -- -- --
Deferred taxes arising from
change in U.S. federal income tax basis -- -- -- -- -- -- --
Activity with HII and other
affiliates, October 31, 1997 -
March 30, 1998 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balance at April 30, 1998 57,710 $ 55,429 4,809 $ 4,858 28,855 $ 29,156 $ 89,443
========= ========= ========= ========= ========= ========= =========
<CAPTION>
Parent
Common Stock Investment/
------------------- Additional Cumulative Total
Shares Par Paid-in Translation Retained Shareholders'
Outstanding Value Capital Adjustment Earnings Equity
------------ ------ ----------- ------------- ----------- ----------------
(A)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997 450 $ -- $ 124,618 $ (300) $ -- $ 124,318
Net Income -- -- -- -- 3,669 3,669
Currency Translation Adjustments -- -- -- (1,520) -- (1,520)
Exchange of 450 common shares
outstanding for 100,000
shares of new common stock
and 30,000 shares of Series
C preferred stock 99,550 1 (30,001) -- -- (30,000)
Issue Series A preferred and
common shares for
$60 million (net of $2.906
million fees) 720 -- 2,290 -- -- 2,290
Redemption of shares from Harnco
and related costs (88,319) (1) (288,793) -- -- (288,794)
Exchange of 1,512 common shares
for Series B preferred shares (1,512) -- (4,809) -- -- (4,809)
Preferred stock dividends -- -- -- -- (927) (927)
Amortization of preferred stock discount -- -- -- -- (48) (48)
Capital contribution from HII -- -- 1,216 -- -- 1,216
Issuance of loans to senior
management -- -- (900) -- -- (900)
Deferred taxes arising from
change in U.S. federal income tax basis -- -- 71,129 -- -- 71,129
Activity with HII and other
affiliates, October 31, 1997 -
March 30, 1998 -- -- 3,224 -- -- 3,224
--------- --------- --------- --------- --------- ---------
Balance at April 30, 1998 10,889 $ -- $(122,026) $ (1,820) $ 2,694 $(121,152)
========= ========= ========= ========= ========= =========
</TABLE>
(A) Due to the MHE Business having historically been operated as a division of
HII, a historical retained earnings balance cannot be determined.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands unless indicated)
(Unaudited)
Note 1 - Basis of Presentation
On January 28, 1998, Harnischfeger Industries, Inc. ("HII") reached an
agreement with MHE Investments, Inc. ("MHE Investments") an affiliate of
Chartwell Investments Inc. ("Chartwell") for the sale of an approximately 80
percent common ownership interest in HII's Material Handling Equipment
Business (the "MHE Business" or the "Company"). As more fully described in
Note 2, the resulting transactions (the "Recapitalization"), which closed on
March 30, 1998, led to a significant change in the Company's capital
structure and a reorganization of the underlying legal entities of the MHE
Business. In connection therewith, MMH Holdings, Inc. ("Holdings"), a
pre-existing company within the MHE Business, became the holding company for
the operating entities engaged in the MHE Business. Holdings in turn formed a
new wholly owned subsidiary, Morris Material Handling, Inc. ("MMH"), to
directly or indirectly hold the various operating entities of the MHE
Business. Holdings was recapitalized in order to effect the redemption of
certain shares of common stock of Holdings held by HarnCo. As a result of the
reorganization of the legal entities of the MHE Business, Holdings and MMH
became the successor companies to the MHE Business. The transactions have
been accounted for as a recapitalization and accordingly, the consolidated
financial statements presented herewith reflect the underlying historical
accounting basis of the MHE Business.
The historical combined financial statements of the MHE Business for
periods prior to the Recapitalization are included in the accompanying
unaudited financial statements for all periods presented. These financial
statements should be read in conjunction with the audited combined financial
statements and the notes thereto of the Material Handling Equipment Business
of Harnischfeger Industries, Inc. for each of the three years in the period
ended October 31, 1997.
In the opinion of management, all adjustments necessary for the fair
presentation of the results of operations for the three and six months ended
April 30, 1998 and 1997, cash flows for the six months ended April 30, 1998
and 1997, and financial position at April 30, 1998 have been made. All
adjustments made are of a normal recurring nature. The results of operations
for any interim period are not necessarily indicative of the results to be
expected for the full year.
Note 2 - Recapitalization Transaction
The Recapitalization was effectuated pursuant to the January 28, 1998
Recapitalization Agreement among MHE Investments, Harnischfeger Corporation
("HarnCo") and certain of HarnCo's affiliates. Pursuant to this agreement,
HarnCo and other HII affiliates effected a number of transactions which
resulted in Holdings, a pre-existing company within the MHE Business, owning,
directly or indirectly, all of the equity interests of the operating entities
engaged in the MHE Business that were previously owned by HarnCo and its
affiliates. Holdings in turn formed MMH as a wholly owned subsidiary to
directly or indirectly hold the various operating entities of the MHE
Business.
The principal transactions effected as part of the Recapitalization were
the following: (i) MHE Investments acquired 7,907 shares of Holdings' common
stock for $25.1 million and $28.9 million liquidation preference of Holdings'
12 1/2% Series C Junior Voting Exchangeable Preferred Stock (the "Series C
Junior Voting Preferred Stock") from HarnCo, (ii) Holdings redeemed certain
shares of its common stock and Series C Junior Voting Preferred Stock held by
HarnCo for $287 million in cash (including a $5 million prepayment of a
potential post-closing redemption price adjustment) and approximately $4.8
million liquidation preference of Holdings' 12 1/4% Series B Junior
Exchangeable Preferred Stock (the "Series B Junior Preferred Stock"); and
(iii) HarnCo retained 2,261 shares of Holdings' common stock.
To finance the Recapitalization, Holdings sold $60 million of Series A
Units, consisting of $57.7 million liquidation preference of Holdings' 12%
Series A Senior Exchangeable Preferred Stock (the "Series A Senior Preferred
Stock") and $2.3 million of Holdings' non-voting common stock, to
institutional investors. In addition, MMH issued $200 million of aggregate
principal amount of its 9 1/2% Senior Notes due 2008 (the "Note Offering")
and entered into a senior secured credit facility (the "New Credit Facility")
(See Note 5). MMH used a portion of
F-6
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
the $200 million aggregate proceeds from the Note Offering and $55 million
aggregate borrowings under the New Credit Facility to redeem certain of its
common shares from Holdings and pay Holdings a dividend which on a combined
basis totaled $232.8 million. Holdings, in turn, used the proceeds from this
redemption, together with the proceeds of the sale of the Series A Units, to
finance the cash portion of the redemption price for HarnCo's shares. The
remainder of the proceeds were used by Holdings and MMH (i) to make loans to
senior management to acquire indirect equity interests in Holdings, (ii) to
fund certain transaction fees and expenses and (iii) for general corporate
purposes.
As a result of the Recapitalization, MHE Investments owns approximately
72.6% of the common stock of Holdings and $28.9 million liquidation
preference of the Series C Junior Voting Preferred Stock and HarnCo owns
approximately 20.8% of the common stock of Holdings and $4.8 million
liquidation preference of the Series B Junior Preferred Stock. The remaining
equity interests are held by institutional investors and consist of
non-voting stock representing approximately 6.6% of the common stock of
Holdings outstanding and $57.7 million liquidation preference of the Series A
Senior Preferred Stock.
In connection with the Recapitalization, MMH entered into a Trademark
License Agreement with an affiliate of HarnCo pursuant to which MMH has the
right to use the P&H trademark with respect to all MHE Business products on a
worldwide exclusive basis from March 30, 1998 until 15 years after the
earlier to occur of a sale of Holdings to a third party or a public offering
of the common stock of Holdings, MMH or their parents or successors (and for
an additional seven years thereafter for aftermarket products and services).
The royalty fee for use of the trademark is a percentage of the aggregate net
sales of the MHE Business for the ten year period commencing March 30, 1999.
There will be no royalty fee for the remainder of the term following such ten
year period. MMH also entered into a number of agreements pursuant to which
HII will continue to provide, on an interim basis, certain supplies, products
and services to MMH and its subsidiaries located in the United States on
substantially similar terms and conditions to those historically provided.
Note 3 - Acquisitions
During the six months ended April 30, 1997, the Company completed the
acquisition of a large distribution and service center in Ohio for an
aggregate purchase price of $11.8 million, net of cash acquired. This
acquisition was related to the Company's aftermarket business and was
accounted for as a purchase transaction with the purchase price allocated to
the fair value of specific assets acquired and liabilities assumed. Resultant
goodwill is being amortized over 40 years.
Note 4 - Inventories
Inventories consisted of the following:
April 30, October 31,
1998 1997
----------------------
Raw materials $ 16,092 $ 17,391
Work-in-process 12,737 13,654
Finished parts 14,107 10,704
----------------------
42,936 41,749
Less excess of current cost over
stated LIFO value (7,598) (8,252)
----------------------
$ 35,338 $ 33,497
======================
F-7
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
Note 5 - Indebtedness
On March 23, 1998, MMH issued $200 million aggregate principal amount
of 9 1/2% Senior Notes due April 1, 2008 (the "Notes") in connection with the
Recapitalization as discussed in Note 2. Interest on the Notes is payable
semiannually on each April 1 and October 1, commencing October 1, 1998. The
Notes will be redeemable at the option of MMH, in whole or in part, at any
time on or after April 1, 2003, at the appropriate redemption price, plus
accrued and unpaid interest thereon to the redemption date. In addition, MMH
may redeem in the aggregate up to 35% of the original principal amount of the
Notes at any time and from time to time prior to April 1, 2001 at a
redemption price equal to 109.5% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, subject to
certain provisions. The Notes are senior unsecured obligations and are
unconditionally guaranteed, jointly and severally, on a senior unsecured
basis by substantially all of MMH's subsidiaries. See further discussion in
Note 11. The Notes are subject to various covenants that, among other things,
limit the ability of MMH and its subsidiaries to incur additional
indebtedness, incur liens, pay dividends and make certain other restricted
payments, make investments, repurchase stock, consummate certain asset sales,
enter into certain transactions with affiliates, issue capital stock of their
subsidiaries, create dividend or other payment restrictions affecting their
subsidiaries, consolidate or merge with any person in a transaction involving
all or substantially all of the consolidated assets of MMH or transfer or
sell all or substantially all of the consolidated assets of MMH.
At the Recapitalization Closing, MMH entered into a New Credit Facility
which consists of a $70 million revolving credit facility (the "Revolving
Credit Facility"), a $30 million acquisition facility (the "Acquisition
Facility"), a $20 million term loan ("Term Loan A") and a $35 million term
loan ("Term Loan B").
The Revolving Credit Facility will permit, subject to compliance with
certain conditions, MMH to borrow, repay and reborrow up to $70 million (of
which $15 million is reserved for issuance of letters of credit under the
note indenture) at any time until the fifth anniversary of the
Recapitalization Closing, the proceeds of which may be used for working
capital and other corporate purposes. The Acquisition Facility, the proceeds
of which may be used for acquisitions, will permit, subject to compliance
with certain conditions, MMH to borrow up to $30 million at any time until
the third anniversary, and to repay the same in installments on or prior to
the seventh anniversary of the Recapitalization Closing. Term Loan A and Term
Loan B are repayable in 20 and 28 quarterly installments, respectively,
commencing June 1998.
Borrowings under the New Credit Facility bear interest at various
interest rates based on certain floating reference rates. Borrowings under
the New Credit Facility are secured by certain of MMH's and its subsidiaries'
assets, including substantially all of their assets and are guaranteed by
Holdings and substantially all of MMH's subsidiaries.
To limit the effect of increases in the interest rates of the New Credit
Facility, the Company has entered into an interest rate swap arrangement. The
effect of this agreement, which expires on March 31, 2001, is to limit the
interest rate exposure on specified amounts up to the $55.0 million borrowed
under the New Credit Facility to a fixed LIBOR rate of 5.875% plus 2.25% or
2.75%, as applicable. The differential is accrued as interest rates change
and is recorded as interest expense. Payments under the swap will be made
quarterly. The impact of this agreement was not material for the three and
six months ended April 30, 1998.
Note 6 - Contingent Liabilities
At April 30, 1998, MMH was contingently liable to financial institutions
and others for approximately $2.1 million under the New Credit Facility and
$34.7 million under the HII Credit Support Obligations for outstanding
letters of credit and surety bonds securing performance of sales contracts
related to MMH operations.
F-8
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
As of the Recapitalization Closing, HarnCo retained certain income and
other tax liabilities relating to the MHE Business, all environmental
liabilities relating to previously shared facilities, any liabilities for
which HarnCo or its affiliates have been named as potentially responsible
parties with respect to Superfund sites, and any liabilities arising in
connection with claims alleging exposure to asbestos in connection with the
MHE Business prior to the Recapitalization Closing. Additionally, HarnCo
retained all liability for medical and disability benefit claims for current
United States employees made prior to the Recapitalization Closing and all
claims with respect to any of the HII benefit plans for former United States
employees.
MMH is a party to various litigation matters, including product liability
and other claims, which are normal in the course of its operations. Also, as
a normal part of its operations, MMH undertakes certain contractual
obligations and warranties in connection with the sale of products or
services. Although the outcome of these matters cannot be predicted with
certainty, management believes that such matters will not have a material
adverse effect on the MMH combined results of operations, financial position
or cash flows.
MMH is also involved in a number of proceedings and potential proceedings
relating to environmental matters. Although it is difficult to estimate the
potential exposure to MMH related to these environmental matters, management
believes these matters will not have a material adverse effect on its
combined results of operations, financial position or cash flows.
Note 7 - Income Taxes
The deferred income tax accounts reflect the impact of temporary
differences between the basis of assets and liabilities for financial
reporting purposes and their related basis as measured by income tax
regulations. For income tax purposes, MMH and Holdings will be deemed to have
acquired the assets of the MHE Business pursuant to Internal Revenue Code
Section 338(h)(10). Accordingly, this transaction increased the tax basis of
certain assets
and created tax-deductible goodwill, and resulted in significant book/tax basis
differences. A valuation allowance was recorded to reflect the estimated amount
of deferred tax assets which may not be realized due primarily to the possible
limitation on the future use of certain foreign credits. The resulting net
adjustment to deferred income taxes has been recorded as an adjustment to
shareholders' equity.
Note 8 - Gain on Fire Insurance Claim
During the first quarter of fiscal 1997, the Company recognized a gain of
approximately $1.1 million based upon the status of the property loss and
business interruption insurance claim related to the fiscal 1995 fire at its
facility in the United Kingdom.
Note 9 - Sale of Facility
During the first quarter of fiscal 1998, the Company completed the sale
of its Dayton, Ohio land and building which it had acquired in connection
with the acquisition of an aftermarket operation during the prior year. The
operation's former owners reacquired these assets in exchange for a note
receivable of $427 and settlement of the remaining amount of $300 due to the
former owners related to the Company's acquisition. The balance of the note
was collected in full by the Company during the quarter ended April 30, 1998.
No significant gain or loss was recognized in connection with this
transaction.
Note 10 - Non-recurring Employee Benefit Costs
As a result of the Recapitalization, the Company recognized certain
non-recurring employee benefit costs. These costs included severance costs
associated with restructuring the Company's United Kingdom manufacturing
operation and incentives to certain members of management. The Company's
former parent, not the Company, is responsible for making these incentive
payments and accordingly, this amount has been reported as a capital
F-9
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
contribution in the accompanying financial statements. The severance costs
were approximately $0.7 million and the incentives to management were
approximately $1.2 million.
Note 11 - Supplemental Condensed Combining Financial Information
In connection with the Recapitalization, MMH, a direct wholly-owned
subsidiary of Holdings, issued debt securities that are guaranteed by certain
of the Company's affiliates (the "Guarantor Subsidiaries"). Each of the
Guarantor Subsidiaries is a wholly-owned subsidiary, directly or indirectly,
of MMH and the guarantees are full, unconditional and joint and several. Both
Holdings and MMH are holding companies with no material operating assets. All
of the Company's business operations are conducted through subsidiaries of
MMH.
Separate financial statements of the Guarantor Subsidiaries are not
presented because company management has determined that they would not be
material to investors. The following supplemental financial information sets
forth the balance sheet, statement of operations and cash flow information
for the Guarantor Subsidiaries and for the Company's other affiliates (the
"Non-Guarantor Subsidiaries"). The supplemental financial information
reflects the investments of the Guarantor Subsidiaries in the Non-Guarantor
Subsidiaries using the equity method of accounting. For purposes of this
presentation, it is assumed that all of the assets of the Company were
wholly-owned by subsidiaries of MMH, which is an entity that was formed by
Holdings in connection with the Recapitalization and that the historical
combined financial statements of MMH and Holdings prior to the
Recapitalization Closing are identical following completion of the
transaction.
F-10
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING
BALANCE SHEET APRIL 30, 1998
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non- Morris Consolidated
Guarantor Guarantor Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------- ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,404 $ 421 $ -- $ -- $ 2,825
Accounts receivable - net 71,852 6,939 -- -- 78,791
Intercompany accounts receivable 6,260 -- 714 (6,974) --
Inventories 31,799 3,539 -- -- 35,338
Other current assets 3,123 263 707 -- 4,093
-------- -------- --------- --------- ---------
115,438 11,162 1,421 (6,974) 121,047
-------- -------- --------- --------- ---------
Property, Plant and Equipment - net 36,462 2,982 -- -- 39,444
-------- -------- --------- --------- ---------
Other Assets
Goodwill 30,176 1,982 -- -- 32,158
Debt financing costs -- -- 18,098 -- 18,098
Noncurrent intercompany receivable 3,377 -- 80,070 (83,447) --
Investment in affiliates 678 -- 53,027 (53,705) --
Deferred income taxes -- -- 73,242 -- 73,242
Other 5,856 -- -- -- 5,856
-------- -------- --------- --------- ---------
40,087 1,982 224,437 (137,152) 129,354
-------- -------- --------- --------- ---------
$191,987 $ 16,126 $ 225,858 $(144,126) $ 289,845
======== ======== ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ 3,737 $ 37 $ 1,350 $ -- $ 5,124
Bank overdrafts -- 1,249 -- -- 1,249
Trade accounts payable 22,486 1,952 -- -- 24,438
Intercompany accounts payable 714 5,360 900 (6,974) --
Advance payments and progress billings 7,906 129 -- -- 8,035
Accrued warranties 2,656 125 -- -- 2,781
Other current liabilities 18,442 2,172 1,667 -- 22,281
-------- -------- --------- --------- ---------
55,941 11,024 3,917 (6,974) 63,908
-------- -------- --------- --------- ---------
Senior Notes -- -- 200,000 -- 200,000
Term Loans -- -- 53,650 -- 53,650
Other Term Debt 352 694 -- -- 1,046
Noncurrent Intercompany Payable 80,070 3,377 -- (83,447) --
Deferred Income Taxes 2,597 -- -- -- 2,597
-------- -------- --------- --------- ---------
138,960 15,095 257,567 (90,421) 321,201
Minority Interest -- -- -- 353 353
Mandatorily Redeemable Preferred Stock -- -- -- -- --
Shareholders' Equity 53,027 1,031 (31,709) (54,058) (31,709)
-------- -------- --------- --------- ---------
$191,987 $ 16,126 $ 225,858 $(144,126) $ 289,845
======== ======== ========= ========= =========
<CAPTION>
Consolidated
MMH MMH
Holdings, Inc. Eliminations Holdings, Inc.
-------------- ------------ ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ -- $ -- $ 2,825
Accounts receivable - net -- -- 78,791
Intercompany accounts receivable -- -- --
Inventories -- -- 35,338
Other current assets -- -- 4,093
--------- -------- ---------
-- -- 121,047
--------- -------- ---------
Property, Plant and Equipment - net -- -- 39,444
--------- -------- ---------
Other Assets
Goodwill -- -- 32,158
Debt financing costs -- -- 18,098
Noncurrent intercompany receivable -- -- --
Investment in affiliates (31,709) 31,709 --
Deferred income taxes -- -- 73,242
Other -- -- 5,856
--------- -------- ---------
(31,709) 31,709 129,354
--------- -------- ---------
$ (31,709) $ 31,709 $ 289,845
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ -- $ -- $ 5,124
Bank overdrafts -- -- 1,249
Trade accounts payable -- -- 24,438
Intercompany accounts payable -- -- --
Advance payments and progress billings -- -- 8,035
Accrued warranties -- -- 2,781
Other current liabilities -- -- 22,281
--------- -------- ---------
-- -- 63,908
--------- -------- ---------
Senior Notes -- -- 200,000
Term Loans -- -- 53,650
Other Term Debt -- -- 1,046
Noncurrent Intercompany Payable -- -- --
Deferred Income Taxes -- -- 2,597
--------- -------- ---------
-- -- 321,201
Minority Interest -- -- 353
Mandatorily Redeemable Preferred Stock 89,443 -- 89,443
Shareholders' Equity (121,152) 31,709 (121,152)
--------- -------- ---------
$ (31,709) $ 31,709 $ 289,845
========= ======== =========
</TABLE>
F-11
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED COMBINING/CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------
Combined/
Non- Morris Consolidated
Guarantor Guarantor Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
--------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Net Sales $ 149,211 $ 11,314 $ -- $ (3,276) $ 157,249
Other Income - net 726 -- -- -- 726
--------- -------- ------- --------- ---------
149,937 11,314 -- (3,276) 157,975
Cost of Sales 109,576 8,872 -- (3,276) 115,172
Selling, General and Administrative
Expenses 27,107 2,324 83 -- 29,514
HII Management Fee 1,155 -- -- -- 1,155
Non-Recurring Employee Benefit Costs 690 -- 1,216 -- 1,906
--------- -------- ------- --------- ---------
Operating Income 11,409 118 (1,299) -- 10,228
Interest Income (Expense) - Net
Affiliates (2,075) (87) 714 -- (1,448)
Third party (198) (282) (2,223) -- (2,703)
--------- -------- ------- --------- ---------
Income (Loss) Before Income Taxes,
Equity in Earnings (Loss) of
Subsidiaries and Minority Interest 9,136 (251) (2,808) -- 6,077
Provision for Income Taxes (2,446) -- -- -- (2,446)
Equity in Earnings (Loss) of Subsidiaries (213) -- 6,477 (6,264) --
Minority Interest -- -- -- 38 38
--------- -------- ------- --------- ---------
Net Income (Loss) $ 6,477 $ (251) $ 3,669 $ (6,226) $ 3,669
========= ======== ======= ========= =========
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30, 1998
----------------------------------------------
Combined/
Consolidated
MMH MMH
Holdings, Inc. Eliminations Holdings, Inc.
--------------- ------------ --------------
<S> <C> <C> <C>
Revenues
Net Sales $ -- $ -- $ 157,249
Other Income - net -- -- 726
------ --------- ---------
-- -- 157,975
Cost of Sales -- -- 115,172
Selling, General
and Administrative Expenses -- -- 29,514
HII Management Fee -- -- 1,155
Non-Recurring Employee Benefit Costs -- -- 1,906
------ --------- ---------
Operating Income -- -- 10,228
Interest Income (Expense) - Net
Affiliates -- -- (1,448)
Third party -- -- (2,703)
------ --------- ---------
Income (Loss) Before Income Taxes,
Equity in Earnings (Loss) of
Subsidiaries and Minority Interest -- -- 6,077
Provision for Income Taxes -- -- (2,446)
Equity in Earnings (Loss) of Subsidiaries 3,669 (3,669) --
Minority Interest -- -- 38
------ --------- ---------
Net Income (Loss) $3,669 $ (3,669) $ 3,669
====== ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------
Combined/
Non- Morris Consolidated
Guarantor Guarantor Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
--------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Net Sales $ 76,075 $ 6,104 $ -- $ (1,413) $ 80,766
Other Income - net 442 -- -- -- 442
--------- -------- ------- --------- ---------
76,517 6,104 -- (1,413) 81,208
Cost of Sales 55,014 4,918 -- (1,413) 58,519
Selling, General and Administrative
Expenses 13,950 1,121 83 -- 15,154
HII Management Fee 478 -- -- -- 478
Non-Recurring Employee Benefit Costs 570 -- 1,216 -- 1,786
--------- -------- ------- --------- ---------
Operating Income 6,505 65 (1,299) -- 5,271
Interest Income (Expense) - Net
Affiliates (1,433) (42) 714 -- (761)
Third party (186) (136) (2,223) -- (2,545)
--------- -------- ------- --------- ---------
Income (Loss) Before Income Taxes,
Equity in Earnings (Loss) of
Subsidiaries and Minority Interest 4,886 (113) (2,808) -- 1,965
Provision for Income Taxes (470) 11 -- -- (459)
Equity in Earnings (Loss) of Subsidiaries (78) -- 4,338 (4,260) --
Minority Interest -- -- -- 24 24
--------- -------- ------- --------- ---------
Net Income (Loss) $ 4,338 $ (102) $ 1,530 $ (4,236) $ 1,530
========= ======== ======= ========= =========
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 30, 1998
----------------------------------------------
Combined/
Consolidated
MMH MMH
Holdings, Inc. Eliminations Holdings, Inc.
--------------- ------------ --------------
<S> <C> <C> <C>
Revenues
Net Sales $ -- $ -- $ 80,766
Other Income - net -- -- 442
--------- ---------
-- -- 81,208
Cost of Sales -- -- 58,519
Selling, General and Administrative
Expenses -- -- 15,154
HII Management Fee -- -- 478
Non-Recurring Employee Benefit Costs -- -- 1,786
------ --------- ---------
Operating Income -- -- 5,271
Interest Income (Expense) - Net
Affiliates -- -- (761)
Third party -- -- (2,545)
------ --------- ---------
Income (Loss) Before Income Taxes,
Equity in Earnings (Loss) of
Subsidiaries and Minority Interest -- -- 1,965
Provision for Income Taxes -- -- (459)
Equity in Earnings (Loss) of Subsidiaries 1,530 (1,530) --
Minority Interest -- -- 24
------ --------- ---------
Net Income (Loss) $1,530 $ (1,530) $ 1,530
====== ========= =========
</TABLE>
F-12
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30, 1997
-----------------------------------------------------------
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 167,335 $ 11,060 $ (1,341) $ 177,054
Other Income - Net 1,501 -- -- 1,501
--------- -------- --------- ---------
168,836 11,060 (1,341) 178,555
Cost of Sales 126,189 8,784 (1,341) 133,632
Selling, General and Administrative
Expenses 25,207 2,065 -- 27,272
HII Management Fee 1,434 -- -- 1,434
--------- -------- --------- ---------
Operating Income 16,006 211 -- 16,217
Interest (Expense) Income - Net
Affiliates 32 (101) -- (69)
Third party 8 (167) -- (159)
--------- -------- --------- ---------
Income Before Income Taxes, Equity in Loss of
Combined Affiliates and Minority Interest 16,046 (57) -- 15,989
Provision for Income Taxes (6,301) (83) -- (6,384)
Equity in Loss of Combined Affiliates (143) -- 143 --
Minority Interest -- -- (3) (3)
--------- -------- --------- ---------
Net Income (Loss) $ 9,602 $ (140) $ 140 $ 9,602
========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 30, 1997
-----------------------------------------------------------
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 91,791 $ 5,761 $ (480) $ 97,072
Other Income - Net 247 -- -- 247
--------- -------- --------- ---------
92,038 5,761 (480) 97,319
Cost of Sales 68,587 4,733 (480) 72,840
Selling, General and Administrative
Expenses 13,020 1,004 -- 14,024
HII Management Fee 786 -- -- 786
--------- -------- --------- ---------
Operating Income 9,645 24 -- 9,669
Interest Expense - Net
Affiliates (208) (51) -- (259)
Third party (20) (91) -- (111)
--------- -------- --------- ---------
Income Before Income Taxes, Equity in Loss of
Combined Affiliates and Minority Interest 9,417 (118) -- 9,299
Provision for Income Taxes (3,646) (67) -- (3,713)
Equity in Loss of Combined Affiliates (180) -- 180 --
Minority Interest -- -- 5 5
--------- -------- --------- ---------
Net Income (Loss) $ 5,591 $ (185) $ 185 $ 5,591
========= ======== ========= =========
</TABLE>
F-13
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED COMBINING/CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Combined/
Non- Morris Consolidated
Guarantor Guarantor Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ 6,477 $ (251) $ 3,669 $(6,226) $ 3,669
Add/(deduct)-items not affecting cash
provided by operating activities:
Depreciation and amortization 3,101 226 81 -- 3,408
Equity in (earnings) loss
of subsidiaries 213 -- (6,477) 6,264 --
Minority interest -- -- -- (38) (38)
Deferred income taxes - net 57 -- -- -- 57
Divestiture bonus -- -- 1,216 -- 1,216
Changes in working capital, excluding the
effects of acquisition opening
balance sheets:
Accounts receivable 2,121 1,525 -- -- 3,646
Inventories (3,507) 1,539 -- -- (1,968)
Other current assets (14) (1,182) (707) -- (1,903)
Trade accounts payable and
bank overdrafts (8,012) (3,567) -- -- (11,579)
Other current liabilities (3,669) 1,752 2,142 -- 225
Activity with parent and
other affiliates - net 1,479 448 (714) -- 1,213
------- ------- --------- ------- ---------
Net cash provided by (used for)
operating activities (1,754) 490 (790) -- (2,054)
------- ------- --------- ------- ---------
Investment and Other Transactions
Fixed asset additions - net (2,238) (208) -- -- (2,446)
Acquisition of business
- net of cash received (319) -- -- -- (319)
Issuance of loans to senior management -- -- (900) -- (900)
Other - net 72 -- -- -- 72
------- ------- --------- ------- ---------
Net cash used for investment and other
transactions (2,485) (208) (900) -- (3,593)
------- ------- --------- ------- ---------
Financing Activities
Change in short-term notes payable 3,065 -- -- -- 3,065
Proceeds from Senior Note Offering -- -- 200,000 -- 200,000
Proceeds from New Credit Facility -- -- 55,000 -- 55,000
Redemption of shares held by Holdings -- -- (232,845) -- (232,845)
Redemption of common stock and
preferred stock -- -- -- -- --
Net proceeds from issuance of Series A
preferred stock and related common shares -- -- -- -- --
Stock redemption transaction costs -- -- -- -- --
Debt financing costs -- -- (18,179) -- (18,179)
Capital contributions 2,286 -- (2,286) -- --
Proceeds from issuance of debt (23) 23 -- -- --
------- ------- --------- ------- ---------
Net cash provided by financing activities 5,328 23 1,690 -- 7,041
------- ------- --------- ------- ---------
Effect of Exchange Rate Changes on Cash
and cash equivalents (78) (23) -- -- (101)
------- ------- --------- ------- ---------
Increase in Cash and Cash Equivalents 1,011 282 -- -- 1,293
Cash and Cash Equivalents
Beginning of Period 1,393 139 -- -- 1,532
------- ------- --------- ------- ---------
End of Period $ 2,404 $ 421 $ -- $ -- $ 2,825
======= ======= ========= ======= =========
<CAPTION>
Combined/
Consolidated
MMH MMH
Holdings, Inc. Eliminations Holdings, Inc.
-------------- ------------- ----------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 3,669 $(3,669) $ 3,669
Add/(deduct)-items not affecting cash
provided by operating activities:
Depreciation and amortization -- -- 3,408
Equity in (earnings) loss
of subsidiaries (3,669) 3,669
Minority interest -- -- (38)
Deferred income taxes - net -- -- 57
Divestiture bonus -- -- 1,216
Changes in working capital, excluding the
effects of acquisition opening
balance sheets:
Accounts receivable -- -- 3,646
Inventories -- -- (1,968)
Other current assets -- -- (1,903)
Trade accounts payable and
bank overdrafts -- -- (11,579)
Other current liabilities -- -- 225
Activity with parent and
other affiliates - net -- -- 1,213
--------- ------- ---------
Net cash provided by (used for)
operating activities -- -- (2,054)
--------- ------- ---------
Investment and Other Transactions
Fixed asset additions - net -- -- (2,446)
Acquisition of business
- net of cash received -- -- (319)
Issuance of loans to senior management (900)
Other - net -- -- 72
--------- ------- ---------
Net cash used for investment and other
transactions -- -- (3,593)
--------- ------- ---------
Financing Activities
Change in short-term notes payable -- -- 3,065
Proceeds from Senior Note Offering -- -- 200,000
Proceeds from New Credit Facility -- -- 55,000
Redemption of shares held by Holdings 232,845 -- --
Redemption of common stock and
preferred stock (287,000) -- (287,000)
Net proceeds from issuance of Series A
preferred stock and related common shares 57,094 -- 57,094
Stock redemption transaction costs (2,939) -- (2,939)
Debt financing costs -- -- (18,179)
Capital contributions -- -- --
Proceeds from issuance of debt -- -- --
--------- ------- ---------
Net cash provided by financing activities -- -- 7,041
--------- ------- ---------
Effect of Exchange Rate Changes on Cash
and cash equivalents -- -- (101)
--------- ------- ---------
Increase in Cash and Cash Equivalents -- -- 1,293
Cash and Cash Equivalents
Beginning of Period -- -- 1,532
--------- ------- ---------
End of Period $ -- $ -- $ 2,825
========= ======= =========
</TABLE>
F-14
<PAGE>
MMH HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Concluded)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Operating Activities
Net income (Loss) $ 9,602 $(140) $ 140 $ 9,602
Add/(deduct)-items not affecting cash provided by
operating activities:
Depreciation and amortization 2,917 168 -- 3,085
Equity in loss of combined affiliates 143 -- (143) --
Minority interest -- -- 3 3
Deferred income taxes - net (171) -- -- (171)
Gain on fire insurance claim (1,100) -- -- (1,100)
Other (400) -- -- (400)
Changes in working capital, excluding the
effects of acquisition opening
balance sheets:
Accounts receivable 5,412 897 -- 6,309
Inventories (1,896) (64) -- (1,960)
Other current assets 509 (322) -- 187
Trade accounts payable and bank overdrafts 110 316 -- 426
Other current liabilities (14,254) (268) -- (14,522)
Activity with parent and other affiliates - net 11,409 (345) -- 11,064
-------- ----- ----- --------
Net cash provided by operating activities 12,281 242 -- 12,523
-------- ----- ----- --------
Investment and Other Transactions
Fixed asset additions - net (2,261) (225) -- (2,486)
Acquisition of businesses - net of cash acquired (11,787) -- -- (11,787)
Fire insurance claim activity - net 1,100 -- -- 1,100
Other - net (349) 35 -- (314)
-------- ----- ----- --------
Net cash used for investment and other transactions (13,297) (190) -- (13,487)
-------- ----- ----- --------
Financing Activities
Repayments of notes payable (667) -- -- (667)
Repayments of debt (18) (28) -- (46)
-------- ----- ----- --------
Net cash used for financing activities (685) (28) -- (713)
-------- ----- ----- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 4 (2) -- 2
-------- ----- ----- --------
(Decrease)/Increase in Cash and Cash Equivalents (1,697) 22 -- (1,675)
Cash and Cash Equivalents
Beginning of period 3,582 239 -- 3,821
-------- ----- ----- --------
End of period $ 1,885 $ 261 $ -- $ 2,146
======== ===== ===== ========
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Harnischfeger Industries, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and of cash flows present fairly, in all material
respects, the financial position of the Material Handling Equipment Business
(the "Company") of Harnischfeger Industries, Inc. at October 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended October 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
December 30, 1997, except as to Note 13 which is as of March 30, 1998
F-16
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
----------------------
1997 1996
---------- ---------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................................... $ 1,532 $ 3,821
Accounts receivable--net ............................................ 82,209 75,261
Inventories ......................................................... 33,497 37,239
Other current assets ................................................ 4,765 8,044
-------- --------
Total current assets .......................................... 122,003 124,365
-------- --------
Property, Plant and Equipment
Land and improvements ............................................... 3,466 2,490
Buildings ........................................................... 21,379 17,473
Machinery and equipment ............................................. 35,918 28,564
-------- --------
60,763 48,527
Less accumulated depreciation ....................................... (21,396) (18,340)
-------- --------
39,367 30,187
-------- --------
Other Assets
Goodwill ............................................................ 32,229 28,410
Other ............................................................... 6,001 6,096
-------- --------
38,230 34,506
-------- --------
Total assets .................................................. $199,600 $189,058
======== ========
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities
Short-term notes payable and current portion of long-term obligations $ 752 $ 863
Bank overdrafts ..................................................... 4,293 --
Trade accounts payable .............................................. 32,656 36,921
Employee compensation and benefits .................................. 8,113 9,265
Advance payments and progress billings .............................. 7,685 22,586
Accrued warranties .................................................. 3,998 3,787
Income taxes payable ................................................ 2,393 1,703
Other current liabilities ........................................... 10,870 14,717
-------- --------
Total current liabilities ..................................... 70,760 89,842
-------- --------
Long-Term Obligations ..................................................... 1,043 1,181
Deferred Income Taxes ..................................................... 3,088 3,440
Minority Interest ......................................................... 391 394
Shareholder's Investment .................................................. 124,318 94,201
-------- --------
Total liabilities and shareholder's investment ................ $199,600 $189,058
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Revenues
Net sales ........................................ $ 353,350 $ 323,735 $ 243,169
Other income--net ................................ 2,649 1,149 3,766
--------- --------- ---------
355,999 324,884 246,935
Cost of Sales .......................................... 260,794 247,559 186,404
Selling, General and Administrative Expenses ........... 56,806 44,968 36,931
Parent Management Fee .................................. 2,862 2,341 1,878
--------- --------- ---------
Operating income ................................. 35,537 30,016 21,722
Interest (Expense)/Income--Net
Affiliates ....................................... (394) 163 379
Third party ...................................... (398) (245) (200)
--------- --------- ---------
Income Before Income Taxes and Minority Interest ....... 34,745 29,934 21,901
Provision for Income Taxes ............................. (13,874) (11,488) (8,425)
Minority Interest ...................................... (18) -- --
--------- --------- ---------
Net income ....................................... $ 20,853 $ 18,446 $ 13,476
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Operating Activities
Net income ............................................................. $ 20,853 $ 18,446 $ 13,476
Add/(deduct)--items not affecting cash provided by operating
activities:
Depreciation and amortization .................................... 6,736 5,292 3,800
Minority interest ................................................ (18) -- --
Deferred income taxes--net ....................................... 89 1,347 1,083
Gain on fire insurance claim ..................................... (2,011) -- (2,343)
Other ............................................................ (800) (750) (750)
Changes in working capital, excluding the effects of acquisition opening
balance sheets:
Accounts receivable .............................................. (3,656) (7,217) (19,363)
Inventories ...................................................... 6,044 (8,651) 1,962
Other current assets ............................................. 2,077 (530) (1,939)
Trade accounts payable and bank overdrafts ....................... (2,852) 130 9,100
Employee compensation and benefits ............................... (1,293) 1,399 2,487
Advance payments and progress billings ........................... (16,056) 3,460 2,760
Accrued warranties ............................................... 178 (305) 592
Other current liabilities ........................................ (5,116) 4,047 (236)
Activity with parent and other affiliates--net ................... 8,724 6,788 (6,876)
-------- -------- --------
Net cash provided by operating activities .................................... 12,899 23,456 3,753
-------- -------- --------
Investment and Other Transactions
Fixed asset additions--net ............................................. (6,498) (6,752) (3,725)
Acquisition of businesses, net of cash acquired ........................ (11,787) (15,272) (3,862)
Fire insurance claim activity--net ..................................... 3,441 1,613 (700)
Proceeds from sale of facility ......................................... -- -- 5,288
Other--net ............................................................. (103) (747) 503
-------- -------- --------
Net cash used for investment and other transactions .......................... (14,947) (21,158) (2,496)
-------- -------- --------
Financing Activities
Repayments of notes payable ............................................ (99) -- --
Repayments of debt ..................................................... (155) -- --
-------- -------- --------
Net cash applied to financing activities ..................................... (254) -- --
-------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ................. 13 39 (201)
-------- -------- --------
(Decrease)/Increase in Cash and Cash Equivalents ............................. (2,289) 2,337 1,056
Cash and Cash Equivalents
Beginning of year ...................................................... 3,821 1,484 428
-------- -------- --------
End of year ............................................................ $ 1,532 $ 3,821 $ 1,484
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands unless indicated)
Note 1--Significant Accounting Policies
Description of Business--The Material Handling Equipment Business (the
"Company") of Harnischfeger Industries, Inc. designs, manufactures, services and
markets overhead cranes, electric wire rope and chain hoists, engineered
products, and container cranes and crane modernizations for use worldwide in a
variety of industries and applications. In September, 1997, Harnischfeger
Industries, Inc., the Company's parent, announced that it was exploring the
possible sale of the Company.
Basis of Presentation--The combined financial statements of the Company
include the Material Handling Equipment business in the United States and its
affiliates in the United Kingdom, South Africa, Singapore, Canada and Mexico.
All significant intercompany balances and transactions have been eliminated.
Payables/receivables with the Company's parent or its affiliates are recorded as
a component of shareholder's investment.
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 at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Ultimate realization of
assets and settlement of liabilities in the future could differ from those
estimates.
Inventories--Inventories are stated at the lower of cost or market value.
Cost is determined by the last-in, first-out (LIFO) method for certain domestic
inventories and by the first-in, first-out (FIFO) method for certain domestic
inventories and inventories of foreign subsidiaries.
Revenue Recognition--The majority of the Company's sales of products or
services are recorded as products are shipped or services are rendered.
Revenue on certain long-term contracts is recorded using the
percentage-of-completion method. Losses, if any, are recognized in full as
soon as identified. The Company's products are generally under warranty
against defects in material and workmanship for a period of 1 to 2 years. The
Company generally provides for future warranty costs based upon the
relationship of sales in prior periods to actual warranty costs.
Property, Plant and Equipment--Property, plant and equipment is stated at
historical cost. Expenditures for major renewals and improvements are
capitalized, while maintenance and repairs which do not significantly improve
the related asset or extend its useful life are charged to expense as incurred.
For financial reporting purposes, plant and equipment is depreciated primarily
by the straight-line method over the estimated useful lives of the assets.
Depreciation claimed for income tax purposes is computed by accelerated methods.
Cash Equivalents--The Company considers all highly liquid debt instruments
with an initial maturity of three months or less at the date of purchase to be
cash equivalents.
Foreign Exchange Contracts--Any gain or loss on forward contracts
designated as hedges of commitments is deferred and included in the measurement
of the related foreign currency transaction. Foreign exchange contract activity
in 1995 through 1997 was not significant.
Foreign Currency Translation--The assets and liabilities of the
Company's international operations are translated at year-end exchange rates;
income and expenses are translated at average exchange rates prevailing
during the year. For subsidiaries operating in highly inflationary economies,
financial statements are re-measured into the United States dollar with
adjustments resulting from the translation of monetary assets and liabilities
reflected in the combined statements of income.
For operations whose functional currency is the local currency,
translation adjustments are accumulated within shareholder's investment.
Transaction gains and losses are reflected in income. Pre-tax foreign exchange
gains/(losses) included in operating income were $110, $(167) and $(390) in
1997, 1996 and 1995, respectively.
F-20
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
Goodwill and Intangible Assets--Goodwill represents the excess of the
purchase price over the fair value of identifiable net assets of acquired
companies and is amortized on a straight-line basis over periods ranging from
30 to 40 years. The Company assesses the carrying value of goodwill at each
balance sheet date. Consistent with 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 ", such assessments
include, as appropriate, a comparison of (a) the estimated future
nondiscounted cash flows anticipated to be generated during the remaining
amortization period of the goodwill to (b) the net carrying value of
goodwill. The Company recognizes diminution in value of goodwill, if any, on
a current basis. Impairment assessments made in accordance with SFAS No. 121
are made in connection with an analysis of related long-lived assets acquired
in the respective purchase business combination. Accumulated amortization was
$2,268 and $1,199 at October 31, 1997 and 1996, respectively.
Income Taxes--The Company's domestic income tax provision reflects an
intercompany tax allocation arrangement with its parent such that the domestic
income taxes payable is recorded as if the Company filed separate income tax
returns. The Company records its domestic income taxes payable as an
intercompany payable within shareholder's investment. The Company's foreign
income tax provision and related income taxes payable are recorded based upon
the income tax returns as filed by its foreign affiliates in their respective
jurisdictions.
Domestic and foreign deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities, and for
tax basis carryforwards. A valuation allowance is provided for deferred tax
assets where it is considered more likely than not that the Company will not
realize the benefit of such assets.
Fair Value of Financial Instruments--Cash and cash equivalents, accounts
receivable and accounts payable recorded in the balance sheets approximate fair
value based on the short maturity of these instruments. Amounts recorded for
long-term debt are estimated to approximate fair value based on market
conditions and interest rates available to the Company for similar financial
instruments.
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 amounted to $1,369, $319 and $493
in 1997, 1996 and 1995, respectively.
Other Income--Net--Other income--net consists of the following for the
years ended October 31:
1997 1996 1995
------ ------ ------
Gain on fire insurance claim............... $2,011 $ -- $2,343
Licensee income............................ 524 830 679
Other...................................... 114 319 744
------ ------ ------
$2,649 $1,149 $3,766
====== ====== ======
During 1995, one of the Company's facilities in the United Kingdom
experienced a fire which resulted in an insurance claim for property loss and
business interruption. A gain on the property loss portion of the claim amounted
to $2,343 and was recorded in 1995. The remaining $2,011 gain was recorded in
1997 upon finalization of the property loss and business interruption claims.
F-21
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
Note 2--Acquisitions
During 1997, 1996 and 1995, the Company completed several
acquisitions for an aggregate purchase price of $11,787, $15,272 and $3,862,
respectively, net of cash acquired. These acquisitions were primarily related to
the Company's aftermarket business and were accounted for as purchase
transactions with the purchase prices allocated to the fair value of specific
assets acquired and liabilities assumed. Resultant goodwill is being amortized
over 30 to 40 years. With respect to a 1995 acquisition, the Company was
required to make contingent consideration payments of $632 and $691 related to
1996 and 1997, respectively; a final contingent consideration payment related to
1998 may be required.
Note 3--Accounts Receivable
Accounts receivable at October 31 consisted of the following:
1997 1996
------- -------
Trade receivables.............................. $77,356 $67,818
Unbilled receivables........................... 6,183 8,851
Allowance for doubtful accounts................ (1,330) (1,408)
------- -------
$82,209 $75,261
======= =======
The amount of accounts receivable due beyond one year is not significant.
Note 4--Inventories
Inventories at October 31 consisted of the following:
1997 1996
------- -------
Raw material.......................................... $17,391 $22,858
Work-in-process....................................... 13,654 13,213
Finished parts........................................ 10,704 11,087
41,749 47,158
Less excess of current cost over stated LIFO value.... (8,252) (9,919)
------- -------
$33,497 $37,239
======= =======
Inventories valued using the LIFO method represented approximately 43% and
56% of combined inventories at October 31, 1997 and 1996, respectively. During
1997 and 1995, inventory quantities were reduced, resulting in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 1997 and 1995 purchases. The effect of this
liquidation decreased cost of sales by $1,998 and $698 in 1997 and 1995,
respectively.
Note 5--Income Taxes
The components of income for the Company's domestic and foreign operations
for the years ended October 31 were as follows:
1997 1996 1995
------- ------- -------
Domestic................................. $28,097 $23,381 $16,017
Foreign.................................. 6,648 6,553 5,884
------- ------- -------
$34,745 $29,934 $21,901
======= ======= =======
F-22
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
The provision for income taxes included in the Combined Statements of
Income for years ended October 31 consisted of the following:
1997 1996 1995
-------- -------- --------
Current provision
Federal and state ........ $ 11,028 $ 9,094 $ 6,799
Foreign .................. 2,757 1,047 543
-------- -------- --------
Total current .................. 13,785 10,141 7,342
-------- -------- --------
Deferred provision
Federal and state ........ (137) (91) (611)
Foreign .................. 226 1,438 1,694
-------- -------- --------
Total deferred ................. 89 1,347 1,083
-------- -------- --------
Provision for income taxes ..... $ 13,874 $ 11,488 $ 8,425
======== ======== ========
The difference between the U.S. federal statutory tax rate and the
effective tax rate for the years ended October 31 are as follows:
1997 1996 1995
-------- -------- --------
Federal statutory rate ......... 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.0 3.0 3.0
Goodwill amortization .......... 2.6 3.0 2.3
Other .......................... (.7) (2.6) (1.8)
-------- -------- --------
39.9% 38.4% 38.5%
======== ======== ========
Foreign income taxes paid were $322, $1,252 and $724 in 1997, 1996 and
1995, respectively.
U.S. income taxes have not been provided on the undistributed profits of
foreign subsidiaries where such profits are expected to be permanently
reinvested. Such unremitted earnings of affiliates which are intended to be
permanently reinvested were $14,100 at October 31, 1997.
Temporary differences and carryforwards which gave rise to the net
deferred tax asset (liability) at October 31 are as follows:
1997 1996
------- -------
Reserves not currently deductible ........ $ 2,766 $ 3,280
Depreciation and amortization ............ (1,897) (2,479)
Prepaid pension asset .................... (1,191) (961)
Other--net ............................... (54) (127)
------- -------
$ (376) $ (287)
======= =======
At October 31, 1997, the Company's Mexican affiliate has a net
operating loss carryforward approximating $2,550 which expires in 2004 and
2005. A valuation allowance has been recorded against this carryforward for
which utilization is uncertain. The amount of valuation allowance recorded
against such net operating loss carryforwards which if subsequently
recognized would reduce long-lived assets of the acquired entity approximates
$230.
F-23
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
This net deferred tax asset (liability) is included in the Combined
Balance Sheets at October 31 in the following captions:
1997 1996
------- -------
Other current assets ..................... $ 2,712 $ 3,153
Deferred income taxes .................... (3,088) (3,440)
------- -------
$ (376) $ (287)
======= =======
Note 6--Long-Term Obligations and Bank Credit Facilities
Long-term obligations at October 31 consisted of the following:
1997 1996
------ ------
Bank debt, at 7.5% due in installments through 2009 ........ $ 748 $ 876
Industrial Revenue Bonds, at 5.25% due in installments
through 2007 ............................................ 380 405
------ ------
1,128 1,281
Less: amounts payable within one year ...................... 85 100
------ ------
$1,043 $1,181
====== ======
Installments payable related to the Company's long-term obligations are as
follows:
1998 ..................................................................... $85
1999 ..................................................................... 70
2000 ..................................................................... 73
2001 ..................................................................... 82
2002 ..................................................................... 85
At October 31, 1997, short-term bank credit lines of foreign subsidiaries
were approximately $2,828. The outstanding borrowings were $667 with a weighted
average interest rate of 5.25%. There were no compensating balance requirements
under these lines of credit.
Note 7--Employee Benefit Plans
Pensions and Other Employee Benefits
The Company is a participant in its parent's domestic defined benefit
pension plans. Benefits from these plans are based on factors which include
various combinations of service, employee compensation during the last years of
employment and the recipient's social security benefit. Pension expense is
allocated annually by its parent based upon headcount. The Company's pension
expense for these domestic defined benefit plans was $1,275, $1,169 and $1,066
in 1997, 1996 and 1995, respectively.
The Company is also a participant in its parent's qualified profit sharing
plan which covers substantially all domestic employees, except employees covered
by collective bargaining agreements and employees of affiliates with separate
defined contribution plans. Contributions to this plan are based on the
Company's "economic value added" performance. The Company's profit sharing
expense for this plan and other defined contribution plans was $1,584, $1,226
and $1,516 in 1997, 1996 and 1995, respectively.
F-24
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
Pension expense, as determined by the Company's actuaries, for its
employee benefit plan in the United Kingdom for years ended October 31 included
the components shown below. Pension expense for the Company's other foreign
employee benefit plans is not significant.
1997 1996 1995
------- ------- -------
Service cost--benefits earned during the year . $ 782 $ 627 $ 888
Interest cost on projected benefit obligation . 1,359 1,102 1,080
Actual gain on plan assets .................... (2,988) (1,241) (1,552)
Net amortization and deferral ................. 1,186 (259) 223
------- ------- -------
$ 339 $ 229 $ 639
======= ======= =======
The discount rate used for this foreign plan was 7.5% in 1997 and 9.0% in
1996 and 1995. The assumed rate of increase in future compensation of employees
was 4.5% in 1997 and 6% in 1996 and 1995. The expected long-term rate of return
on assets was 10.25% in 1997 and 10.0% in 1996 and 1995.
The following table sets forth this foreign plan's funded status at
October 31:
1997 1996
------- -------
Actuarial present value of:
Vested benefits ................................ $19,268 $13,481
------- -------
Accumulated benefits ........................... 19,268 13,481
------- -------
Projected benefits ............................. 20,665 16,101
Net assets available for benefits .................... 21,101 17,168
------- -------
Plan assets greater than projected benefits .......... 436 1,067
Unrecognized net loss ................................ 3,332 2,225
------- -------
Prepaid pension asset ................................ $ 3,768 $ 3,292
======= =======
Postretirement Benefits Other Than Pensions
The Company's parent generally provides certain health care and life
insurance benefits under various plans for U.S. employees who retire after
attaining early retirement eligibility, subject to plan amendments. In 1993, the
Board of Directors of its parent approved a general approach that would
culminate in the elimination of contributions towards postretirement health care
benefits. Increases in costs were capped for certain plans beginning in 1994
extending through 1998 and contributions will be eliminated on January 1, 1999
for most employee groups. As such, negative plan amendments made subsequent to
November 1, 1993 are being amortized from the date of the amendment to January
1, 1999. Postretirement benefit expense (income) is allocated annually by its
parent based upon headcount. The Company's postretirement benefit (income) was
$(1,658), $(1,126) and $(1,253) in 1997, 1996 and 1995, respectively.
F-25
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
Note 8--Shareholder's Investment
The changes within shareholder's investment for the each of the three
years in the period ended October 31, 1997 are as follows:
Balance at October 31, 1994 .................................... $ 63,155
Net income ............................................... 13,476
Cumulative translation adjustments ....................... (1,229)
Activity with parent and other affiliates--net ........... (6,876)
---------
Balance at October 31, 1995 .................................... 68,526
Net income ............................................... 18,446
Cumulative translation adjustments ....................... 441
Activity with parent and other affiliates--net ........... 6,788
---------
Balance at October 31, 1996 .................................... 94,201
Net income ............................................... 20,853
Cumulative translation adjustments ....................... 540
Activity with parent and other affiliates--net ........... 8,724
---------
Balance at October 31, 1997 .................................... $ 124,318
=========
Note 9--Operating Leases
The Company leases certain plant, office and warehouse space as well as
machinery, vehicles, data processing and other equipment. Certain of these
leases have renewal options at reduced rates and provisions requiring the
Company to pay maintenance, property taxes and insurance. Generally, all rental
payments are fixed.
Total rental expense under operating leases, excluding maintenance, taxes
and insurance, was $4,369, $3,328 and $2,359 in 1997, 1996 and 1995,
respectively.
At October 31, 1997, the future payments for all operating leases with
remaining lease terms in excess of one year, and excluding maintenance, taxes
and insurance, were as follows:
1998 .................................................. $4,054
1999 .................................................. 2,684
2000 .................................................. 1,632
2001 .................................................. 877
2002 .................................................. 523
Note 10--Commitments and Contingencies
At October 31, 1997, the Company and/or its parent were contingently
liable to financial institutions and others for approximately $54,500 for
outstanding letters of credit and surety bonds securing performance of sales
contracts related to the Company's operations.
The Company is party to various litigation matters, including product
liability and other claims, which are normal in the course of its operations.
Also, as a normal part of its operations, the Company undertakes certain
contractual obligations and warranties in connection with the sale of products
or services. Although the outcome of these matters cannot be predicted with
certainty, management believes that the resolution of such matters will not have
a material adverse effect on the Company's combined results of operations,
financial position or cash flows.
F-26
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
The Company is also involved in proceedings and potential proceedings
relating to environmental matters. Although it is difficult to estimate the
potential exposure to the Company related to these environmental matters,
management believes that these matters will not have a material adverse effect
on the Company's combined results of operations, financial position or cash
flows.
Note 11--Geographical Information
<TABLE>
<CAPTION>
Total Sales to
Net Interarea Unaffiliated Operating Identifiable
Sales Sales Customers Income Assets
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1997
United States...................................... $205,815 $ -- $205,815 $26,585 $101,159
Europe............................................. 99,593 (4,667) 94,926 6,662 62,159
Other Foreign...................................... 52,609 -- 52,609 2,290 36,282
Interarea Eliminations............................. (4,667) 4,667 -- -- --
-------- --------- -------- ------- --------
$353,350 $ -- $353,350 $35,537 $199,600
======== ========= ======== ======= ========
1996
United States...................................... $206,896 $ -- $206,896 $21,978 $ 96,803
Europe............................................. 79,280 (3,619) 75,661 5,247 59,766
Other Foreign...................................... 41,178 -- 41,178 2,791 32,489
Interarea Eliminations............................. (3,619) 3,619 -- -- --
-------- --------- -------- ------- --------
$323,735 $ -- $323,735 $30,016 $189,058
======== ========= ======== ======= ========
1995
United States...................................... $147,492 $ -- $147,492 $15,493 $ 80,219
Europe............................................. 87,437 -- 87,437 6,285 55,682
Other Foreign...................................... 8,240 -- 8,240 (56) 15,267
-------- --------- -------- ------- --------
$243,169 $ -- $243,169 $21,722 $151,168
======== ========= ======== ======= ========
</TABLE>
Note 12--Transactions With Parent and Affiliated Companies
The Company and its parent have entered into a management arrangement
whereby the Company is provided with certain services, including, but not
limited to, matters of organization and administration, cash management, labor
relations, employee benefits, public relations, financial policies and
practices, taxation and legal affairs. The annual fee charged the Company for
these services reflects its pro rata share of corporate administration costs
using an allocation methodology based on consolidated worldwide sales. Company
management and its parent believe that the fees charged above are reasonable in
light of the level of services provided and such fees totaled $2,862, $2,341 and
$1,878 in 1997, 1996 and 1995, respectively.
Interest income/(expense) on receivables/(payables) with affiliates is
charged by/(to) the Company using interest rates tied to LIBOR, the 13-week
treasury bill rate or prime rate.
F-27
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
In addition, the Company has the following arrangements with its parent or
other affiliates for shared facilities and services:
1. The Company and an affiliate share a parts warehouse for which
the Company was charged approximately $1,400, $1,272 and $1,215 in 1997,
1996 and 1995, respectively.
2. An affiliate provides support to the Company for accounting,
credit, traffic and human resource services and charged approximately
$756, $784 and $776 to the Company in 1997, 1996 and 1995, respectively.
In addition, the Company leases office space from this affiliate at a cost
of approximately $120 per year for 1997, 1996 and 1995.
3. An affiliate manufactures electric motors and performs
fabrication and machining on certain cranes for the Company at cost.
Company purchases of approximately $10 million per year were made under
this arrangement during fiscal 1995 through 1997.
4. An affiliate provides information systems services to the Company
and charged approximately $1,861, $1,022 and $1,070 to the Company in
1997, 1996 and 1995, respectively.
Note 13--Supplemental Condensed Combining Financial Information
The sale by Harnischfeger Industries, Inc. of a majority interest in the
Company to MHE Investments, Inc. was completed on March 30, 1998. The
transaction was accounted for as a recapitalization of MMH Holdings, Inc.
("Holdings"), the owner, directly of indirectly, of all of the equity interests
of the entities engaged in the Material Handling Equipment Business that were
previously owned by Harnsichfeger Industries, Inc. In connection with the
transaction, Morris Material Handling, Inc. ("MMH"), a direct wholly-owned
subsidiary of Holdings, issued debt securities that are guaranteed by certain of
the Company's affiliates (the "Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries is a wholly-owned subsidiary, directly or indirectly, of MMH and
the guarantees are full, unconditional and joint and several. Both Holdings and
MMH are holding companies, with no material operating assets. All of the
Company's business operations are conducted through subsidiaries of MMH.
Separate financial statements of the Guarantor Subsidiaries are not
presented because Company management has determined that they would not be
material to investors. The following supplemental financial information sets
forth balance sheet, statement of operations and cash flow information for
the Guarantor Subsidiaries and for the Company's other affiliates (the
"Non-Guarantor Subsidiaries"). The supplemental financial information
reflects the investments of the Guarantor Subsidiaries in the Non-Guarantor
Subsidiaries using the equity method of accounting. For purposes of this
presentation, it is assumed that all of the assets of the Company were
historically owned by subsidiaries of MMH, which is an entity that was formed
by Holdings in connection with the transaction. Accordingly, the historical
combined financial statements of MMH and Holdings are identical following
completion of the recapitalization.
F-28
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
October 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,393 $ 139 $ $ 1,532
Accounts receivable - net 73,220 8,989 82,209
Intercompany accounts receivable 5,250 1,539 (6,789) --
Inventories 30,855 2,642 33,497
Other current assets 4,486 279 4,765
--------- --------- --------- ---------
115,204 13,588 (6,789) 122,003
--------- --------- --------- ---------
Property, Plant and Equipment - net 36,192 3,175 -- 39,367
--------- --------- --------- ---------
Other Assets
Goodwill 30,368 1,861 32,229
Noncurrent intercompany receivables 3,136 -- (3,136) --
Investment in affiliates 1,174 -- (1,174) --
Other 6,001 -- 6,001
--------- --------- --------- ---------
40,679 1,861 (4,310) 38,230
--------- --------- --------- ---------
$ 192,075 $ 18,624 $ (11,099) $ 199,600
========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ 692 $ 60 $ $ 752
Bank overdrafts 2,076 2,217 4,293
Trade accounts payable 27,824 4,832 32,656
Intercompany accounts payable 1,539 5,250 (6,789) --
Employee compensation and benefits 8,053 60 8,113
Advance payments and progress
billings 7,626 59 7,685
Accrued warranties 3,913 85 3,998
Income taxes payable 1,935 458 2,393
Other current liabilities 10,656 214 10,870
--------- --------- --------- ---------
64,314 13,235 (6,789) 70,760
--------- --------- --------- ---------
Long-Term Obligations 355 688 1,043
Noncurrent intercompany payables -- 3,136 (3,136) --
Deferred Income Taxes 3,088 -- 3,088
Minority Interest -- -- 391 391
Shareholder's Investment 124,318 1,565 (1,565) 124,318
--------- --------- --------- ---------
$ 192,075 $ 18,624 $ (11,099) $ 199,600
========= ========= ========= =========
</TABLE>
F-29
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
October 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,582 $ 239 $ $ 3,821
Accounts receivable - net 67,331 7,930 75,261
Intercompany accounts receivable 1,030 (1,030) --
Inventories 34,396 2,843 37,239
Other current assets 7,781 263 8,044
--------- --------- --------- ---------
114,120 11,275 (1,030) 124,365
--------- --------- --------- ---------
Property, Plant and Equipment - net 26,832 3,355 -- 30,187
--------- --------- --------- ---------
Other Assets
Goodwill 26,433 1,977 28,410
Noncurrent intercompany receivables 2,840 -- (2,840) --
Investment in affiliates 3,078 -- (3,078) --
Other 6,096 -- 6,096
--------- --------- --------- ---------
38,447 1,977 (5,918) 34,506
--------- --------- --------- ---------
$ 179,399 $ 16,607 $ (6,948) $ 189,058
========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ 788 $ 75 $ $ 863
Trade accounts payable 29,738 7,183 36,921
Intercompany accounts payable 1,030 (1,030) --
Employee compensation and benefits 9,218 47 9,265
Advance payments and progress
billings 22,385 201 22,586
Accrued warranties 3,671 116 3,787
Income taxes payable 1,204 499 1,703
Other current liabilities 14,374 343 14,717
--------- --------- --------- ---------
81,378 9,494 (1,030) 89,842
--------- --------- --------- ---------
Long-Term Obligations 380 801 1,181
Noncurrent intercompany payables 2,840 (2,840) --
Deferred Income Taxes 3,440 -- 3,440
Minority Interest -- -- 394 394
Shareholder's Investment 94,201 3,472 (3,472) 94,201
--------- --------- --------- ---------
$ 179,399 $ 16,607 $ (6,948) $ 189,058
========= ========= ========= =========
</TABLE>
F-30
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME
Year Ended October 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 332,244 $ 24,065 $ (2,959) $ 353,350
Other Income - Net 2,563 86 2,649
--------- --------- --------- ---------
334,807 24,151 (2,959) 355,999
Cost of Sales 243,776 19,977 (2,959) 260,794
Selling, General and Administrative
Expenses 51,954 4,852 56,806
Parent Management Fee 2,862 -- 2,862
--------- --------- --------- ---------
Operating Income 36,215 (678) -- 35,537
Interest (Expense) Income - Net
Affiliates (198) (196) (394)
Third Party 8 (406) (398)
--------- --------- --------- ---------
Income Before Income Taxes, Equity in Loss of
Combined Affiliates and Minority Interest 36,025 (1,280) -- 34,745
Provision for Income Taxes (13,838) (36) (13,874)
Equity in Loss of Combined Affiliates (1,334) -- 1,334 --
Minority Interest -- -- (18) (18)
--------- --------- --------- ---------
Net Income $ 20,853 $ (1,316) $ 1,316 $ 20,853
========= ========= ========= =========
</TABLE>
F-31
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME
Year Ended October 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 303,449 $ 23,755 $ (3,469) $ 323,735
Other Income - Net 1,149 -- 1,149
--------- --------- --------- ---------
304,598 23,755 (3,469) 324,884
Cost of Sales 232,952 18,076 (3,469) 247,559
Selling, General and Administrative
Expenses 40,727 4,241 44,968
Parent Management Fee 2,341 -- 2,341
--------- --------- --------- ---------
Operating Income 28,578 1,438 -- 30,016
Interest (Expense) Income - Net
Affiliates 369 (206) 163
Third Party (25) (220) (245)
--------- --------- --------- ---------
Income Before Income Taxes, Equity in Income of
Combined Affiliates and Minority Interest 28,922 1,012 -- 29,934
Provision for Income Taxes (11,150) (338) (11,488)
Equity in Income of Combined Affiliates 674 -- (674) --
--------- --------- --------- ---------
Net Income $ 18,446 $ 674 $ (674) $ 18,446
========= ========= ========= =========
</TABLE>
F-32
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME
Year Ended October 31, 1995
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 227,038 $ 17,291 $ (1,160) $ 243,169
Other Income - Net 3,766 -- 3,766
--------- --------- --------- ---------
230,804 17,291 (1,160) 246,935
Cost of Sales 174,558 13,006 (1,160) 186,404
Selling, General and Administrative
Expenses 33,776 3,155 36,931
Parent Management Fee 1,878 -- 1,878
--------- --------- --------- ---------
Operating Income 20,592 1,130 -- 21,722
Interest (Expense) Income - Net
Affiliates 600 (221) 379
Third Party (191) (9) (200)
--------- --------- --------- ---------
Income Before Income Taxes, Equity in Income of
Combined Affiliates and Minority Interest 21,001 900 -- 21,901
Provision for Income Taxes (8,095) (330) (8,425)
Equity in Income of Combined Affiliates 570 -- (570) --
--------- --------- --------- ---------
Net Income $ 13,476 $ 570 $ (570) $ 13,476
========= ========= ========= =========
</TABLE>
F-33
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
Year Ended October 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 20,853 $ (1,316) $ 1,316 $ 20,853
Add/(deduct)-items not affecting cash provided by
operating activities:
Depreciation and amortization 6,400 336 6,736
Equity in loss of combined affiliates 1,334 (1,334) --
Minority interest -- (18) (18)
Deferred income taxes - net 89 89
Gain on fire insurance claim (2,011) (2,011)
Other (800) (800)
Changes in working capital, excluding the effects of
acquisition opening balance sheets:
Accounts receivable (2,318) (1,338) (3,656)
Inventories 5,984 60 6,044
Other current assets 2,113 (36) 2,077
Trade accounts payable and bank overdrafts (3,026) 174 (2,852)
Other current liabilities (22,071) (252) 36 (22,287)
Activity with parent and other affiliates - net 5,976 2,748 8,724
-------- -------- -------- --------
Net cash provided by operating activities 12,523 376 -- 12,899
-------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (6,117) (381) (6,498)
Acquisition of businesses, net of cash acquired (11,787) (11,787)
Fire insurance claim activity - net 3,441 3,441
Other - net (70) (33) (103)
-------- -------- -------- --------
Net cash used for investment and other transactions (14,533) (414) -- (14,947)
-------- -------- -------- --------
Financing Activities
Repayments of notes payable (99) (99)
Repayments of debt (101) (54) (155)
-------- -------- -------- --------
Net cash applied to financing activities (200) (54) -- (254)
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 21 (8) 13
-------- -------- -------- --------
Decrease in Cash and Cash Equivalents (2,189) (100) -- (2,289)
Cash and Cash Equivalents
Beginning of year 3,582 239 3,821
-------- -------- -------- --------
End of year $ 1,393 $ 139 $ -- $ 1,532
======== ======== ======== ========
</TABLE>
F-34
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
Year Ended October 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 18,446 $ 674 $ (674) $ 18,446
Add/(deduct)-items not affecting cash provided by
operating activities:
Depreciation and amortization 4,944 348 5,292
Equity in income of combined affiliates (674) 674 --
Deferred income taxes - net 1,347 1,347
Other (750) (750)
Changes in working capital, excluding the effects of
acquisition opening balance sheets:
Accounts receivable (4,252) (2,965) (7,217)
Inventories (7,281) (1,370) (8,651)
Other current assets (410) (120) (530)
Trade accounts payable and bank overdrafts (2,825) 2,955 130
Other current liabilities 8,482 119 8,601
Activity with parent and other affiliates - net 6,230 558 6,788
-------- -------- -------- --------
Net cash provided by operating activities 23,257 199 -- 23,456
-------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (6,373) (379) (6,752)
Acquisition of businesses, net of cash acquired (15,272) (15,272)
Fire insurance claim activity - net 1,613 1,613
Other - net (629) (118) (747)
-------- -------- -------- --------
Net cash used for investment and other transactions (20,661) (497) -- (21,158)
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 168 (129) 39
-------- -------- -------- --------
Increase/(Decrease) in Cash and Cash Equivalents 2,764 (427) -- 2,337
Cash and Cash Equivalents
Beginning of year 818 666 1,484
-------- -------- -------- --------
End of year $ 3,582 $ 239 $ -- $ 3,821
======== ======== ======== ========
</TABLE>
F-35
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Concluded)
(dollars in thousands unless indicated)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
Year Ended October 31, 1995
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 13,476 $ 570 $ (570) $ 13,476
Add/(deduct)-items not affecting cash provided by
operating activities:
Depreciation and amortization 3,643 157 3,800
Equity in income of combined affiliates (570) 570 --
Deferred income taxes - net 1,083 1,083
Gain on fire insurance claim (2,343) (2,343)
Other (750) (750)
Changes in working capital, excluding the effects of
acquisition opening balance sheets:
Accounts receivable (17,767) (1,596) (19,363)
Inventories 2,386 (424) 1,962
Other current assets (1,904) (35) (1,939)
Trade accounts payable and bank overdrafts 7,680 1,420 9,100
Other current liabilities 5,147 456 5,603
Activity with parent and other affiliates - net (6,733) (143) (6,876)
-------- -------- -------- --------
Net cash provided by operating activities 3,348 405 -- 3,753
-------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (3,625) (100) (3,725)
Acquisition of businesses, net of cash acquired (3,862) (3,862)
Fire insurance claim activity - net (700) (700)
Proceeds from sale of facility 5,288 5,288
Other - net 551 (48) 503
-------- -------- -------- --------
Net cash used for investment and other transactions (2,348) (148) -- (2,496)
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (182) (19) (201)
-------- -------- -------- --------
Increase in Cash and Cash Equivalents 818 238 -- 1,056
Cash and Cash Equivalents
Beginning of year -- 428 428
-------- -------- -------- --------
End of year $ 818 $ 666 $ -- $ 1,484
======== ======== ======== ========
</TABLE>
F-36
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Section 20. Indemnification of Directors and Officers
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article Seventh of Holdings' Second Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") (incorporated by
reference as Exhibit 3.1 to this Registration Statement), eliminates the
liability of Holdings' directors to Holdings or its stockholders, except for
liabilities related to breach of duty of loyalty, actions not in good faith and
certain other liabilities.
Section 145 of the DGCL provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
Article Eighth of the Certificate of Incorporation provides that Holdings
shall indemnify any current or former director or officer to the fullest extent
permitted by the DGCL. Article V of Holdings' Bylaws provides that Holdings
shall indemnify to the fullest extent permitted by DGCL its current and former
directors and officers and persons serving as directors and officers of any
corporation at the request of Holdings. Holdings also maintains officers' and
directors' liability insurance which insures against liabilities that officers
and directors of Holdings may incur in such capacities.
Reference is made to the Exchange Offer Registration Rights Agreement
filed as Exhibit 4.1 to this Registration Statement which provides for
indemnification for the officers and directors of Holdings signing a
Registration Statement and certain control persons of Holdings against certain
liabilities, including those arising under the Securities Act in certain
circumstances by selling holders.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
Exhibit Number Exhibit
- -------------- -------
1.1(aa) Securities Purchase Agreement, dated March 23, 1998, between MMH
Holdings, Inc. and CIBC Oppenheimer Corp.
2.1(aa) Recapitalization Agreement, dated January 28, 1998, among
Harnischfeger Corporation, the sellers named therein and MHE
Investments, Inc., as amended.
3.1(aa) Second Amended and Restated Certificate of Incorporation of MMH
Holdings, Inc.
3.2(aa) Bylaws of MMH Holdings, Inc.
3.3(aa) Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 12% Series A
Senior Exchangeable Preferred Stock, and Qualifications, Limitations
and Restrictions Thereof.
3.4(aa) Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 12 1/4% Series B
Junior Exchangeable Preferred Stock, and Qualifications, Limitations
and Restrictions Thereof.
3.5(aa) Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 12 1/2% Series C
Junior Preferred Stock, and Qualifications, Limitations and
Restrictions Thereof.
4.1(aa) Preferred Stock Registration Rights Agreement, dated as of March 30,
1998, by and among MMH Holdings, Inc. and CIBC Oppenheimer Corp.
4.2(aa) Common Stock Registration Rights and Stockholders Agreement, dated
as of March 30, 1998, among MMH Holdings, Inc., Chartwell, L.P. and
CIBC Oppenheimer Corp.
4.3* Credit Agreement, dated March 30, 1998, among MMH Holdings, Inc.,
Morris Material Handling, Inc., Material Handling, LLC, Morris
Material Handling, Ltd., Mondel ULC, Kaverit Steel and Crane ULC and
Canadian Imperial Bank of Commerce, as Administrative Agent, Credit
Agricole Indosuez, as Syndication Agent, BankBoston, N.A., as
Documentation Agent, and the Lending Institutions listed therein.
4.4(aa) Guarantee, dated as of March 30, 1998, by MMH Holdings, Inc., in
favor and for the benefit of Canadian Imperial Bank of Commerce.
4.5(aa) Guarantee, dated as of March 30, 1998, by each of the subsidiary
Guarantors named therein, in favor and for the benefit of Canadian
Imperial Bank of Commerce.
4.6(aa) Stockholders and Registration Rights Agreement, dated as of March
30, 1998, by and among MMH Holdings, Inc., MHE Investments, Inc. and
Harnischfeger Corporation.
4.7(aa) Form of Indenture dated as of ______, among MMH Holdings, Inc., as
the Issuer, and ________, as the Trustee for $________ 12% Exchange
Debentures due 2009.
4.8(aa) Form of 12% Exchange Debenture due 2009.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the Preferred Stock (to be filed by
amendment).
8.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning certain tax matters (to be filed by amendment).
II-2
<PAGE>
Exhibit Number Exhibit
- -------------- -------
10.1(aa) Surety Arrangement, dated March 30, 1998, among Reliance Insurance
Companies, MMH Holdings, Inc., Morris Material Handling, Inc. and
certain of their subsidiaries.
10.2(aa) Credit Indemnification Agreement between Harnischfeger Industries,
Inc. and Morris Material Handling, Inc., dated as of March 30, 1998.
10.3(aa) Tax Sharing Agreement between MHE Investments, Inc., MMH Holdings,
Inc. and certain of MMH Holdings, Inc.'s subsidiaries, dated March
30, 1998.
10.4(aa) Component and Manufactured Products Supply Agreement between HarnCo
and Morris Material Handling, Inc., dated as of March 30, 1998.
10.5(aa) Transition Services Agreement between HarnCo and Morris Material
Handling, Inc., dated as of March 30, 1998.
10.6(aa) Trademark License Agreement between Harnischfeger Technologies, Inc.
and Morris Material Handling, Inc., dated as of March 30, 1998.
10.7(aa) Management Consulting Agreement between Morris Material Handling,
Inc. and Chartwell Investments Inc., dated March 30, 1998.
10.8(aa) Financial Advisory Agreement between Morris Material Handling, Inc.
and Chartwell Investments Inc., dated March 30, 1998.
10.9(aa) Separation Agreement, dated October 26, 1997, between Harnischfeger
Corporation and Material Handling, LLC.
10.10(aa)Share and Asset Purchase Agreement between PHMH Holding Company,
James Gann, Sr., James Gann, Jr. and Gail Gann, dated February 14,
1997.
10.11* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and Michael S. Erwin.
10.12* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and David D. Smith.
10.13* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and Martin L. Ditkof.
10.14* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and Richard J. Niespodziani.
10.15* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and Peter A. Kerrick.
II-3
<PAGE>
Exhibit Number Exhibit
- -------------- -------
10.16* Employment Agreement, dated March 30, 1998, between Morris Material
Handling, Inc. and Edward J. Doolan.
10.17* Service Agreement, dated March 30, 1998, between Morris Mechanical
Handling Limited and M J Maddock.
10.18* Service Agreement, dated March 30, 1998, between Morris Mechanical
Handling Limited and K B Norridge.
10.19* Form of Promissory Note, dated March 30, 1998, between Michael S.
Erwin and Morris Material Handling, Inc.
10.20* Form of Promissory Note, dated March 30, 1998, between David D.
Smith and Morris Material Handling, Inc.
10.21* Form of Promissory Note, dated March 30, 1998, between Martin L.
Ditkof and Morris Material Handling, Inc.
10.22* Form of Promissory Note, dated March 30, 1998, between Richard J.
Niespodziani and Morris Material Handling, Inc.
10.23* Form of Promissory Note, dated March 30, 1998, between Peter A.
Kerrick and Morris Material Handling, Inc.
10.24* Form of Promissory Note, dated March 30, 1998, between MJ Maddock
and Morris Material Handling, Inc.
10.25* Form of Promissory Note, dated March 30, 1998, between KB
Norridge and Morris Material Handling, Inc.
12.* Statement of Computation of Financial Ratios.
21.(aa) Subsidiaries of MMH Holdings, Inc.
23.1* Consent of Independent Accountants.
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1).
25.(aa) Statement of Eligibility of Trustee.
27.* Financial Data Schedule.
99.1 Letter of Transmittal (to be filed by amendment).
99.2 Notice of Guaranteed Delivery (to be filed by amendment).
- --------------
(aa) Incorporated by reference to the Company's Registration Statement on
Form S-4 (Registration No. 333-52529) filed with the Commission on
May 13, 1998.
* Filed herewith.
II-4
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Balance at Additions Currency Balance
Beginning Charged Translation at End
Classification of Year to Expense Deductions(1) Effects of Year
- ----------------------------------- ---------- ---------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance Deducted in Balance Sheet
from Accounts Receivable:
For the year ended October 31, 1997
Doubtful accounts $1,408 $ 439 $ (537) $ 20 $1,330
====== ====== ====== ====== ======
For the year ended October 31, 1996
Doubtful accounts $1,520 $ 354 $ (515) $ 49 $1,408
====== ====== ====== ====== ======
For the year ended October 31, 1995
Doubtful accounts $1,077 $ 706 $ (238) $ (25) $1,520
====== ====== ====== ====== ======
</TABLE>
(1) Represents write-off of bad debts, net of recoveries.
II-5
<PAGE>
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and Bylaws, 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 such Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than 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 such
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to the
Registration Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of this Offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 22nd day of July, 1998.
MMH HOLDINGS, INC.
By: /s/ TODD R. BERMAN
--------------------------------
Todd R. Berman
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ TODD R. BERMAN Chairman of the Board of Directors July 22, 1998
- ------------------------
Todd R. Berman
/s/ MICHAEL S. ERWIN* President, Chief Executive Officer July 22, 1998
- ------------------------ and Director (Principal Executive
Michael S. Erwin Officer)
/s/ DAVID D. SMITH* Vice President and Director July 22, 1998
- ------------------------ (Principal Financial and Accounting
David D. Smith Officer)
/s/ MICHAEL S. SHEIN Vice President and Director July 22, 1998
- ------------------------
Michael S. Shein
/s/ JAY R. BLOOM* Director July 22, 1998
- ------------------------
Jay R. Bloom
/s/ ROBERT W. HALE* Director July 22, 1998
- ------------------------
Robert W. Hale
/s/ MICHAEL R. YOUNG* Director July 22, 1998
- ------------------------
Michael R. Young
/s/ LARRY ZINE* Director July 22, 1998
- ------------------------
Larry Zine
/s/ MICHAEL S. SHEIN
- ------------------------
* By Michael S. Shein, by power of attorney
II-7
<PAGE>
Exhibit 4.3
================================================================================
CREDIT AGREEMENT
among
MMH HOLDINGS, INC.,
MORRIS MATERIAL HANDLING, INC.,
MATERIAL HANDLING, LLC,
MORRIS MATERIAL HANDLING, LTD.,
MONDEL ULC,
KAVERIT STEEL AND CRANE ULC
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent,
CREDIT AGRICOLE INDOSUEZ,
as Syndication Agent,
BANKBOSTON, N.A.,
as Documentation Agent,
and
THE LENDING INSTITUTIONS LISTED HEREIN
--------------------
Dated as of March 30, 1998
--------------------
$155,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit......................................2
1.01. Commitments...................................................2
1.02. Minimum Amount of Each Borrowing; Maximum Number
of Borrowings............................................7
1.03. Notice of Borrowings..........................................8
1.04. Disbursement of Funds........................................11
1.05. Notes........................................................12
1.06. Continuations and Conversions................................16
1.07. Pro Rata Borrowings..........................................17
1.08. Interest.....................................................18
1.09. Interest Periods.............................................19
1.10. Special Provisions Governing Reserve Adjusted
Eurodollar Loans and Acceptances........................20
1.11. Capital Requirements.........................................25
1.12. Total Loan Commitments; Limitations on
Outstanding Loan Amounts................................27
1.13. Letters of Credit............................................27
1.14. Computation of Dollar Equivalent Amount of Pounds
Sterling and Canadian Dollars...........................38
1.15. European Monetary Union......................................38
1.16. Acceptances Provisions.......................................39
1.17. Replacement of Banks.........................................40
SECTION 2. Commitments....................................................41
2.01. Voluntary Reduction of Commitments...........................41
2.02. Mandatory Adjustments of Commitments, etc....................41
2.03. Commitment Commission........................................42
2.04. Currency Equivalents Generally...............................43
2.05. Principle of Deemed Reinvestment.............................43
2.06. Maximum Rate of Return.......................................43
SECTION 3. Payments.......................................................44
3.01. Voluntary Prepayments........................................44
3.02. Mandatory Prepayments........................................45
3.03. Method and Place of Payment..................................50
3.04. Net Payments.................................................52
3.05. Currency Exchange Fluctuations...............................56
<PAGE>
-2-
3.06. Authorizations...............................................57
SECTION 4. Conditions Precedent...........................................57
4.01. Conditions Precedent to Initial Loans........................57
4.02. Conditions Precedent to All Loans............................68
4.03. Additional Conditions Precedent to Acquisition
Term Loans..............................................70
4.04. Conditions Precedent to All Letters of Credit................74
SECTION 5. Representations, Warranties and Agreements.....................75
5.01. Status.......................................................75
5.02. Corporate Power and Authority; Business......................75
5.03. No Violation.................................................76
5.04. Litigation...................................................76
5.05. Use of Proceeds..............................................77
5.06. Governmental Approvals, etc..................................77
5.07. Investment Company Act.......................................78
5.08. Public Utility Holding Company Act...........................78
5.09. True and Complete Disclosure.................................78
5.10. Transaction..................................................79
5.11. Financial Condition; Financial Statements;
Projections.............................................79
5.12. Security Interests...........................................82
5.13. Tax Returns and Payments.....................................82
5.14. ERISA........................................................83
5.15. Subsidiaries.................................................83
5.16. Patents, etc.................................................83
5.17. Compliance with Laws, etc....................................84
5.18. Properties...................................................84
5.19. Securities...................................................85
5.20. Collective Bargaining Agreements.............................85
5.21. Indebtedness Outstanding; Prior Liens........................85
5.22. Environmental Protection.....................................86
5.23. Environmental Investigations.................................88
5.24. Representations and Warranties in the
Recapitalization Agreement..............................88
SECTION 6. Affirmative Covenants.........................................88
6.01. Information Covenants........................................88
6.02. Books, Records and Inspections...............................94
6.03. Maintenance of Property; Insurance...........................94
6.04. Payment of Taxes.............................................95
6.05. Corporate Franchises.........................................95
6.06. Compliance with Statutes, etc................................96
<PAGE>
-3-
6.07. ERISA........................................................96
6.08. Performance of Obligations...................................96
6.09. End of Fiscal Years; Fiscal Quarters.........................96
6.10. Use of Proceeds..............................................97
6.11. Landlord Lien Waivers........................................97
6.12. Equal Security for Loans and Notes; No Further
Negative Pledges........................................97
6.13. Bank Meeting.................................................98
6.14. Pledge of Additional Collateral..............................98
6.15. Security Interests...........................................99
6.16. Subsidiary Guarantees........................................99
6.17. Environmental Events........................................100
6.18. Use of Cash on Hand to Effect Designated
Acquisition............................................100
6.19. Year 2000...................................................101
6.20. Certain Post-Closing Matters................................101
SECTION 7. Negative Covenants............................................102
7.01. Conduct of Business.........................................102
7.02. Amendments or Waivers of Certain Documents..................102
7.03. Liens.......................................................102
7.04. Indebtedness................................................106
7.05. Capital Expenditures........................................107
7.06. Advances, Investments and Loans.............................108
7.07. Prepayments of Indebtedness, etc............................110
7.08. Dividends, etc..............................................111
7.09. Transaction with Affiliates.................................112
7.10. Total Interest Coverage Ratio...............................113
7.11. Fixed Charge Coverage Ratio.................................114
7.12. Leverage Ratio..............................................115
7.13. Minimum Consolidated EBITDA.................................116
7.14. Holdings Equity Sales and Net Financing Proceeds............117
7.15. Sale or Discount of Receivables.............................117
7.16. Issuance of Subsidiary Stock................................118
7.17. Disposition of Assets.......................................118
7.18. Contingent Obligations......................................120
7.19. Merger and Consolidations...................................121
7.20. Sale and Lease-Backs........................................122
SECTION 8. Events of Default............................................122
8.01. Payments....................................................122
8.02. Representations, etc........................................122
8.03. Covenants...................................................122
8.04. Default Under Other Agreements..............................123
<PAGE>
-4-
8.05. Bankruptcy, etc.............................................123
8.06. ERISA.......................................................124
8.07. Security Documents..........................................124
8.08. Guarantees..................................................124
8.09. Judgments...................................................125
8.10. Ownership...................................................125
SECTION 9. Definitions...................................................126
SECTION 10. The Agents...................................................173
10.01. Appointment................................................173
10.02. Delegation of Duties.......................................174
10.03. Exculpatory Provisions.....................................174
10.04. Reliance by the Agents.....................................175
10.05. Notice of Default..........................................175
10.06. Non-Reliance on Agents and Other Banks.....................176
10.07. Indemnification............................................176
10.08. The Agents in Its Individual Capacity......................177
10.09. Successor Administrative Agent.............................177
10.10. Resignation by Administrative Agent........................177
10.11. Syndication Agent and Documentation Agent..................178
SECTION 11. Miscellaneous................................................178
11.01. Payment of Expenses, etc...................................178
11.02. Right of Setoff............................................179
11.03. Notices....................................................180
11.04. Benefit of Agreement.......................................181
11.05. No Waiver; Remedies Cumulative.............................183
11.06. Payments Pro Rata..........................................184
11.07. Calculations; Computations.................................184
11.08. Governing Law; Submission to Jurisdiction; Venue...........185
11.09. Counterparts...............................................185
11.10. Effectiveness..............................................186
11.11. Headings Descriptive.......................................186
11.12. Amendment or Waiver........................................186
11.13. Survival...................................................187
11.14. Domicile of Loans..........................................187
11.15. Waiver of Jury Trial.......................................187
11.16. Independence of Covenants..................................187
11.17. Currency Indemnity.........................................187
Annex I - List of Banks
Annex II - Bank Addresses
Annex III - Agreement relating to U.K. Swingline Loans
<PAGE>
-5-
Schedule 1.08(b) - Calculation of MLA Cost
Schedule 1.16 - Acceptances Provisions
Schedule 4.01(u)(i) - List of Mortgaged Real Property
Schedule 5.04 - Litigation
Schedule 5.06 - Governmental Approvals
Schedule 5.13 - Tax Returns
Schedule 5.15 - Subsidiaries
Schedule 5.19 - Securities
Schedule 5.20 - Schedule of Collective Bargaining Agreements
Schedule 5.21(a) - Schedule of Existing Debt
Schedule 5.21(b) - Prior Liens
Schedule 5.22 - Environmental
Schedule 6.01(i) - Summary of Corporate Insurance Policies
Schedule 7.06(j) - Joint Venture Commitments
Schedule 7.18(viii) - Schedule of Existing Guarantees and Letters of
Credit
Exhibit A-1 - Form of A Term Note
Exhibit A-2 - Form of B Term Note
Exhibit A-3 - Form of Acquisition Term Note
Exhibit B-1 - Form of Revolving Note
Exhibit B-2 - Form of U.S. Swingline Note
Exhibit B-3 - Form of U.K. Swingline Note
Exhibit B-4 - Form of Canadian Swingline Note
Exhibit C-1 - Form of Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Exhibit C-2 - Form of Opinion of Linklater & Paines
Exhibit C-3(a) - Form of Opinion of McCarthy Tetrault
Exhibit C-3(b) - Form of Opinion of Patterson, Palmer, Hunt, Murphy
Exhibit C-4 - Form of Local Counsel Opinions
Exhibit D - Form of Mortgage
Exhibit E-1 - Form of Holdings Guarantee
Exhibit E-2 - Form of U.S. Subsidiary Guarantee
Exhibit E-3 - Form of Canadian Guarantee
Exhibit F-1 - Form of U.S. Security Agreement
Exhibit G-1 - Form of U.K. Security Document and Guarantee
Exhibit G-2 - Form of Canadian Security Agreement
Exhibit G-3 - Form of Scotland Instrument of Change and Guarantee
Exhibit H-1 - Form of Canadian Securities Pledge Agreement
Exhibit H-2 - Form of Mexican Stock Pledge Agreement
Exhibit H-3 - Form of U.K. Deed of Pledge
Exhibit I-1 - Form of Notice of Assignment
Exhibit I-2 - Form of Assignment and Assumption Agreement
Exhibit J - Form of Notice of Borrowing
Exhibit K - Form of Notice of Continuation/Conversion
<PAGE>
-6-
Exhibit L - Form of Borrowing Base Certificate
Exhibit M - Form of Officers' Certificate Regarding Environmental Review
Exhibit N - Form of Officers' Solvency Certificate
Exhibit O - Form of Officers' Certificate Regarding Satisfaction of
Conditions Precedent
Exhibit P - Form of Section 3.04 Certificate
Exhibit Q - Form of Intercreditor Agreement
<PAGE>
CREDIT AGREEMENT, dated as of March 30, 1998, among MMH HOLDINGS,
INC., a Delaware corporation ("Holdings"), MORRIS MATERIAL HANDLING, INC., a
Delaware corporation (the "Company") as a U.S. Borrower, MATERIAL HANDLING, LLC,
a Delaware limited liability company ("Material Handling") as a U.S. Borrower,
MORRIS MATERIAL HANDLING, LTD., a company organized under the laws of England
and Wales ("MHE-U.K.") as the U.K. Borrower, MONDEL ULC, an unlimited liability
company organized under the laws of Nova Scotia ("Mondel") as a Canadian
Borrower, and KAVERIT STEEL AND CRANE ULC, an unlimited liability company
organized under the laws of Nova Scotia ("Kaverit") as a Canadian Borrower, the
lending institutions listed in Annex I (each, a "Bank" and, collectively, the
"Banks") and the New York branch of CREDIT AGRICOLE INDOSUEZ ("Indosuez"), as
syndication agent for the Banks (in such capacity, the "Syndication Agent"),
BANKBOSTON, N.A., as documentation agent for the Banks (in such capacity, the
"Documentation Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as
administrative agent and as collateral agent for the Banks (in such capacities,
the "Administrative Agent" and, together with the Syndication Agent and the
Documentation Agent, the "Agents"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 9 are used herein as so
defined.
W I T N E S S E T H :
WHEREAS, pursuant to a Recapitalization Agreement dated as of
January 28, 1998, as amended on March 4, 1998 and March 23, 1998 (the
"Recapitalization Agreement"), among Harnischfeger Corporation ("HarnCo"), the
sellers named therein and MHE Investments, Inc., the Company will acquire the
outstanding interests and capital stock of certain subsidiaries of HarnCo
related to the MHE Business (the "Recapitalization");
WHEREAS, (i) the Company desires to incur Initial Loans from the
Banks, the proceeds of which will be applied, to the extent necessary, to
finance the Recapitalization, to retire certain Indebtedness, to redeem a
portion of its Common Stock owned by Holdings and to pay certain fees and
expenses incurred in connection with the Transaction, and (ii) the Borrowers
desire to incur further Loans from the Banks, the proceeds of which will be used
(a) to provide working capital to the Borrowers and their Subsidiaries and for
general corporate purposes of the Borrowers after the Transaction and (b) with
respect to the Acquisition Term Loans, to provide financing for
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acquisitions and to pay related fees and expenses, subject to the conditions set
forth herein;
WHEREAS, the Guarantors, in accordance with the terms and conditions
hereinafter set forth, have agreed to guarantee the obligations of the Borrowers
hereunder; and
WHEREAS, the Banks are willing to make available the credit
facilities provided for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01. Commitments. Subject to and upon the terms and conditions
herein set forth, each Bank having a Commitment under the relevant Portion
severally agrees (i) in the case of any Borrowing under the A Term Loan Facility
or the B Term Loan Facility, in each case, on the Closing Date, (ii) in the case
of any Borrowing under the Acquisition Portion after the Closing Date and prior
to the Acquisition Term Loan Commitment Termination Date in connection with
Designated Acquisitions, (iii) in the case of any Borrowing under the Revolving
Portion, at any time and from time to time on or after the Closing Date and
prior to the Revolving Loan Commitment Termination Date, and (iv) in the case of
any Borrowing of Swingline Loans, at any time and from time to time on or after
the Closing Date and prior to the Swingline Expiry Date, to make a Loan or Loans
to the Applicable Borrower, which Loans shall be drawn under the Loan Facility
(including the Term Portion, the Acquisition Portion and Revolving Portion
thereof or which shall be made as Swingline Loans), as set forth below.
(a) Loans under the Term Portion of the Loan Facility (each, a "Term
Loan" and, collectively, the "Term Loans") may be made under the A Term
Loan Facility (each, an "A Term Loan" and, collectively, the "A Term
Loans") and the B Term Loan Facility (each, a "B Term Loan" and,
collectively, the "B Term Loans") to the Company. Once repaid, Term Loans
may not be reborrowed.
(i) Each A Term Loan under the A Term Loan Facility (A) shall be
made as a single drawing on the Closing Date in an amount not to exceed
the Total A Term Loan Commitment, (B) except as hereinafter provided,
shall initially be made as a Base Rate Loan and thereafter shall, at the
Company's option and subject to the terms hereof, be a Base Rate Loan or a
Reserve Adjusted Eurodollar Loan; pro-
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vided that all Term Loans made by all Banks having an A Term Loan
Commitment pursuant to the same Borrowing shall, unless otherwise
specifically provided herein, consist entirely of Loans of the same Type
(provided that partial conversions are permitted in accordance with
Section 1.06) and (C) shall not exceed for any Bank at any time
outstanding that aggregate principal amount which equals the A Term Loan
Commitment of such Bank.
(ii) Each B Term Loan under the B Term Loan Facility (A) shall be
made as a single drawing on the Closing Date in an amount not to exceed
the Total B Term Loan Commitment, (B) except as hereinafter provided,
shall initially be made as a Base Rate Loan and thereafter shall, at the
Company's option and subject to the terms hereof, be a Base Rate Loan or a
Reserve Adjusted Eurodollar Loan; provided that all Term Loans made by all
Banks having a B Term Loan Commitment pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, consist entirely of
Loans of the same Type (provided that partial conversions are permitted in
accordance with Section 1.06) and (C) shall not exceed for any Bank at any
time outstanding that aggregate principal amount which equals the B Term
Loan Commitment of such Bank.
(b) Loans under the Acquisition Portion of the Loan Facility (each
an "Acquisition Term Loan") (i) shall be made to a U.S. Borrower after the
Closing Date and prior to the Acquisition Term Loan Commitment Termination
Date (the date of such Borrowing of an Acquisition Term Loan, the
"Acquisition Term Loan Closing Date") to effect Designated Acquisitions,
(ii) shall, at the option of the Applicable Borrower, be Base Rate Loans
or Reserve Adjusted Eurodollar Loans; provided that all Acquisition Term
Loans made by all Banks having an Acquisition Term Loan Commitment
pursuant to the same Borrowing shall, unless otherwise specifically
provided herein, consist entirely of Loans of the same Type (provided that
partial conversions are permitted in accordance with Section 1.06), (iii)
shall not exceed for any Bank at any time outstanding the Acquisition Term
Loan Commitment of such Bank at such time, and (iv) shall not be made
pursuant to a particular Notice of Borrowing if the aggregate principal
amount of Acquisition Term Loans then outstanding, after giving effect to
the Acquisition Term Loan requested by such Notice of Borrowing, would
exceed the Total Acquisition Term Loan Commitment. Once repaid,
Acquisition Term Loans may not be reborrowed.
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(c) Loans under the Revolving Portion of the Loan Facility (each, a
"Revolving Loan" and, collectively, the "Revolving Loans") (i) shall be
made at any time and from time to time to the U.S. Borrowers after the
Closing Date and prior to the Revolving Loan Commitment Termination Date
in Dollars, (ii) except as hereinafter provided, shall initially be made
as a Base Rate Loan and thereafter shall, at the Applicable Borrower's
option and subject to the terms hereof, be a Base Rate Loan or a Reserve
Adjusted Eurodollar Loan; provided that all Revolving Loans made by all
Banks pursuant to the same Borrowing shall, unless otherwise specifically
provided herein, consist entirely of Loans of the same Type (provided that
partial conversions are permitted in accordance with Section 1.06), (iii)
may be repaid and reborrowed in accordance with the provisions hereof,
(iv) shall not exceed for any Bank at any time outstanding the Revolving
Loan Commitment of such Bank at such time and (v) shall not in any case be
made if the aggregate Dollar Equivalent amount of Revolving Loans and
Swingline Loans then outstanding, after giving effect to the Revolving
Loan requested by the relevant Notice of Borrowing and any Swingline Loans
subject to outstanding Notices of Borrowing, plus the Dollar Equivalent
amount of Letter of Credit Usage, after giving effect to the issuance of
all Letters of Credit subject to outstanding requests for issuance, would
exceed the lesser of (y) the Total Revolving Loan Commitment or (z) the
Borrowing Base as shown in the Borrowing Base Certificate that was last
delivered pursuant to Section 6.01; provided such Borrowing Base
Certificate was required to be delivered pursuant to and was in compliance
with Section 6.01 or was delivered after the Borrowing Base Certificate
last required to be delivered pursuant to Section 6.01.
(d) Swingline Loans (each, a "Swingline Loan" and, collectively, the
"Swingline Loans") (i) shall be made at any time and from time to time on
and after the Closing Date and prior to the Swingline Expiry Date (x) to
the U.S. Borrowers by the U.S. Swingline Banks in Dollars; (y) to each
Canadian Borrower by the Canadian Swingline Banks in Canadian Dollars; and
(z) to the U.K. Borrower by the U.K. Swingline Banks in Pounds Sterling,
(ii) shall be made (x) to the U.S. Borrowers as Base Rate Loans; (y) to
each Canadian Borrower, at its option and subject to the terms hereof, in
the form of an Acceptance (on the terms and conditions provided for herein
and in Schedule 1.16) or a Prime Rate Loan; provided that all Canadian
Swingline Loans made by all Canadian Swingline Banks pursuant to the
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same Borrowing shall, unless otherwise specifically provided for herein,
consist entirely of Loans of the same Type; and (z) to the U.K. Borrower,
at its option and subject to the terms hereof, as U.K. Base Rate Loans or
Reserve Adjusted Eurodollar Loans, (iii) may be repaid and reborrowed in
accordance with the provisions hereof, (iv) shall not exceed the
applicable Maximum Swingline Amount or the Total Revolving Loan
Commitment, (v) shall not in any case be made if the aggregate Dollar
Equivalent amount of Revolving Loans and Swingline Loans then outstanding,
after giving effect to the Dollar Equivalent amount of Swingline Loans
being requested and any Revolving Loans subject to outstanding Notices of
Borrowing, plus the Dollar Equivalent amount of Letter of Credit Usage,
after giving effect to the issuance of all Letters of Credit subject to
outstanding requests for issuance, would exceed the lesser of (y) the
Total Revolving Loan Commitment or (z) the Borrowing Base as shown in the
Borrowing Base Certificate that was last delivered pursuant to Section
6.01; provided such Borrowing Base Certificate was required to be
delivered pursuant to and in compliance with Section 6.01 or was delivered
after the Borrowing Base Certificate last required to be delivered
pursuant to Section 6.01, and (vi) in the case of U.S. Swingline Loans
shall constitute the joint and several obligations of the U.S. Borrowers.
No Swingline Bank shall be obligated to make any Swingline Loans at a time
when a Bank Default exists unless such Swingline Bank has entered into
arrangements satisfactory to it to eliminate such Swingline Bank's risk
with respect to the Defaulting Bank's or Banks' participation in such
Swingline Loans, including by cash collateralizing such Defaulting Bank's
or Banks' Dollar Percentage of the outstanding Swingline Loans.
Notwithstanding anything to the contrary contained in this Section
1.01(d), no Swingline Bank shall make any Swingline Loan after it has
received written notice from any Borrower, the Administrative Agent or the
Required Banks stating that a Default or an Event of Default exists and is
continuing until such time as such Swingline Bank shall have received
written notice (i) of rescission of all such notices from the party or
parties originally delivering such notice, (ii) of the waiver of such
Default or Event of Default by the Required Banks or (iii) that the
Administrative Agent, in good faith, believes such Default or Event of
Default has ceased to exist. The Canadian Swingline Loans shall be deemed
to include the face amount of all issued but unmatured Acceptances in
connection with the amount of the utilization thereof by the Canadian
Bor-
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rowers, but the Canadian Swingline Loans shall not include the face amount
of all issued but unmatured Acceptances in determining the principal
amount of such Loans on which the Canadian Borrowers shall pay interest.
(e) Notice to the Administrative Agent (which shall give notice to
all Revolving Facility Banks) (i) may be given on any Business Day, in the
sole discretion of the U.S. Swingline Bank with respect to the U.S.
Swingline Loans, (ii) may be given by any Swingline Bank upon the
occurrence of an Event of Default under Section 8.01, and (iii) shall be
deemed to be automatically given by each Swingline Bank with respect to
all Swingline Loans upon the occurrence of an Event of Default under
Section 8.05 (with respect to Holdings or the Company or any of its
Significant Subsidiaries) or upon the exercise of any of the remedies
provided in the last paragraph of Section 8, that the Dollar Equivalent of
such Swingline Bank's outstanding Swingline Loans to the Applicable
Borrower shall be funded with a Borrowing in Dollars of Revolving Loans.
In such case, Revolving Loans in Dollars, for the benefit of the U.S.
Borrowers, constituting Base Rate Loans (each such Borrowing, a "Mandatory
Borrowing") shall be made on the immediately succeeding Business Day by
all Revolving Facility Banks (without giving effect to any reductions
thereto pursuant to the last paragraph of Section 8) pro rata based on
each Bank's Dollar Percentage and the proceeds thereof shall be applied
directly to the Applicable Swingline Bank to repay such Swingline Bank for
such outstanding Swingline Loans. Each Revolving Facility Bank hereby
irrevocably agrees to make Revolving Loans upon one Business Day's notice
pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified in writing
by the Applicable Swingline Bank notwithstanding (i) that the amount of
any Mandatory Borrowing may not comply with the Minimum Borrowing Amount
otherwise required hereunder, (ii) whether any conditions specified in
Section 4 are then satisfied, (iii) whether a Default or an Event of
Default then exists, (iv) the date of such Mandatory Borrowing and (v) the
amount of the Total Revolving Loan Commitment at such time. In the event
that any Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of
the commencement of a proceeding under the Bankruptcy Code with respect to
any of the Borrowers), then each such Revolving Facility Bank hereby
agrees that it shall forthwith purchase (as of the date the Mandatory
Borrowing
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would otherwise have occurred, but adjusted for the Dollar Equivalent of
any payments received from the Applicable Borrower (or Borrowers) on or
after such date and prior to such purchase) from the Swingline Bank such
participations in the outstanding Swingline Loans as shall be necessary to
cause such Revolving Facility Banks to share in the Dollar Equivalent of
such Swingline Loans ratably based upon their Dollar Percentage; provided
that (x) all interest payable on the Swingline Loans shall be for the
account of the applicable Swingline Bank until the date as of which the
respective participation is required to be purchased and, to the extent
attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing
Revolving Facility Bank shall be required to pay the applicable Swingline
Bank interest on the principal amount of the participation purchased for
each day from and including the day upon which the Mandatory Borrowing
would otherwise have occurred to but excluding the date of payment for
such participation, and at the rate otherwise applicable to Revolving
Loans maintained as Base Rate Loans hereunder.
1.02. Minimum Amount of Each Borrowing; Maximum Number of
Borrowings. (a) The minimum aggregate principal amount of a Borrowing of Term
Loans consisting of Reserve Adjusted Eurodollar Loans or Base Rate Loans shall
be the Minimum Borrowing Amount and, if greater, shall be in integral multiples
of $100,000; provided, however, that the Borrowing of the A Term Portion and the
B Term Portion of the Initial Loans shall be in an aggregate principal amount of
$20,000,000 and $35,000,000, respectively.
(b) The minimum aggregate principal amount of a Borrowing of
Acquisition Term Loans consisting of Reserve Adjusted Eurodollar Loans or Base
Rate Loans shall be the Minimum Borrowing Amount and, if greater, shall be in
integral multiples of $100,000; provided, however, that the Banks' Acquisition
Term Loan Commitment shall terminate, on a pro rata basis, with respect to any
portion of the Total Acquisition Term Loan Commitments not utilized by the U.S.
Borrowers prior to the Acquisition Term Loan Commitment Termination Date.
(c) The minimum aggregate principal amount of a Borrowing of
Revolving Loans consisting of Reserve Adjusted Eurodollar Loans or Base Rate
Loans shall be the Minimum Borrowing Amount (other than a Borrowing of Base Rate
Loans such that the
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total amount of Revolving Loans to be outstanding after giving effect to such
Borrowing shall be equal to the Total Revolving Loan Commitment) and, if
greater, shall be in integral multiples of $100,000.
(d) More than one Borrowing may be incurred on any date; provided
that at no time shall there be outstanding more than twenty-four Borrowings of
Dollar Reserve Adjusted Eurodollar Loans or such higher number of Borrowings as
the Administrative Agent may agree.
(e) The minimum aggregate principal amount of a Borrowing of
Swingline Loans shall be the Borrowing Amount for Acceptances or the applicable
currency equivalent (determined in accordance with Section 2.04) of amounts as
agreed between the Applicable Borrower and the applicable Swingline Bank. More
than one Borrowing may be incurred on any date; provided that at no time shall
there be outstanding more than the number of Borrowings of U.K. Swingline Loans
as agreed between the U.K. Borrower and the U.K. Swingline Bank or the number of
outstanding Acceptances as agreed between the Canadian Borrowers and the
Canadian Swingline Banks.
1.03. Notice of Borrowings. (a) Each notice to be given pursuant to
this Section 1.03, which shall be substantially in the form of Exhibit J hereto
(each, a "Notice of Borrowing"), shall be irrevocable, shall be deemed a
representation by the Applicable Borrower that all conditions precedent to such
Borrowing set forth in Section 4.02 and, in the case of a Loan under the
Acquisition Portion, that all additional conditions under Section 4.03 have been
satisfied and shall specify (i) whether such Borrowing is a Swingline Loan or is
to be made from the A Term Loan Facility, the B Term Loan Facility, the
Acquisition Portion or the Revolving Portion, (ii) the aggregate principal
amount in Dollars, Canadian Dollars or Pounds Sterling of the Loans to be made
pursuant to such Borrowing, all of which shall be specified in such manner as is
necessary to comply with all limitations on Swingline Loans, Term Loans,
Acquisition Loans and Revolving Loans, as the case may be, outstanding
hereunder, including without limitation, availability under the Borrowing Base
and the applicable Maximum Swingline Amount limitations, (iii) the date of
Borrowing (which shall be a Business Day) and (iv) for notices delivered after
the Closing Date, whether the respective Borrowing shall consist of Base Rate
Loans, U.K. Base Rate Loans, Prime Rate Loans or Reserve Adjusted Eurodollar
Loans (or Acceptances) and, if Reserve Adjusted Eurodollar Loans, whether such
Reserve Adjusted Eurodollar Loans are U.S. Dollar Loans or Pounds Sterling
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Loans, the Interest Period to be initially applicable thereto and, if
Acceptances, the term applicable thereto. The Administrative Agent shall as
promptly as practicable give each Bank written notice (or telephonic notice
promptly confirmed in writing) of each proposed Borrowing, of such Bank's
proportionate share thereof and of the other matters covered by the Notice of
Borrowing.
(b) The provisions of this Section 1.03(b) shall not apply to any
Borrowings of Swingline Loans. Whenever the Company desires that the Banks make
the Initial Loans, an Authorized Officer of the Company shall give the
Administrative Agent at the Administrative Agent's Office prior to Noon (New
York time) at least one Business Day's prior written notice (or telephonic
notice promptly confirmed in writing) of such Borrowing. Whenever a U.S.
Borrower desires that the Banks make U.S. Dollar Loans which are Reserve
Adjusted Eurodollar Loans under the Loan Facility after the Closing Date, an
Authorized Officer of the Applicable Borrower shall give the Administrative
Agent at the Administrative Agent's Office prior to Noon (New York time) at
least three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) of each such Borrowing of Reserve Adjusted Eurodollar
Loans. Whenever a U.S. Borrower desires that the Banks make Base Rate Loans
(other than Swingline Loans or Borrowings of Revolving Loans incurred pursuant
to a Mandatory Borrowing) under the Loan Facility after the Closing Date, which
shall only be made in U.S. Dollars, an Authorized Officer of the Applicable
Borrower shall give the Administrative Agent at the Administrative Agent's
Office prior to 11:00 A.M. (New York time) on the date of the requested
Borrowing prior written notice (or telephonic notice promptly confirmed in
writing) of each such Borrowing of Base Rate Loans.
(c) Whenever a U.S. Borrower desires to incur U.S. Swingline Loans
hereunder, it shall give the Administrative Agent at the Administrative Agent's
Office and the U.S. Swingline Bank at the office designated by the U.S.
Swingline Bank not later than the time agreed between the U.S. Borrowers and the
U.S. Swingline Banks on the date that a U.S. Swingline Loan is to be incurred,
written notice or telephonic notice promptly confirmed in writing of each
Swingline Loan to be incurred hereunder.
(d) Whenever the U.K. Borrower desires to incur U.K. Swingline Loans
hereunder, it shall give the Administrative Agent at the Administrative Agent's
Office and the U.K. Swingline Bank at the office designated by the U.K.
Swingline Bank
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not later than 1:00 P.M. (London time) in the case of U.K. Base Rate Loans and
10:00 A.M. (London time) in the case of Reserve Adjusted Eurodollar Loans on the
date that a U.K. Swingline Loan is to be incurred written notice (or telephonic
notice promptly confirmed in writing) of each such Borrowing of U.K. Swingline
Loans.
(e) Whenever a Canadian Borrower desires that the Canadian Swingline
Banks make Canadian Swingline Loans which are in the form of Acceptances after
the Closing Date, an Authorized Officer of such Canadian Borrower shall give the
Administrative Agent at the Administrative Agent's Office prior notice (or
telephonic notice promptly confirmed in writing) at such time as the
Administrative Agent may designate from time to time of each such Borrowing in
the form of Acceptances and shall otherwise comply with Schedule 1.16. Whenever
a Canadian Borrower desires that the Canadian Swingline Banks make Canadian
Swingline Loans which are Prime Rate Loans after the Closing Date, an Authorized
Officer of such Canadian Borrower shall give the Administrative Agent at the
Administrative Agent's Office and the Canadian Swingline Banks at the office
designated by the Canadian Swingline Banks prior written notice (or telephonic
notice promptly confirmed in writing) at such time as the Administrative Agent
may designate from time to time of each such Borrowing of Prime Rate Loans.
(f) The Dollar Equivalent amount of any Borrowing of Swingline Loans
in an Applicable Currency will be determined by the Administrative Agent for
such Borrowing on the Computation Date therefor in accordance with Section 1.14.
(g) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(e), with each U.S. Borrower irrevocably agreeing to the making of
the Mandatory Borrowings by it as set forth in Section 1.01(e).
(h) Without in any way limiting the obligation of any Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent or any Swingline Bank may act without liability upon the
basis of such telephonic notice, believed by the Administrative Agent or such
Swingline Bank in good faith to be from an Authorized Officer of such Borrower
prior to receipt of written confirmation. In each such case, each Borrower
hereby waives the right to dispute the Administrative Agent's or such Swingline
Bank's record of the terms of such telephonic notice.
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1.04. Disbursement of Funds. (a) No later than 1:00 P.M. (New York
time) on the date specified in each Notice of Borrowing of Loans (other than
U.S. Swingline Loans) in U.S. Dollars (or in the case of Mandatory Borrowings,
not later than Noon (New York time) on the date specified in Section 1.01(e)),
each Bank will make available its pro rata portion of each Borrowing requested
to be made on such date in the manner provided below (x) with respect to Loans
denominated in Dollars, to the Administrative Agent at the Administrative
Agent's Office, (y) with respect to Loans denominated in Pounds Sterling, as
agreed between the U.K. Swingline Bank and the U.K. Borrower, and (z) with
respect to Prime Rate Loans denominated in Canadian Dollars, or Acceptances, in
accordance with Schedule 1.16, in each case as agreed between the Canadian
Swingline Banks and the Canadian Borrowers. The proceeds of such Borrowings of
Dollar Loans will be made available, as provided in Section 1.04(b), to the
Applicable Borrower in the amounts made available to the Administrative Agent
and in like funds received by the Administrative Agent by 2:00 P.M. (New York
time) on the date specified in the Notice of Borrowing. The proceeds of other
Loans will be made available to the Applicable Borrower as agreed with the
applicable Swingline Bank.
(b) Each Bank shall make available all amounts it is to fund under
any Borrowing of Term Loans, Acquisition Term Loans or Revolving Loans on or
after the Closing Date in immediately available funds to the Administrative
Agent to the account specified therefor by the Administrative Agent or if no
account is so specified at the Administrative Agent's Office and the
Administrative Agent will make such funds available to the Applicable Borrower
by depositing to the account specified therefor by the Applicable Borrower or if
no account is so specified to its account at the Administrative Agent's Office
the aggregate of the amounts so made available in the type of funds received.
Unless the Administrative Agent shall have been notified by any Bank prior to
the date of any such Borrowing that such Bank does not intend to make available
to the Administrative Agent its portion of the Borrowing or Borrowings to be
made on such date, the Administrative Agent may assume that such Bank has made
such amount available to the Administrative Agent on such date of Borrowing, and
the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Applicable
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank and the Administrative
Agent has made such corresponding amount available to the Applicable Borrower,
the Administrative Agent shall be entitled to recover
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such amount from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Administrative Agent's demand therefor, the Administrative
Agent shall promptly notify the Applicable Borrower, and the Applicable Borrower
shall immediately pay such corresponding amount to the Administrative Agent (it
being understood that if the Applicable Borrower makes a request for a Revolving
Loan to reimburse the Administrative Agent, such Revolving Loan, if made, shall
be an immediate repayment). The Administrative Agent shall also be entitled to
recover from such Bank or the Applicable Borrower, as the case may be, interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Applicable Borrower to the date such amount is recovered by the Administrative
Agent, at a rate per annum equal to (x) if paid by such Bank, the Federal Funds
Rate for payments in U.S. Dollars, or (y) if paid by the Applicable Borrower
(and/or one or more other Credit Parties), the then applicable rate of interest,
calculated in accordance with Section 1.08, for the respective Loans. The
Administrative Agent shall also be entitled to recover from any Bank an amount
equal to any other losses incurred by the Administrative Agent as a result of
the failure of such Bank to provide such amount as provided in this Agreement.
(c) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its Commitment hereunder or to prejudice any rights which
any Borrower or any other Credit Party may have against any Bank as a result of
any default by such Bank hereunder.
1.05. Notes. (a) Each Borrower's obligation to pay the principal of
and interest on all the Loans made to it by each Bank shall be evidenced: (i) if
A Term Loans, by a promissory note (each, an "A Term Note" and, collectively,
the "A Term Notes") duly executed and delivered by the U.S. Borrowers,
substantially in the form of Exhibit A-1 hereto, each with blanks appropriately
completed in conformity herewith; (ii) if B Term Loans, by a promissory note
(each, a "B Term Note" and, collectively, the "B Term Notes") duly executed and
delivered by the U.S. Borrowers, substantially in the form of Exhibit A-2
hereto, each with blanks appropriately completed in conformity herewith; (iii)
if Acquisition Term Loans, by a promissory note (each, an "Acquisition Term
Note" and, collectively, the "Acquisition Term Notes") duly executed and
delivered by the U.S. Borrowers, substantially in the form of Exhibit A-3
hereto, each with blanks appropriately completed in conformity herewith; (iv) if
Revolving Loans, by a promissory note (each,
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a "Revolving Note" and, collectively, the "Revolving Notes") duly executed and
delivered by the U.S. Borrowers substantially in the form of Exhibit B-1 hereto,
with blanks appropriately completed in conformity herewith; (v) if U.S.
Swingline Loans, by a promissory note (each, a "U.S. Swingline Note" and,
collectively, the "U.S. Swingline Notes") duly executed and delivered by the
U.S. Borrowers substantially in the form of Exhibit B-2 hereto, with blanks
appropriately completed in conformity herewith; (vi) if U.K. Swingline Loans, by
a promissory note (each, a "U.K. Swingline Note" and, collectively, the "U.K.
Swingline Notes") duly executed and delivered by the U.K. Borrower substantially
in the form of Exhibit B-3 hereto, with blanks appropriately completed in
conformity herewith; and (vii) if Canadian Swingline Loans, by a promissory note
(each, a "Canadian Swingline Note" and, collectively, the "Canadian Swingline
Notes") duly executed and delivered by each Canadian Borrower substantially in
the form of Exhibit B-4 hereto, with blanks appropriately completed in
conformity herewith.
(b) The A Term Note of the U.S. Borrowers issued to each Bank with
an A Term Loan Commitment shall (i) be executed by the U.S. Borrowers (and shall
constitute the joint and several obligations of the U.S. Borrowers), (ii) be
payable to the order of such Bank and be dated the Effective Date, (iii) be in a
stated principal amount equal to the A Term Loan Commitment of such Bank and be
payable in Dollars in the aggregate principal amount of the A Term Loans
evidenced thereby, (iv) mature, with respect to each Loan evidenced thereby, on
the Final A Term Loan Maturity Date, (v) be subject to mandatory prepayment as
provided in Section 3.02, (vi) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Reserve Adjusted
Eurodollar Loans, as the case may be, evidenced thereby and (vii) be entitled to
the benefits of this Agreement and the other applicable Credit Documents.
(c) The B Term Note of the U.S. Borrowers issued to each Bank with a
B Term Loan Commitment shall (i) be executed by the U.S. Borrowers (and shall
constitute the joint and several obligations of the U.S. Borrowers), (ii) be
payable to the order of such Bank and be dated the Effective Date, (iii) be in a
stated principal amount equal to the B Term Loan Commitment of such Bank and be
payable in Dollars in the aggregate principal amount of the B Term Loans
evidenced thereby, (iv) mature, with respect to each Loan evidenced thereby, on
the Final B Term Loan Maturity Date, (v) be subject to mandatory prepayment as
provided in Section 3.02, (vi) bear interest as provided in the appropriate
clause of Section 1.08 in respect of
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the Base Rate Loans and Reserve Adjusted Eurodollar Loans, as the case may be,
evidenced thereby and (vii) be entitled to the benefits of this Agreement and
the other applicable Credit Documents.
(d) The Acquisition Term Note of the U.S. Borrowers issued to each
Bank with an Acquisition Term Loan Commitment shall (i) be executed by the U.S.
Borrowers (and shall constitute the joint and several obligations of the U.S.
Borrowers), (ii) be payable to the order of such Bank and be dated the Closing
Date, (iii) be in a stated principal amount equal to the Acquisition Term Loan
Commitment of such Bank and be payable in Dollars in the aggregate principal
amount of the Acquisition Term Loan evidenced thereby, (iv) mature, with respect
to each Loan evidenced thereby, on the Final Acquisition Term Loan Maturity
Date, (v) be subject to mandatory prepayment as provided in Section 3.02, (vi)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Reserve Adjusted Eurodollar Loans, as the case may
be, evidenced thereby and (vii) be entitled to the benefits of this Agreement
and the other applicable Credit Documents.
(e) The Revolving Note of the U.S. Borrowers issued to each Bank
with a Revolving Loan Commitment shall (i) be executed by the U.S. Borrowers
(and shall constitute the joint and several obligations of the U.S. Borrowers),
(ii) be payable in Dollars to the order of such Bank and be dated the Effective
Date, (iii) be in a stated principal amount equal to the Revolving Loan
Commitment of such Bank and be payable in Dollars in the aggregate principal
amount of the Revolving Loans evidenced thereby, (iv) mature, with respect to
each Loan evidenced thereby, on the Revolving Maturity Date, (v) be subject to
mandatory prepayment as provided in Section 3.02, (vi) bear interest as provided
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Reserve Adjusted Eurodollar Loans, as the case may be, evidenced thereby and
(vii) be entitled to the benefits of this Agreement and the other applicable
Credit Documents.
(f) The U.S. Swingline Note of the U.S. Borrowers issued to each
U.S. Swingline Bank shall (i) be executed by the U.S. Borrowers (and shall
constitute the joint and several obligations of the U.S. Borrowers), (ii) be
payable to the order of such U.S. Swingline Bank and be dated the Effective
Date, (iii) be in a stated principal amount equal to the U.S. Swingline Loan
Commitment of such Bank and be payable in Dollars in the principal amount of the
outstanding U.S. Swingline Loans evidenced thereby, (iv) mature, with respect to
each U.S. Swin-
<PAGE>
-15-
gline Loan evidenced thereby, on the Swingline Expiry Date, (v) be subject to
mandatory prepayment as provided in Section 3.02, (vi) bear interest as provided
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans
evidenced thereby and (vii) be entitled to the benefits of this Agreement and
the other applicable Credit Documents.
(g) The U.K. Swingline Note of the U.K. Borrower issued to each U.K.
Swingline Bank shall (i) be executed by the U.K. Borrower, (ii) be payable to
the order of such U.K. Swing-line Bank and be dated the Effective Date, (iii) be
in a stated principal amount equal to the U.K. Swingline Loan Commitment of such
Bank (expressed in Dollars) and be payable in Pounds Sterling in the principal
amount of the outstanding U.K. Swingline Loans evidenced thereby, (iv) mature,
with respect to each U.K. Swingline Loan evidenced thereby, on the Swingline
Expiry Date, (v) be subject to mandatory prepayment as provided in Section 3.02,
(vi) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the U.K. Base Rate and Reserve Adjusted Eurodollar Loans evidenced
thereby and (vii) be entitled to the benefits of this Agreement and the other
applicable Credit Documents.
(h) The Canadian Swingline Note of each Canadian Borrower issued to
each Canadian Swingline Bank shall (i) be executed by such Canadian Borrower,
(ii) be payable to the order of such Canadian Swingline Bank and be dated the
Effective Date, (iii) be in a stated principal amount equal to the Canadian
Swingline Loan Commitment of such Bank expressed in U.S. Dollars and be payable
in Canadian Dollars in the aggregate principal amount of the Canadian Swingline
Loans evidenced thereby, (iv) mature, with respect to each Loan evidenced
thereby, on the Swingline Expiry Date, (v) be subject to mandatory prepayment as
provided in Section 3.02, (vi) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Prime Rate Loans evidenced thereby and
(vii) be entitled to the benefits of this Agreement and the other applicable
Credit Documents.
(i) Each Borrower hereby authorizes each Bank to note on its
internal records the date and amount of each Loan made by it, the date and
amount of each payment in respect thereof, the interest rates payable by the
Applicable Borrower in respect of each Loan and any Interest Period applicable
thereto, Acceptances issued under the Canadian Swingline Loan facility and the
amount of the Obligations which remain payable to such Bank in respect of such
Loan and will, prior to any transfer of any of its Notes, endorse on the reverse
side
<PAGE>
-16-
thereof the outstanding principal amount of Loans evidenced thereby. Failure to
make any such notation shall not affect any Borrower's or any Credit Party's
obligations hereunder or under the other applicable Credit Documents in respect
of such Loans. All amounts and other information so recorded shall be prima
facie evidence thereof and binding on the Borrowers in the absence of manifest
error.
(j) Notwithstanding anything to the contrary contained above or
elsewhere in this Agreement, A Term Notes, B Term Notes, Acquisition Term Notes,
Revolving Notes and Swingline Notes shall only be delivered to Banks with Loans
of the respective kind which at any time specifically request the delivery of
such Notes. No failure of any Bank to request or obtain a Note evidencing its
Loans of any kind or to any Borrower shall affect or in any manner impair the
obligations of the respective Borrower or Borrowers to pay the Loans (and all
related Obligations) which would otherwise be evidenced thereby in accordance
with the requirements of this Agreement, and shall not in any way affect the
security or guarantees therefor provided pursuant to the various Credit
Documents. Any Bank which does not have a Note evidencing its outstanding Loans
shall in no event be required to make the notations on a Note otherwise
described in the preceding clause (i) but shall make notations on its internal
records. At any time when any Bank requests the delivery of a Note to evidence
its Loans of any kind, the respective Borrower or Borrowers shall promptly
execute and deliver to the respective Bank the requested Note or Notes in the
appropriate amount or amounts to evidence such Loans.
1.06. Continuations and Conversions. The provisions of this Section
1.06 shall not apply to (i) any continuations or conversions of Canadian
Swingline Loans and (ii) U.S. Swingline Loans, which at all times shall be
maintained as Base Rate Loans. The Applicable Borrower shall have the option to
convert on any Business Day all or a portion (which portion shall not be less
than the Minimum Borrowing Amount) of the outstanding principal amount of the
Loans owing by the Applicable Borrower pursuant to a single Portion of the Loan
Facility into a Borrowing or Borrowings pursuant to such Portion of another Type
of Loan; provided that (i) except as otherwise provided in Section 1.10(b),
Reserve Adjusted Eurodollar Loans may be converted into Base Rate Loans or U.K.
Base Rate Loans, as the case may be, or continued as Reserve Adjusted Eurodollar
Loans only on the last day of an Interest Period applicable thereto, (ii) no
such partial conversion of Reserve Adjusted Eurodollar Loans shall reduce the
outstanding principal amount
<PAGE>
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of Reserve Adjusted Eurodollar Loans under the Loan Facility (or Portion
thereof) made pursuant to a single Borrowing to less than the Minimum Borrowing
Amount and (iii) Revolving Loans and U.K. Swingline Loans may only be continued
as or converted into Reserve Adjusted Eurodollar Loans if no Default or Event of
Default is in existence on the date of the conversion and (iv) U.K. Swingline
Loans may only be continued as U.K. Swingline Loans and shall otherwise be
subject to the provisions of Section 1.01(e). Each such conversion (or
continuation) of Revolving Loans shall be effected by the Applicable Borrower by
giving the Administrative Agent at the Administrative Agent's Office prior to
Noon (New York time) at least three Business Days' (or the same Business Day in
the case of a conversion into Base Rate Loans) prior written notice (or
telephonic notice promptly confirmed in writing) (each, a "Notice of
Continuance/Conversion"), substantially in the form of Exhibit K hereto,
specifying the Loans to be so converted or continued, the Type of Loans to be
converted into and, if to be converted into or continued as Reserve Adjusted
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Bank notice as promptly as practicable of
any such proposed conversion affecting any of its Loans. Each such continuation
of U.K. Swingline Loans shall be effected by giving the Administrative Agent at
the Administrative Agent's Office, and the U.K. Swingline Bank at the U.K.
Swingline Bank's Agent's Office prior to 10:00 A.M. (London time), a Notice of
Continuation/Conversion on the Business Day thereof specifying the Loans to be
continued and the Interest Period applicable thereto. If no Notice of
Continuance/Conversion has been duly delivered (i) on or before the third
Business Day prior to the last day of the Interest Period applicable thereto
with respect to a Reserve Adjusted Eurodollar Loan denominated in Dollars, such
Dollar Reserve Adjusted Eurodollar Loan shall be automatically converted into a
Base Rate Loan, and (ii) on the Business Day on which the Interest Period
applicable thereto with respect to a U.K. Swingline Loan, such U.K. Swingline
Loan shall be automatically converted into a U.K. Base Rate Loan.
1.07. Pro Rata Borrowings. All Borrowings under this Agreement
(including Mandatory Borrowings) shall be loaned by the Banks pro rata on the
basis of their A Term Loan Commitments, B Term Loan Commitments, Acquisition
Term Loan Commitments, Swingline Loan Commitments (except for Acceptances, which
may be rounded to multiples of $100,000 at the discretion of the Administrative
Agent) or Revolving Loan Commitments, as the case may be. No Bank shall be
responsible for any default by any other Bank in its obligation to make Loans
hereunder and
<PAGE>
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each Bank shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
1.08. Interest. (a) Subject to Section 1.08(d) hereof, the unpaid
principal amount of each Base Rate Loan (for Dollar Loans) or U.K. Base Rate
Loan (for Pound Sterling Loans), as the case may be, shall bear interest from
the date of the Borrowing thereof until maturity (whether by acceleration or
otherwise) (or unless sooner converted into a Reserve Adjusted Eurodollar Loan)
at a rate per annum which shall at all times be equal to the sum of (i) the Base
Rate or U.K. Base Rate, as the case may be, in effect from time to time and (ii)
the applicable Interest Margin.
(b) Subject to Section 1.08(d) hereof, the unpaid principal amount
of each Reserve Adjusted Eurodollar Loan shall bear interest from the date of
the Borrowing thereof until maturity (whether by acceleration or otherwise) (or
unless sooner converted to a Base Rate Loan) at a rate per annum which shall at
all times be equal to the sum of (i) the relevant Eurodollar Rate, (ii) the
applicable Interest Margin and (iii) in the case of Loans made in Pounds
Sterling, the MLA Cost.
(c) Subject to Section 1.08(d) hereof, the unpaid principal amount
of each Prime Rate Loan shall bear interest from the date of the Borrowing
thereof until maturity (whether by acceleration or otherwise) or until repaid at
a rate per annum which shall at all times be equal to the sum of (i) the Prime
Rate in effect from time to time and (ii) the applicable Interest Margin. With
respect to Acceptances, stamping fees shall be payable in connection therewith
as provided in clause 1.04 of Schedule 1.16. Until maturity of the respective
Acceptances, interest shall not otherwise be payable with respect thereto.
(d) The unpaid principal amount of each Loan, upon the occurrence
and during the continuance of a Default, overdue principal and, to the extent
permitted by law, overdue interest in respect of each Loan shall bear interest
at a rate per annum equal to 2% plus the rate (including any applicable Interest
Margin) in effect from time to time, both before and after demand, maturity and
judgment.
(e) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, U.K. Base Rate Loan or Prime Rate
Loan, quarterly in
<PAGE>
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arrears on the last Business Day of each March, June, September and December
beginning June 30, 1998; (ii) in respect of each Reserve Adjusted Eurodollar
Loan, in arrears on the last day of each Interest Period applicable thereto and,
in the case of an Interest Period in excess of three months, on each date
occurring at three-month intervals after the first date of such Interest Period;
and (iii) in respect of each Reserve Adjusted Eurodollar Loan, on any prepayment
(on the amount prepaid), at maturity (whether by acceleration or otherwise) and,
after such maturity, on demand. Notwithstanding the foregoing, interest payable
at the rate provided in Section 1.08(d) shall be payable on demand.
(f) All computations of interest hereunder shall be made in
accordance with Section 11.07(b).
(g) The Administrative Agent, upon determining the interest rate for
any Borrowing of Dollar Reserve Adjusted Eurodollar Loans for any Interest
Period, shall promptly notify the Applicable Borrower and the Banks thereof.
Such determination shall, absent manifest error, be final, conclusive and
binding upon all parties hereto.
(h) The U.K. Swingline Bank, upon determining the interest rate for
any Borrowing of Pounds Sterling Reserve Adjusted Eurodollar Loan for any
Interest Period, shall promptly notify the U.K. Borrower and the Administrative
Agent thereof. Such determination shall, absent manifest error, be final,
conclusive and binding upon all parties thereto.
1.09. Interest Periods. At the time the Applicable Borrower gives a
Notice of Borrowing or Notice of Continuance/Conversion in respect of the making
of, continuance of, or conversion into, a Borrowing of Reserve Adjusted
Eurodollar Loans, it shall have the right to elect, by giving the Administrative
Agent (and, in the case of U.K. Swingline Loans, the U.K. Swingline Bank)
written notice (or telephonic notice promptly confirmed in writing), the
Interest Period for Reserve Adjusted Eurodollar Loans applicable to such
Borrowing, which Interest Period shall, at the option of the Applicable
Borrower, be a one, two, three, six or, if available by all the Banks and only
with respect to Dollar Loans, twelve month period. Notwithstanding anything to
the contrary contained above:
(a) the initial Interest Period for any Borrowing of Reserve
Adjusted Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conver-
<PAGE>
-20-
sion from a Borrowing of Base Rate Loans or U.K. Base Rate Loans, as
applicable) and each Interest Period occurring thereafter in respect of
such Borrowing shall commence on the date on which the next preceding
Interest Period expires;
(b) if any Interest Period relating to a Borrowing of Reserve
Adjusted Eurodollar Loans begins on a date for which there is no
numerically corresponding date in the calendar month in which such
Interest Period ends, such Interest Period shall end on the last Business
Day of such calendar month;
(c) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that if any Interest Period in respect
of a Reserve Adjusted Eurodollar Loan would otherwise expire on a day
which is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;
(d) no Interest Period shall extend with respect to A Term Loans,
beyond the Final A Term Loan Maturity Date, with respect to B Term Loans,
beyond the Final B Term Loan Maturity Date, with respect to Acquisition
Term Loans, beyond the Final Acquisition Term Loan Maturity Date, with
respect to Revolving Loans, beyond the Revolving Loan Maturity Date and
with respect to U.K. Swingline Loans, beyond the Swingline Expiry Date;
and
(e) no Interest Period with respect to any Borrowing of Dollar
Reserve Adjusted Eurodollar Loans shall extend beyond any date upon which
a U.S. Borrower is required to make a scheduled payment of principal with
respect to the Term Loans or Acquisition Term Loans if, after giving
effect to the selection of such Interest Period, the aggregate principal
amount of Term Loans or Acquisition Term Loans maintained as Reserve
Adjusted Eurodollar Loans with Interest Periods ending after such date of
scheduled payment of principal would exceed the amount of Term Loans or
Acquisition Term Loans permitted to be outstanding after such scheduled
payment of principal.
1.10. Special Provisions Governing Reserve Adjusted Eurodollar Loans
and Acceptances. Notwithstanding any other provision of this Agreement, the
following provisions shall
<PAGE>
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govern with respect to Reserve Adjusted Eurodollar Loans and Acceptances as to
the matters covered:
(a) On an Interest Rate Determination Date, the Administrative Agent
(or the U.K. Swingline Bank, with respect to U.K. Swingline Loans) shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties hereto) the interest rate which
shall apply to the Reserve Adjusted Eurodollar Loans for which an interest
rate is then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in
writing) to the Applicable Borrower and to each Bank.
(b) In the event that (x) in the case of clause (i) below, the
Administrative Agent, (y) in the case of clause (ii) below, the U.K.
Swingline Bank, or (z) in the case of clause (iii) or (iv) below, any
Bank, shall have determined (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising on or after
the Effective Date affecting the interbank eurodollar market,
adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of
Eurodollar Rate;
(ii) on any date for determining the Sterling Eurodollar Rate
for any Interest Period that, by reason of any changes arising on or
after the Effective Date affecting the interbank eurodollar market,
adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of
Sterling Eurodollar Rate;
(iii) at any time that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Reserve Adjusted Eurodollar Loans or its obligation
to make Reserve Adjusted Eurodollar Loans because of (x) any change
since the Effective Date (including changes proposed or published
prior to the Effective Date but taking effect thereafter) in any
applicable law, governmental rule, regulation, guideline or order,
whether or not having the force of law, or in the interpretation or
administration thereof by any court
<PAGE>
-22-
or governmental or monetary authority charged with the
interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation,
guideline or order such as, for example, but not limited to: (A) a
change in the basis of taxation of payments to any Bank of the
principal of or interest on the Notes or any other amounts payable
hereunder (except for changes in the rate of tax on the net income
or profits of such Bank or any tax on or measured by the capital of
a Bank or any franchise tax based on the net income or net profits
of such Bank, in any case pursuant to the laws of the jurisdiction
in which its principal office or applicable lending office is
located) or (B) a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the
extent included in the computation of the Eurodollar Rate and/or (y)
other circumstances affecting such Bank, the interbank eurodollar
market, or the position of such Bank in either such market; or
(iv) at any time that the making or continuance of any Reserve
Adjusted Eurodollar Loan has become unlawful by compliance by such
Bank in good faith with any law, governmental rule, regulation,
guideline or order (or would conflict with any such governmental
rule, regulation, guideline or order not having the force of law
even though the failure to comply therewith would not be unlawful);
then, and in any such event, the Administrative Agent in the case of
clause (i) above, the U.K. Swingline Bank in the case of clause (ii)
above, or such Bank in the case of clause (iii) or (iv) above shall on
such date give notice (by telephone confirmed in writing) to the
Applicable Borrower and, in the case of clause (iii) or (iv), to the
Administrative Agent, of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clauses (i) and (ii) above, Reserve Adjusted
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent or the U.K. Swingline Bank, as the case may be,
notifies the Applicable Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent or the U.K.
Swingline Bank, as the case may be, no longer exist, and any Notice of
Borrowing or Notice of Continuance/Conversion given by the
<PAGE>
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Applicable Borrower with respect to the borrowing of or conversion into
(including continuance of) Reserve Adjusted Eurodollar Loans which have
not yet been incurred shall be deemed rescinded by the Applicable
Borrower, (y) in the case of clause (iii) above, the Applicable Borrower
shall pay to such Bank, upon written demand therefor, such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Bank in its reasonable
discretion shall determine) as shall be required to compensate such Bank
for such increased costs or reductions in amounts receivable hereunder (a
written notice as to the additional amounts owed to such Bank, showing the
basis for the calculation thereof, submitted to the Applicable Borrower
shall, absent manifest error, be final, conclusive and binding upon all
parties hereto) and (z) in the case of clause (iv) above, the Applicable
Borrower shall take one of the actions specified in Section 1.10(c) as
promptly as possible and, in any event, within the time period required by
law. Each Bank shall notify the Applicable Borrower of any event occurring
after the date hereof entitling such Bank to compensation under this
Section 1.10(b) as promptly as practicable, but in any event within 90
days, after such Bank obtains actual knowledge thereof; provided that if
any Bank fails to give such notice within 90 days after it obtains actual
knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 1.10(b) in respect of any costs or other
amounts resulting from or relating to such event, only be entitled to
payment under this Section 1.10(b) for such costs or other amounts from
and after the date 90 days prior to the date that such Bank does give such
notice.
(c) At any time that any Reserve Adjusted Eurodollar Loan is
affected by the circumstances described in Section 1.10(b)(iii) or (iv),
the Applicable Borrower may (and in the case of a Loan affected pursuant
to Section 1.10(b)(iv) shall) either (i) if a Notice of Borrowing or
Notice of Continuance/Conversion has been given with respect to the
affected Loan cancel said Notice of Borrowing or Notice of
Continuance/Conversion by giving the Administrative Agent or the U.K.
Swingline Bank, as applicable, telephonic notice (confirmed promptly in
writing) thereof on the same date that Applicable Borrower was notified by
a Bank pursuant to Section 1.10(b)(iii) or (iv), or (ii) if the affected
Reserve Adjusted Eurodollar Loan is then outstanding, upon at least three
Business Days' notice to
<PAGE>
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the Administrative Agent or the U.K. Swingline Bank, as the case may be,
require the affected Bank to convert each such Reserve Adjusted Eurodollar
Loan into a Base Rate Loan or U.K. Base Rate Loan, as the case may be;
provided that if more than one Bank is affected at any time, then all
affected Banks must be treated the same pursuant to this Section 1.10(c);
and provided, further, that the Applicable Borrower shall compensate any
such affected Banks as set forth in Section 1.10(f).
(d) Anything herein to the contrary notwithstanding, if on any
Interest Rate Determination Date no Eurodollar Rate is available by reason
of the inability of the Administrative Agent or U.K. Swingline Bank, as
the case may be, to determine such interest rate in accordance with the
definition thereof, the Administrative Agent or U.K. Swingline Bank, as
the case may be, shall give the Applicable Borrower and each Bank prompt
notice thereof and the Loans requested to be made as Reserve Adjusted
Eurodollar Loans shall, subject to the applicable notice requirements, be
made as Base Rate Loans or U.K. Base Rate Loans, as the case may be.
(e) Each Bank agrees that, as promptly as practicable after it
becomes aware of the occurrence of any event or the existence of a
condition that would cause it to be an affected Bank under Section
1.10(b)(iii) or (iv), it will, to the extent not inconsistent with such
Bank's internal policies, use reasonable efforts to make, fund or maintain
the affected Reserve Adjusted Eurodollar Loans of such Bank through
another lending office of such Bank if as a result thereof the additional
moneys which would otherwise be required to be paid in respect of such
Loans pursuant to Section 1.10(b)(iii) would be materially reduced or the
illegality or other adverse circumstances which would otherwise require
prepayment of such Loans pursuant to Section 1.10(b)(iv) would cease to
exist, and if, as determined by such Bank, in its reasonable discretion,
the making, funding or maintaining of such Loans through such other
lending office would not otherwise adversely affect such Loans or such
Bank. The Applicable Borrower hereby agrees to pay all reasonable expenses
incurred by any Bank in transferring the Loans to another lending office
of such Bank pursuant to this Section 1.10(e).
(f) The Applicable Borrower shall compensate each Bank, upon written
request by that Bank, for all reason-
<PAGE>
-25-
able losses, expenses and liabilities (including, without limitation, such
factors as any interest paid by that Bank to Banks of funds borrowed by it
to make or carry its Reserve Adjusted Eurodollar Loans and any loss
sustained by that Bank in connection with re-employment of such funds
(based upon the difference between the amount earned in connection with
re-employment of such funds and the amount payable by the Applicable
Borrower if such funds had been borrowed or remained outstanding) which
that Bank may sustain with respect to the Applicable Borrower's Reserve
Adjusted Eurodollar Loans: (i) if for any reason (other than a default or
error by that Bank) a Borrowing of any such Reserve Adjusted Eurodollar
Loan does not occur on a date specified therefor in a Notice of Borrowing
or Notice of Continuance/Conversion or in a telephonic request for
borrowing or conversion, or a successive Interest Period in respect of any
such Reserve Adjusted Eurodollar Loan does not commence after notice
therefor is given pursuant to Section 1.06, (ii) if any prepayment (as
required by Sections 3.01 and 3.02, by acceleration or otherwise) or
conversion of any of such Bank's Reserve Adjusted Eurodollar Loans to the
Applicable Borrower occurs on a date which is not the last day of the
Interest Period applicable to that Loan, (iii) if any prepayment of any
such Bank's Reserve Adjusted Eurodollar Loans to the Applicable Borrower
is not made on any date specified in a notice of prepayment given by the
Applicable Borrower, or (iv) as a consequence of any other failure by the
Applicable Borrower to repay such Bank's Reserve Adjusted Eurodollar Loans
to the Applicable Borrower when required by the terms of this Agreement.
(g) If at any time prior to the acceptance of Acceptances by the
Canadian Swingline Bank, such Bank shall have determined in good faith
(which determination shall be conclusive) that, by reason of circumstances
affecting the market for bankers' acceptances, adequate and fair means do
not exist for determining discount rates on bankers' acceptances, neither
Canadian Borrower shall have the right to obtain a Credit Extension by
means of Acceptances.
1.11. Capital Requirements. If any Bank shall have determined that
the adoption or effectiveness after the Effective Date of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
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interpretation or administration thereof, or compliance by such Bank or such
Bank's parent with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency (including in each case any such change proposed or published
prior to the date hereof but taking effect thereafter), has or would have the
effect of reducing the rate of return on such Bank's or such Bank's parent's
capital or assets as a consequence of such Bank's obligations hereunder to a
level below that which such Bank or such Bank's parent could have achieved but
for such adoption, effectiveness or change or as a consequence of an increase in
the amount of capital required to be maintained by such Bank (including in each
case, without limitation, with respect to any Bank's Commitment or any Loan),
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Applicable Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such Bank's parent,
as the case may be, for such reduction. Each Bank, upon determining in good
faith that any additional amounts will be payable pursuant to this Section 1.11,
will give written notice thereof to the Applicable Borrower, which notice shall
set forth in reasonable detail the basis of the calculation of such additional
amounts. Each Bank shall notify the Applicable Borrower of any event occurring
after the date hereof entitling such Bank to compensation under this Section
1.11 as promptly as practicable, but in any event within 90 days, after such
Bank obtains actual knowledge thereof; provided that if any Bank fails to give
such notice within 90 days after it obtains actual knowledge of such an event,
such Bank shall, with respect to compensation payable pursuant to this Section
1.11 in respect of any costs or other amounts resulting from or relating to such
event, only be entitled to payment under this Section 1.11 for such costs or
other amounts from and after the date 90 days prior to the date that such Bank
does give such notice.
Each Bank agrees that, as promptly as practicable after it becomes
aware of the occurrence of any event or the existence of a condition that would
cause it to be an affected Bank under this Section 1.11, it will, to the extent
not inconsistent with such Bank's internal policies, use reasonable efforts to
make, fund or maintain the affected Loans of such Bank through another lending
office of such Bank if, as a result thereof, the additional moneys which would
otherwise be required to be paid in respect of such Loans pursuant to this
Section 1.11 would be materially reduced and if, as determined by such Bank, in
its reasonable discretion, the making, funding or maintaining of such Loans
through such other lending office
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would not otherwise materially adversely affect such Loans or such Bank. The
Applicable Borrower hereby agrees to pay all reasonable expenses incurred by any
Bank in transferring the Loans to another lending office of such Bank pursuant
to this Section 1.11.
1.12. Total Loan Commitments; Limitations on Outstanding Loan
Amounts. The original amount of the (i) Total Commitments is $155,000,000, (ii)
Total A Term Loan Commitment is $20,000,000, (iii) Total B Term Loan Commitment
is $35,000,000, (iv) Total Acquisition Term Loan Commitment is $30,000,000, (v)
Total Revolving Loan Commitment is $70,000,000, including up to $20,000,000 of
Letters of Credit, (vi) Total U.S. Swingline Commitment is $10,000,000, (vii)
Total U.K. Swingline Commitment is $15,000,000 and (viii) Total Canadian
Swingline Commitment is $5,000,000. Anything contained in this Agreement to the
contrary notwithstanding, (a) in no event shall the sum of the aggregate
principal amount of all Term Loans, Acquisition Term Loans and Revolving Loans
of any Bank at any time exceed such Bank's portion of the Total Commitments, (b)
in no event shall the sum of the aggregate principal amount of all Term Loans,
Acquisition Term Loans, Revolving Loans and the Dollar Equivalent of Swingline
Loans from all Banks at any time exceed the Total Commitments, (c) in no event
shall the aggregate principal amount of all Acquisition Term Loans exceed the
Total Acquisition Term Loan Commitment, (d) in no event shall the Revolving
Loans, the Dollar Equivalent of Swingline Loans and the Dollar Equivalent of
Letter of Credit Usage, after giving effect to all Revolving Loans, Swingline
Loans and Letters of Credit then requested, exceed the Total Revolving Loan
Commitments, (e) in no event shall the aggregate principal amount of all
Revolving Loans, the Dollar Equivalent of Swingline Loans and the Dollar
Equivalent of Letter of Credit Usage, after giving effect to all Revolving
Loans, Swingline Loans and Letters of Credit then requested, exceed the
Borrowing Base and (f) in no event shall the aggregate principal Dollar
Equivalent of Swingline Loans exceed the applicable Maximum Swingline Amount.
1.13. Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrowers set forth herein and in the other Credit Documents, in addition to
requesting that the Banks make Revolving Loans pursuant to Section 1.03, the
U.S. Borrowers may request, in accordance with the provisions of this Section
1.13, that one or more Issuing Banks issue Letters
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of Credit for the account of the Borrowers; provided that (i) no Borrower shall
request that any Bank issue any Letter of Credit and a Bank shall not issue any
Letter of Credit, if after giving effect to such issuance the sum of (A) the
Dollar Equivalent amount of Letter of Credit Usage on the date of such issuance,
after giving effect to the issuance of all Letters of Credit subject to
outstanding requests for issuance, plus (B) the Dollar Equivalent amount of
Revolving Loans and Swingline Loans then outstanding, after giving effect to the
making of all Revolving Loans and Swingline Loans then requested by all
outstanding but unfunded Notices of Borrowing, would exceed the Total Revolving
Loan Commitment then in effect, (ii) no Borrower shall request that any Bank
issue any Letter of Credit and a Bank shall not issue any Letter of Credit if
after giving effect to such issuance, the sum of the amounts described in clause
(i) above would exceed the Borrowing Base as would be shown in the Borrowing
Base Certificate that was last delivered pursuant to Section 6.01; provided such
Borrowing Base Certificate was required to be delivered pursuant to and was in
compliance with Section 6.01 or was delivered after the Borrowing Base
Certificate last required to be delivered pursuant to Section 6.01, (iii) in no
event shall any Issuing Bank issue (A) any Letter of Credit having an expiration
date later than thirty (30) Business Days prior to the Revolving Maturity Date,
as applicable, after giving effect to any possible renewal of such Letter of
Credit pursuant to the proviso to the following clause (iii)(B), (B) subject to
the foregoing clause (iii)(A), any Letter of Credit having an expiration date
more than one year after its date of issuance; provided that, subject to the
foregoing clause (iii)(A), this clause (B) shall not prevent any Issuing Bank
from issuing a Letter of Credit containing a provision to the effect that such
Letter of Credit will automatically be renewed annually for a period not to
exceed one year, so long as such renewable Letter of Credit provides that it
shall not at any time be renewed for an additional year if (I) the Applicable
Borrower notifies the Issuing Bank in writing at least one Business Day prior to
the applicable renewal date that the Applicable Borrower elects to allow the
Letter of Credit to expire without being renewed, or (II) the Issuing Bank or
the Required Banks notify the Applicable Borrower in writing, prior to the date
set forth in such Letter of Credit as the date by which the beneficiary thereof
is to be notified whether such Letter of Credit is to be renewed, that such
Letter of Credit shall not be so renewed, in which case such Letter of Credit
shall not be so renewed, or (C) any Letter of Credit the initial stated amount
of which is less than $10,000 or the Dollar Equivalent thereof and (iv) the U.S.
Borrowers shall not request that any Issuing Bank issue and no Issuing
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Bank shall issue any Letter of Credit if, after giving effect to such issuance
and the issuance of all other requested Letters of Credit, the then outstanding
Letter of Credit Usage in respect of the Dollar Equivalent of all Letters of
Credit would exceed $20,000,000.
The issuance of any Letter of Credit in accordance with the
provisions of this Section 1.13 shall be given effect in the calculation of the
aggregate principal amount of Revolving Loans outstanding and the Dollar
Equivalent of Letter of Credit Usage (except as provided in the definition of
Letter of Credit Usage) and shall require the satisfaction of each condition set
forth in Section 4.04.
Immediately upon the issuance of each Letter of Credit, each Bank
with a Revolving Loan Commitment other than the Issuing Bank or Banks shall be
deemed to, and hereby agrees to, have irrevocably purchased from the Issuing
Bank a participation (such participation of each Bank in each Letter of Credit
being hereinafter referred to as its "Letter of Credit Participation") in the
Dollar Equivalent of such Letter of Credit and each drawing thereunder in an
amount equal to such Bank's pro rata share (determined on the basis of such
Bank's Revolving Loan Commitment) of the maximum amount which is or at any time
may become available to be drawn thereunder.
Each Letter of Credit may provide that the Issuing Bank may (but
shall not be required to) pay the beneficiary thereof upon the occurrence of an
Event of Default and the acceleration of the maturity of the Revolving Loans or,
if payment is not then due to the beneficiary, provide for the deposit of funds
in an account to secure payment to the beneficiary and that any funds so
deposited shall be paid to the beneficiary of the Letter of Credit if conditions
to such payment are satisfied or returned to the Issuing Bank for distribution
to the Banks (or, if all Obligations shall have been paid in full, to the
Applicable Borrower) if no payment to the beneficiary has been made and the
final date available for drawings under the Letter of Credit has passed. Each
payment or deposit of funds by an Issuing Bank as provided in this paragraph
shall be treated for all purposes of this Agreement as a drawing duly honored by
such Issuing Bank under the related Letter of Credit.
(b) Request for Issuance. Whenever a U.S. Borrower desires the
issuance of a Letter of Credit, it shall deliver to the Administrative Agent a
request for issuance of a Letter of Credit no later than Noon (New York time) at
least three Busi-
<PAGE>
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ness Days, or such shorter period as may be agreed to by any Issuing Bank in
any particular instance, in advance of the proposed date of issuance; provided
that a Letter of Credit denominated in a currency other than U.S. Dollars,
Canadian Dollars or Pounds Sterling will be issued as soon as available, which
may be more than three Business Days after the request therefor. The request for
issuance with respect to any Letter of Credit shall specify (i) the proposed
date of issuance (which shall be a business day under the laws of the
jurisdiction of the Issuing Bank) of such Letter of Credit, (ii) the face amount
and currency of such Letter of Credit, (iii) the expiration date of such Letter
of Credit and (iv) the name and address of the beneficiary of such Letter of
Credit. As soon as practicable after delivery of such request for issuance of a
Letter of Credit, the Issuing Bank for such Letter of Credit shall be determined
as provided in Section 1.13(c). Prior to the date of issuance, the Applicable
Borrower shall specify a precise description of the documents and the verbatim
text of any certificate to be presented by the beneficiary of such Letter of
Credit which, if presented by such beneficiary prior to the expiration date of
the Letter of Credit, would require the Issuing Bank to make payment under the
Letter of Credit; provided that the Issuing Bank, in its sole judgment, may
require changes in any such documents and certificates; and provided, further,
that no Letter of Credit shall require payment against a conforming draft to be
made thereunder earlier than Noon in the time zone of the Issuing Bank on the
Business Day (which shall be a business day under the laws of the jurisdiction
of the Issuing Bank) next succeeding the Business Day (which shall be a Business
Day under the laws of the jurisdiction of the Issuing Bank) that such draft is
presented. In determining whether to pay under any Letter of Credit, the Issuing
Bank shall be responsible only to determine that the documents and certificates
required to be delivered under that Letter of Credit have been delivered and
that they comply on their face with the requirements of that Letter of Credit.
Promptly after receipt of a request for issuance of a Letter of Credit and the
determination of the Issuing Bank thereof, the Administrative Agent shall notify
each Bank having a Revolving Loan Commitment of the proposed issuance, the
identity of the Issuing Bank and the amount of each other Bank's respective
participation therein, determined in accordance with Section 1.13(a).
(c) Determination of Issuing Bank.
(1) Upon receipt by the Administrative Agent of a request for
issuance pursuant to Section 1.13(b) with respect to a Letter of Credit, in the
event the Administrative Agent
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elects to issue such Letter of Credit, the Administrative Agent shall so notify
the Applicable Borrower, and the Administrative Agent shall be the Issuing Bank
with respect thereto. In the event that the Administrative Agent, in its sole
discretion, elects not to issue such Letter of Credit, the Administrative Agent
shall promptly so notify the Applicable Borrower, and the Applicable Borrower
may request any other Bank having a Revolving Loan Commitment to issue such
Letter of Credit. Each such Bank so requested to issue such Letter of Credit
shall promptly notify the Applicable Borrower and the Administrative Agent
whether or not, in its sole discretion, it has elected to issue such Letter of
Credit, and any such Bank that so elects to issue such Letter of Credit shall be
the Issuing Bank with respect thereto. In the event that each other Bank elects
not to issue such Letter of Credit, the Administrative Agent agrees to issue
such Letter of Credit and to be the Issuing Bank with respect thereto.
(2) Each Issuing Bank that elects to issue a Letter of Credit shall
promptly give written notice to the Administrative Agent and each other Bank of
the information required under Section 1.13(b)(i)-(iv) relating to the Letter of
Credit.
(d) Payment of Amounts Drawn Under Letters of Credit. In the event
of any request for drawing under any Letter of Credit by the beneficiary
thereof, the Issuing Bank shall notify the Applicable Borrower and the
Administrative Agent on or before the date on which such Issuing Bank intends to
honor such drawing, and the Applicable Borrower shall reimburse such Issuing
Bank on the day on which such drawing is honored in an amount in same day funds
equal to the amount of and in the same currency as such drawing; provided that,
anything contained in this Agreement to the contrary notwithstanding, (i) unless
the Applicable Borrower shall have notified the Administrative Agent and such
Issuing Bank prior to Noon (New York time) on the Business Day of the date of
such drawing that the Applicable Borrower intends to reimburse such Issuing Bank
for the amount of such drawing with funds other than the proceeds of Revolving
Loans, the Applicable Borrower shall be deemed to have timely given a Notice of
Borrowing to the Administrative Agent requesting the Banks having Revolving Loan
Commitments to make Revolving Loans that are Base Rate Loans on the Business Day
following the date on which such drawing is honored in an amount equal to the
Dollar Equivalent amount of such drawing, and (ii) the Banks shall, on the date
of such drawing, make Revolving Loans that are Base Rate Loans in the amount of
such drawing, the proceeds of which shall be applied directly by the
Administrative Agent to reimburse such Issuing
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Bank for the Dollar Equivalent amount of such drawing; and further provided that
if, for any reason, proceeds of Revolving Loans are not received by such Issuing
Bank on such date in an amount equal to the amount of such drawing, such Issuing
Bank shall be entitled to reimbursement in accordance with Section 1.04, on the
Business Day (which shall be a business day under the laws of the jurisdiction
of such Issuing Bank) immediately following the date of such drawing, in an
amount in same day funds equal to the excess of the amount of such drawing over
the amount of such Revolving Loans, if any, that are so received, plus accrued
interest on such amount at the rate set forth in Section 1.13(f)(1)(i).
(e) Payment by Banks. In the event that the Applicable Borrower
shall fail to reimburse an Issuing Bank as provided in Section 1.13(d) in an
amount equal to the Dollar Equivalent amount of any drawing honored by such
Issuing Bank under a Letter of Credit issued by it, such Issuing Bank shall
promptly notify each Bank having a Revolving Loan Commitment of the unreimbursed
Dollar Equivalent amount of such drawing and of such Bank's respective
participation therein. Each Bank having a Revolving Loan Commitment shall make
available to such Issuing Bank an amount equal to the Dollar Equivalent amount
of its respective participation in same day funds at the office of such Issuing
Bank specified in such notice, not later than 1:00 P.M. (New York time) on the
Business Day (which shall be a business day under the laws of the jurisdiction
of such Issuing Bank) after the date notified by such Issuing Bank. In the event
that any Bank having a Revolving Loan Commitment fails to make available to such
Issuing Bank the Dollar Equivalent amount of such Bank's participation in such
Letter of Credit as provided in this Section 1.13(e), such Issuing Bank shall be
entitled to recover such amount on demand from such Bank together with interest
at the customary rate set by the Administrative Agent for the correction of
errors among banks for three Business Days and thereafter at the Base Rate. Each
Issuing Bank shall distribute to each other Bank having a Revolving Loan
Commitment which has paid all amounts payable by it under this Section 1.13(e)
with respect to any Letter of Credit issued by such Issuing Bank such other
Bank's pro rata share of all payments received by such Issuing Bank from the
Applicable Borrower in reimbursement of drawings honored by such Issuing Bank
under such Letter of Credit when such payments are received. Nothing in this
Section 1.13(e) shall be deemed to relieve any Bank from its obligation to pay
all amounts payable by it under this Section 1.13(e) with respect to any Letter
of Credit issued by an Issuing Bank or to prejudice any rights
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that the Applicable Borrower or any other Bank may have against a Bank as a
result of any default by such Bank hereunder.
(f) Compensation.
(1) The Applicable Borrower agrees to pay the following amounts with
respect to all Letters of Credit:
(i) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by such Issuing Bank in
respect of each such drawing from and including the date of the drawing
through the date such amount is reimbursed by the Applicable Borrower
(including any such reimbursement out of the proceeds of Revolving Loans
pursuant to Section 1.13(d)) at a rate which is equal to the interest rate
then applicable to Base Rate Loans for the period from the date of such
drawing to and including the first Business Day after the date of such
drawing and thereafter at a rate equal to 2% per annum in excess of the
rate of interest otherwise payable under this Agreement for Base Rate
Loans during such period; provided that amounts reimbursed after 2:00 p.m.
(New York time) on any date shall be deemed to be reimbursed on the next
succeeding Business Day;
(ii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each drawing made thereunder, documentary and
processing charges (it being understood that such charges are without
duplication of the fees set forth in clause (3) below) in accordance with
such Issuing Bank's standard schedule for such charges in effect at the
time of such amendment, transfer or drawing, as the case may be.
(2) The Applicable Borrower agrees to pay to the Administrative
Agent for distribution to each Bank having a Revolving Loan Commitment in
respect of each Letter of Credit outstanding such Bank's pro rata share of a
commission equal to 2.25% per annum of the maximum amount available from time to
time to be drawn under such outstanding Letters of Credit, payable in arrears on
and through the last day of each fiscal quarter of the Applicable Borrower and
calculated on the basis of a 360-day year and the actual number of days elapsed.
Upon the happening and during the continuance of an Event of Default described
in Section 8.01, the commission referred to in the preceding sentence shall be
4.25% per annum.
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(3) The Applicable Borrower agrees to pay to each Issuing Bank in
respect of each Letter of Credit a commission equal to .125% per annum of the
maximum amount available at any time to be drawn under such Letter of Credit
issued by such Issuing Bank, payable in arrears on and through the last day of
each fiscal quarter of the Applicable Borrower and calculated on the basis of a
360-day year and the actual number of days elapsed or, if the maximum amount
available to be drawn under such Letter of Credit is the Dollar Equivalent of
$40,000 or less, $500 per annum, payable in arrears on the last day of each
fiscal quarter.
Amounts payable under clauses (1)(i) and (2) of this Section 1.13(f)
shall be paid to the Administrative Agent on behalf of the Banks having a
Revolving Loan Commitment. The Administrative Agent shall distribute promptly to
each Bank having a Revolving Loan Commitment its pro rata share of such amount.
Amounts payable under clauses (1)(ii) and (3) of this Section 1.13(f) shall be
paid directly to the Issuing Bank.
(g) Obligations Absolute. The obligation of the Applicable Borrower
to reimburse each Issuing Bank for drawings made under the Letters of Credit
issued by it and the obligations of the Banks under Section 1.13(e) shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(1) any lack of validity or enforceability of any Letter of Credit;
(2) the existence of any claim, setoff, defense or other right that
the Applicable Borrower or any Affiliate of the Applicable Borrower or any
other Person may have at any time against a beneficiary or any transferee
of any Letter of Credit (or any persons or entities for whom any such
beneficiary or transferee may be acting), such Issuing Bank, any Bank or
any other Person, whether in connection with this Agreement, the
Transaction contemplated herein or any unrelated transaction;
(3) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
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(4) payment by such Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document that does
not comply with the terms of such Letter of Credit;
(5) any other circumstance or happening whatsoever that is similar
to any of the foregoing; or
(6) the fact that a Default or Event of Default shall have occurred
and be continuing;
provided, in each case, that payment by the applicable Issuing Bank under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Bank under the circumstances in question (as
determined by a court of competent jurisdiction).
(h) Additional Payments. If by reason of (a) any change after the
Effective Date in applicable law, regulation, rule, decree or regulatory
requirement or any change in the interpretation or application by any judicial
or regulatory authority of any law, regulation, rule, decree or regulatory
requirement or (b) compliance by any Issuing Bank or any Bank with any
direction, request or requirement (whether or not having the force of law) of
any governmental or monetary authority including, without limitation, Regulation
D:
(i) such Issuing Bank or any Bank shall be subject to any tax, levy,
charge or withholding of any nature or to any variation thereof (except
for changes in the rate of tax imposed on the net income or net profits of
such Bank or any tax on or measured by the capital of a Bank or any
franchise tax based on the net income or net profits of such Bank, in any
case pursuant to the laws of the jurisdiction in which its principal
office or applicable lending office is located) or to any penalty with
respect to the maintenance or fulfillment of its obligations under this
Section 1.13, whether directly or by such being imposed on or suffered by
such Issuing Bank or any Bank;
(ii) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit issued
by such Issuing Bank or participations therein purchased by any Bank; or
(iii) there shall be imposed on such Issuing Bank or any Bank any
other condition regarding this Section 1.13, any Letter of Credit or any
participation therein;
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and the result of the foregoing is to directly or indirectly increase the cost
to such Issuing Bank or any Bank of issuing, making or maintaining any Letter of
Credit or of purchasing or maintaining any participation therein, or to reduce
the amount receivable in respect thereof by such Issuing Bank or any Bank, then
and in any such case such Issuing Bank or such Bank shall, as promptly as
practical, but in any event within 90 days, after such Bank obtains actual
knowledge that the additional cost is incurred or the amount received is
reduced, notify the Applicable Borrower and the Applicable Borrower shall pay on
demand such amounts as such Issuing Bank or such Bank may specify to be
necessary to compensate such Issuing Bank or such Bank for such additional cost
or reduced receipt, together with interest on such amount from the date demanded
until payment in full thereof at a rate per annum equal at all times to the rate
applicable to Base Rate Loans then in effect; provided, however, that if any
Bank fails to give such notice within 90 days after it obtains actual knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section 1.13(h), only be entitled to payment under this Section 1.13(h)
for such costs or other amounts from and after the date 90 days prior to the
date that such Bank does give such notice. A certificate in reasonable detail as
to the amount of such increased cost or reduced receipt, submitted to the
Applicable Borrower and the Administrative Agent by that Issuing Bank or any
Bank, as the case may be, shall, absent manifest error, be final, conclusive and
binding for all purposes.
(i) Indemnification; Nature of Issuing Bank's Duties. In addition to
amounts payable as elsewhere provided in this Section 1.13, without duplication,
the U.S. Borrowers hereby agree, jointly and severally, to protect, indemnify,
pay and save each Issuing Bank (and if the other Banks have been requested to
participate pursuant to Section 1.13(e), the Banks) harmless from and against
any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees and allocated costs of internal
counsel) which such Bank may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of the Letters of Credit or (ii) the failure of
such Issuing Bank to honor a drawing under any Letter of Credit as a result of
any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto government or Governmental Authority (all such acts or
omissions herein called "Government Acts").
As between the U.S. Borrowers and each Issuing Bank, the U.S.
Borrowers assume all risks of the acts and omissions
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of, or misuse of the Letters of Credit issued by such Issuing Bank at any U.S.
Borrower's request by, the respective beneficiaries of such Letters of Credit.
In furtherance and not in limitation of the foregoing, such Issuing Bank shall
not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effects of any document submitted by any party in
connection with the application for and issuance of such Letters of Credit, even
if it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, that may prove to be invalid or ineffective for any reason;
(iii) for failure of the beneficiary of any such Letter of Credit to comply
fully with conditions required in order to draw upon such Letter of Credit; (iv)
for errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
are in cipher; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a drawing under any such Letter of Credit or of the proceeds thereof;
(vii) for the misapplication by the beneficiary of any such Letter of Credit of
the proceeds of any drawing under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of such Issuing Bank,
including, without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of any of such Issuing Bank's rights or
powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank in connection with the Letters of Credit issued by it or the related
certificates, if taken or omitted in good faith, shall not put such Issuing Bank
under any resulting liability to the Borrowers.
Notwithstanding anything to the contrary contained in this Section
1.13, the U.S. Borrowers shall have no obligation to indemnify any Issuing Bank
in respect of any liability incurred by such Issuing Bank arising solely out of
and to the extent of the gross negligence or willful misconduct of such Issuing
Bank or out of the wrongful dishonor by such Issuing Bank of a proper demand for
payment under the Letters of Credit issued by it.
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1.14. Computation of Dollar Equivalent Amount of Pounds Sterling and
Canadian Dollars. The Administrative Agent (or, with respect to Pounds Sterling
loans referred to in paragraph (a), the U.K. Swingline Bank) will determine the
Dollar Equivalent amount with respect to:
(a) any Borrowing comprised of U.K. Swingline Loans or Canadian
Swingline Loans, the day of the requested Borrowing with respect to Pounds
Sterling Reserve Adjusted Eurodollar Loans and U.K. Base Rate Loans, one
Business Day prior to the requested date of Borrowing with respect to
Acceptances, and the date of the requested Borrowing with respect to Prime
Rate Loans,
(b) any issuance of a Letter of Credit in a currency other than
Dollars as of the requested date of issuance thereof,
(c) all outstanding U.K. Swingline Loans and Canadian Swingline
Loans, plus the Letter of Credit Usage under Letters of Credit issued in a
currency other than Dollars as of the last Business Day of each month and
as of any other date selected by the Administrative Agent,
(d) the aggregate sum of the amount of all U.K. Swingline Loans and
Canadian Swingline Loans, plus all Letter of Credit Usage, immediately
prior to and after giving effect to any Revolving Loan made under Section
1.13(d) as of the proposed date of the making of any such Revolving Loan,
(e) all outstanding U.K. Swingline Loans or Canadian Swingline Loans
on the date notice (or deemed notice) is given of a Mandatory Borrowing as
provided in Section 1.01(e), and
(f) all U.K. Swingline Loans and Canadian Swingline Loans, plus all
Letter of Credit Usage on any date on which the Total Revolving
Commitments are reduced pursuant to Section 2.01 or 2.02.
1.15. European Monetary Union. (a) If, as a result of the
implementation of European monetary union, (i) Pounds Sterling cease to be
lawful currency of the United Kingdom and are replaced by a European single
currency or (ii) Pounds Sterling and a European single currency are at the same
time recognized by the central bank or comparable authority of the United
Kingdom as lawful currency of such nation and the U.K. Swin-
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gline Bank shall so request in a notice delivered to the U.K. Borrower, then any
amount payable hereunder by the U.K. Swingline Bank to the U.K. Borrower, or by
the U.K. Borrower to the U.K. Swingline Bank, in such currency shall instead be
payable in the European single currency and the amount so payable shall be
determined by translating the amount payable in such currency to such European
single currency at the exchange rate recognized by the European Central Bank for
the purpose of implementing European monetary union.
(b) The U.K. Borrower agrees, at the request of the U.K. Swingline
Bank, to compensate such U.K. Swingline Bank for any reasonable loss, cost,
expense or reduction in return that shall be incurred or sustained by such U.K.
Swingline Bank (other than as a result of such U.K. Swingline Bank's gross
negligence or willful misconduct) as a result of the implementation of European
monetary union, that would not have been incurred or sustained but for the
transactions provided for herein and that, to the extent that such loss, cost,
expense or reduction is of a type generally applicable to extensions of credit
similar to the extensions of credit hereunder, is generally being requested from
borrowers subject to similar provisions. A certificate of the U.K. Swingline
Bank (x) setting forth the amount or amounts necessary to compensate such U.K.
Swingline Bank, (y) describing the nature of the loss or expense sustained or
incurred by such U.K. Swingline Bank as a consequence thereof and (z) setting
forth a reasonably detailed explanation of the calculation thereof shall be
delivered to the U.K. Borrower and shall be conclusive absent manifest error.
The U.K. Borrower shall pay to such U.K. Swingline Bank the amount shown as due
on any such certificate within 10 days after receipt thereof.
(c) The U.K. Borrower agrees, at the request of the U.K. Swingline
Bank or the Required Revolving Banks, at the time of or at any time following
the implementation of European monetary union, to enter into an agreement
amending this Agreement (subject to obtaining the approval of the U.K. Swingline
Bank and the Required Banks) in such manner as the U.K. Swingline Bank and the
Required Revolving Banks shall specify in order to reflect the implementation of
such monetary union to place the parties hereto in the position they would have
been in had such monetary union not been implemented.
1.16. Acceptances Provisions. The parties hereto agree that the
provisions of Schedule 1.16 shall apply to all Acceptances created hereunder,
and that the provisions of Schedule 1.16 shall be deemed incorporated by
reference into
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this Agreement as if such provisions were set forth in their entirety herein.
1.17. Replacement of Banks. (a) If at any time the Obligations of
the Borrowers shall have increased, or will increase, as the result of
occurrences, as to any one or more Banks, as described in Sections 1.10 (other
than Section 1.10(f)), 1.11, 1.13(h) or 3.04 and such increase can be avoided or
minimized if such Banks were no longer Banks hereunder, the Company shall have
the right to replace such Banks with another Person; provided that (a) no Event
of Default shall have occurred and be continuing; (b) such increased costs shall
not be generally charged by the other Banks hereunder; (c) such new Person is of
one of the types discussed in Section 11.04(b)(A) (other than the requirement
therein that consents be given) and such new Person shall execute an Assignment
and Assumption Agreement substantially in the form of Exhibit I-2; and (d)
neither the Administrative Agent nor any Bank shall have any obligation to find
such other Person.
(b) If at any time the U.K. Swingline Bank notifies the U.K.
Borrower that the Swingline Expiry Date for the U.K. Swingline Loans will not be
extended (as provided in the definition of Swingline Expiry Date), the Company
and the U.K. Borrower shall have the right to replace the U.K. Swingline Bank
with another Person; provided that (a) no Event of Default shall have occurred
and be continuing; (b) such new Person is of one of the types discussed in
Section 11.04(b)(A) (other than the requirement therein that consents be given)
and such new Person shall execute an Assignment and Assumption Agreement
substantially in the form of Exhibit I-2; and (c) neither the Administrative
Agent nor any Bank shall have any obligation to find such other Person.
(c) Each Bank agrees to its replacement at the option of the Company
pursuant to Section 1.17(a) or (b), as the case may be, and in accordance with
Section 11.04(b)(A) (except to the extent inconsistent with this Section 1.17);
provided that the successor Bank shall purchase without recourse (except as to
matters of title) such replaced Bank's interest in the Obligations of the
Borrowers and shall assume such replaced Bank's Commitments hereunder for cash
in an aggregate amount equal to the aggregate unpaid principal of such
Obligations, all unpaid interest accrued thereon, all unpaid commitment and
other fees accrued for the account of such replaced Bank, any breakage costs
incurred by the replaced Bank because of the repayment of Reserve Adjusted
Eurodollar Loans and all other
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amounts then owing to such replaced Bank under this Agreement or any other
Credit Document.
SECTION 2. Commitments.
2.01. Voluntary Reduction of Commitments. Upon at least one Business
Day's prior written notice (or telephonic notice promptly confirmed in writing)
to the Administrative Agent at the Administrative Agent's Office (which notice
the Administrative Agent shall promptly transmit to each of the Banks), the
Applicable Borrower or Borrowers shall have the right, without premium or
penalty, to terminate in whole or in part the unutilized portion of any or all
of (i) the Total Revolving Loan Commitments and (ii) the Total Acquisition Term
Loan Commitments, in each case, in part or in whole; provided that (x) any such
termination shall proportionately and permanently reduce the Revolving Loan
Commitment or Acquisition Term Loan Commitment, as applicable, of each of the
Banks and (y) any partial reduction of the Total Revolving Loan Commitments or
the Total Acquisition Term Loan Commitments pursuant to this Section 2.01 shall,
in each case, be in the amount of at least $100,000 and integral multiples of
$100,000 in excess of that amount; provided, further, that (A) the Total
Revolving Loan Commitments shall not be reduced to an amount less than the
aggregate Revolving Loans and the Dollar Equivalent amount of Swingline Loans
and Letter of Credit Usage then outstanding and (B) the Total Acquisition Term
Loan Commitments shall not be reduced to an amount less than the aggregate
Acquisition Term Loans then outstanding. The Applicable Borrower or Borrowers
shall have the right, without premium or penalty, to terminate the unutilized
portion, in whole or in part, of the U.S. Swingline Commitment, the U.K.
Swingline Commitment or the Canadian Swingline Commitment.
2.02. Mandatory Adjustments of Commitments, etc. (a) The Total
Revolving Loan Commitment shall terminate on the Revolving Loan Commitment
Termination Date.
(b) The Total A Term Loan Commitment shall be reduced (i) on the
Closing Date to the amount of A Term Loans then outstanding and (ii) on the date
on which any payments of principal on the A Term Loans are made (other than
pursuant to Section 3.02(A)(a)) in an aggregate amount equal to such payments.
(c) The Total B Term Loan Commitment shall be reduced (i) on the
Closing Date to the amount of B Term Loans then outstanding and (ii) on the date
on which any payments of
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principal on the B Term Loans are made (other than pursuant to Section
3.02(A)(a)) in an aggregate amount equal to such payments.
(d) The Total Acquisition Term Loan Commitment shall be reduced (i)
on the Acquisition Term Loan Commitment Termination Date to the amount of
Acquisition Term Loans then outstanding and (ii) on the date on which any
payments of principal on the Acquisition Term Loans are made (other then
pursuant to Section 3.02(A)(a)) in an aggregate amount equal to such payment.
(e) The Total Revolving Loan Commitment and the Maximum Swingline
Amount shall be permanently reduced, in each case, in the amount and at the time
of any payment on the Loans required to be applied to the Revolving Loans,
Swingline Loans, Revolving Loan Commitments or Maximum Swingline Amount or to
cash collateralize Letters of Credit or Acceptances pursuant to Section
3.02(B)(a).
(f) Each reduction or termination of the A Term Loan Commitment, the
B Term Loan Commitment, Acquisition Term Loan Commitment or the Total Revolving
Loan Commitment pursuant to this Section 2.02 shall apply proportionately to the
A Term Loan Commitment, the B Term Loan Commitment, Acquisition Term Loan
Commitment or the Revolving Loan Commitment, as the case may be, of each Bank.
2.03. Commitment Commission. (a) The Company agrees to pay the
Administrative Agent a commitment commission ("Commitment Commission") for the
account of each Bank for the period from and including the Closing Date to but
not including the date the Total Commitments have been terminated, computed at a
rate equal to 1/2% per annum on the daily average Unutilized Commitment of such
Bank. Accrued Commitment Commission shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and December,
commencing with June 30, 1998 and on the Revolving Loan Commitment Termination
Date, based on the actual number of days elapsed over a year of 360 days.
(b) The Company agrees to pay ABN AMRO Bank N.V., Chicago Branch,
the commitment and other fees at the times required by, and pursuant to, the
letter agreement between the Company and ABN AMRO Bank N.V., Chicago Branch,
dated March 30, 1998, in respect of the U.K. Swingline Loan.
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2.04. Currency Equivalents Generally. For all purposes of any Loan
or other Credit Extension pursuant to this Agreement (but not for purposes of
the preparation of any financial statements delivered pursuant hereto), the
equivalent in Pounds Sterling or Canadian Dollars of an amount in U.S. Dollars,
and the equivalent in U.S. Dollars of an amount in Pounds Sterling or Canadian
Dollars, shall be determined at the Spot Rate. For purposes of determining
compliance with any restriction limited to a Dollar Equivalent amount in this
Agreement, the Dollar Equivalent amount of any transaction occurring prior to
the date of determination shall be calculated based on the Spot Rate on the date
of determination; provided, however, that if such Dollar Equivalent amount shall
be exceeded, such restriction shall nonetheless be deemed not violated if such
Dollar Equivalent amount of such transaction was calculated based on the
relevant currency exchange rate in effect on the date of each such transaction;
provided, further, that the Borrowers shall comply with Section 3.02(A).
2.05. Principle of Deemed Reinvestment. Except to the extent
permitted under applicable law, all calculations of interest and fees hereunder
are to be made on the basis of the nominal interest rate set forth herein and
not using the effective rate method of calculation or on any basis which gives
effect to the principle of deemed reinvestment. For the purposes of disclosure
under the Interest Act (Canada), if and to the extent applicable, whenever
interest is to be paid hereunder and such interest is to be calculated on the
basis of a period of less than a calendar year, the yearly rate of interest to
which the rate determined pursuant to such calculation is equivalent is the rate
so determined multiplied by the actual number of days in the calendar year in
which the same is to be ascertained and divided by the number of days in such
period.
2.06. Maximum Rate of Return. Notwithstanding any provision to the
contrary contained in this Agreement, in no event shall the aggregate "interest"
(as defined in section 347 of the Criminal Code, Revised Statutes of Canada,
1985, c. 46 as the same may be amended, replaced or re-enacted from time to
time) payable under this Agreement by either Canadian Borrower or the Credit
Documents to which such Canadian Borrower is a party exceed the effective annual
rate of interest on the "credit advanced" (as defined in that section) to such
Canadian Borrower under this Agreement lawfully permitted under that section
and, if any payment, collection or demand pursuant to this Agreement or any
other Credit Document relating to such Canadian Borrower in respect of
"interest" (as defined in that section) is determined to be contrary to the
provisions of that
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section, such payment, collection or demand shall be deemed to have been made by
mutual mistake of such Canadian Borrower and the Banks and the amount of such
payment or collection shall be refunded to such Canadian Borrower. For purposes
of this Agreement the effective annual rate of interest shall be determined in
accordance with generally accepted actuarial practices and principles over the
term of the Canadian Swingline Loan facility on the basis of annual compounding
of the lawfully permitted rate of interest and, in the event of dispute, a
certificate of a Fellow of the Canadian Institute of Actuaries appointed by the
Administrative Agent will be conclusive for the purposes of such determination.
If it is not determinable which particular payment or collection is contrary to
the provisions of the section of the Criminal Code referred to hereinabove, the
Canadian Swingline Banks will, in consultation with the applicable Canadian
Borrower, determine the payments or collections to be refunded.
SECTION 3. Payments.
3.01. Voluntary Prepayments. Each Borrower shall have the right to
prepay Term Loans, Acquisition Term Loans, Swingline Loans and Revolving Loans
incurred by it in whole or in part from time to time, without premium or penalty
(except for breakage costs, if any) on the following terms and conditions: (i)
the Applicable Borrower shall give the Administrative Agent at the
Administrative Agent's Office (with respect to U.K. Swingline Loans, notice
shall also be given to the U.K. Swingline Bank) written notice (or telephonic
notice promptly confirmed in writing) of its intent to prepay the Loans, the
amount of such prepayment and the Types of Loans and the specific Borrowing or
Borrowings which are to be prepaid, which notice shall be given by the
Applicable Borrower at least one Business Day prior to the date of such
prepayment (or in the case of a Swingline Loan, the date of such prepayment) and
which notice shall promptly be transmitted by the Administrative Agent to each
of the Banks; (ii) each partial prepayment of any Borrowing (other than
Borrowings of Swingline Loans) shall be in an aggregate principal amount of the
Borrowing Amount or at least $100,000 and integral multiples of $100,000 in
excess of that amount (or the Dollar Equivalent); provided that no partial
prepayment of Reserve Adjusted Eurodollar Loans made pursuant to a single
Borrowing under the Loan Facility (or Portion thereof) shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount or Borrowing Amount, as the case may be; provided,
further, that the minimum prepayment amount for a Swingline Loan shall be an
amount as agreed between the Applicable
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Borrower and the applicable Swingline Bank; (iii) Reserve Adjusted Eurodollar
Loans may only be prepaid pursuant to this Section 3.01 on the last day of an
Interest Period applicable thereto unless any breakage costs set forth in
Section 1.10(f) accompany such prepayment; and (iv) each prepayment in respect
of any Term Loans made pursuant to a Borrowing shall be applied pro rata to the
A Term Loans, B Term Loans and Acquisition Term Loans then outstanding.
Voluntary prepayments of Term Loans or Acquisition Term Loans shall be applied
to the prepayment of the outstanding principal amount of Loans relating to such
Portion pro rata such that each principal payment then remaining with respect to
such Portion shall be reduced by an amount equal to the product of (A) such
payment and (B) a fraction of which the numerator is equal to the amount of such
principal payments then remaining with respect to such Portion and the
denominator is equal to the amount of all principal payments remaining with
respect to such Portion. In the absence of a designation by the Borrowers, the
Administrative Agent shall apply such prepayments first to Base Rate Loans and
thereafter to Reserve Adjusted Eurodollar Loans.
3.02. Mandatory Prepayments.
(A) Requirements:
(a) Subject to Section 3.05(b), the Applicable Borrowers shall
prepay the outstanding principal amount of the A Term Loans, the B Term
Loans, the Acquisition Term Loans, the Revolving Loans or Swingline Loans
made to them on any date on which the aggregate outstanding principal
amount of such Loans (after giving effect to any other repayments or
prepayments on such day and together with the outstanding principal amount
of Letter of Credit Usage) exceeds the Total A Term Loan Commitment, the
Total B Term Loan Commitment, the Total Acquisition Term Loan Commitment,
the Total Revolving Loan Commitments or the applicable Maximum Swingline
Amount, as the case may be, in the amount of such excess, the Applicable
Borrowers to determine among themselves the amount of such excess to be
prepaid by each.
(b) Subject to Section 3.05(b), if the aggregate principal amount of
outstanding Revolving Loans, and the Dollar Equivalent amount of Swingline
Loans and Letter of Credit Usage exceeds the lesser of (i) the Total
Revolving Loan Commitment and (ii) the Borrowing Base as set forth in the
most recent Borrowing Base Certificate last delivered pursuant to Section
6.01 (provided such Borrowing
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Base Certificate was required to be delivered pursuant to and was in
compliance with Section 6.01 or was delivered after the Borrowing Base
Certificate last required to be delivered pursuant to Section 6.01 of this
Agreement), then the Applicable Borrowers shall prepay Revolving Loans or
Swingline Loans made to them in a principal amount equal to such excess no
later than two (2) Business Days after the determination of such excess,
the Applicable Borrowers to determine among themselves the amount to be
prepaid by each; provided they comply with the limits set forth herein.
(c) The U.S. Borrowers shall cause to be paid Scheduled A Term Loans
Principal Payments on the A Term Loans until the A Term Loans are paid in
full in the amounts and at the times specified in the definition of
Scheduled A Term Loans Principal Payments to the extent that prepayments
have not previously been applied to such Scheduled A Term Loans Principal
Payments (and such Scheduled A Term Loans Principal Payments have not
otherwise been reduced) pursuant to the terms hereof.
(d) The U.S. Borrowers shall cause to be paid each Scheduled B Term
Loans Principal Payment on the B Term Loans until all B Term Loans are
paid in full in the amounts and at the times specified in the definition
of Scheduled B Term Loans Principal Payments to the extent that
prepayments have not previously been applied to such Scheduled B Term
Loans Principal Payments (and such Scheduled B Term Loans Principal
Payments have not otherwise been reduced) pursuant to the terms hereof.
(e) The U.S. Borrowers shall cause to be paid Scheduled Acquisition
Term Loans Principal Payments on the Acquisition Term Loans until the
Acquisition Term Loans are paid in full in the amounts and at the times
specified in the definition of Scheduled Acquisition Term Loans Principal
Payments to the extent that prepayments have not previously been applied
to such Scheduled Acquisition Term Loans Principal Payments (and such
Scheduled Acquisition Term Loans Principal Payments have not otherwise
been reduced) pursuant to the terms hereof.
(f) After the Closing Date, on the Business Day after the date of
receipt thereof by the Company and/or any of its Subsidiaries of Net Cash
Proceeds (after giving effect to the ability to reinvest any such Net Cash
Proceeds pursuant to Section 7.17) or Net Financing Proceeds
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(including the receipt of Net Financing Proceeds by Holdings, the proceeds
of which are required to be contributed to the Company in accordance with
the provisions of Section 7.14) (without duplication of prepayments
required by clause (h) of this Section 3.02(A) and other than the proceeds
of Indebtedness permitted by Section 7.04), the Company shall apply or
cause to be applied an amount equal to 100% of such Net Cash Proceeds or
Net Financing Proceeds as provided in Section 3.02(B)(a).
(g) On the date which is 90 days after the last day of the Company's
fiscal year, commencing with the fiscal year ending October 31, 1999, the
Company shall apply or cause to be applied an amount equal to 75% of the
Company's Excess Cash Flow for such fiscal year as provided in Section
3.02(B)(a); provided that (i) such amount shall be 50% with respect to the
fiscal year ending October 31, 1999 and (ii) such amount shall be 50% for
subsequent years if the ratio of Indebtedness for borrowed money of the
Company and its Subsidiaries on the last day of such fiscal year to
Consolidated EBITDA of the Company for the Test Period ending at the end
of such fiscal year, on a pro forma basis after giving effect to any
Designated Acquisitions made during such year, shall be less than 3.5:1.0;
provided further that any funds used for any Designated Acquisition made
subsequent to the end of such fiscal year and prior to the date of payment
shall reduce Excess Cash Flow (before applying the prepayment percentage)
for purposes of this Section 3.02(A)(g) except to the extent funded with
Acquisition Term Loans or from the $12,500,000 Revolving Loan basket set
forth in Section 6.18.
(h) On the Business Day after the date of the receipt thereof by the
Company and/or any of its Subsidiaries, the Company shall apply or cause
to be applied an amount equal to 100% of the proceeds received by such
Person (net of underwriting discounts and commissions and other reasonably
incurred costs and expenses directly associated therewith) of the sale
after the Closing Date of equity (including the sale of equity by
Holdings, the proceeds of which are required to be contributed to the
Company in accordance with the provisions of Section 7.14 but excluding
sales to directors constituting directors qualifying shares, where
required by law) as provided in Section 3.02(B)(a).
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(i) At the Administrative Agent's discretion, on the Business Day
after the date of receipt thereof by the Company and/or any of its
Subsidiaries, the Company shall apply or cause to be applied an amount
equal to (x) 100% of any insurance proceeds other than Net Proceeds or
insurance proceeds of the type referred to in clause (y) below (less
reasonably incurred costs to recover) received less any portion of such
proceeds not in excess of $10,000,000 attributable to a casualty, so long
as there exists no Event of Default, that is applied or committed to be
applied within a reasonable period of time to repair or replace the
damaged property; provided that any insurance proceeds received in respect
of an inventory loss shall not be counted towards the $10,000,000 limit
and shall not be required to be applied as a mandatory prepayment pursuant
to this Section 3.02(A)(i), and (y) 100% of any business interruption
insurance proceeds (less reasonably incurred costs to recover) over
$5,000,000 attributable to a casualty, in each case as provided in Section
3.02(B)(a).
(j) If any of the Mortgaged Real Property is the subject of a Taking
or Destruction and either the Company or its applicable Subsidiary has
elected not to effect a Restoration or neither the Collateral Agent nor
the Company or its applicable Subsidiary, as the case may be, has elected
to effect a Restoration, in each case, in accordance with the provisions
of the applicable Mortgage, then on the first Business Day following the
last day the Company or its applicable Subsidiary can elect to effect a
Restoration (in the event that the Company or its applicable Subsidiary
has the right to make such an election) or, in the event that the Net
Award or Net Proceeds, as the case may be, are in excess of $10,000,000
and the Company or its applicable Subsidiary does not otherwise have the
right to make an election to effect a Restoration, the day the Collateral
Agent has notified the Company or its applicable Subsidiary that a
Restoration will not be required in the case of any of the Mortgaged Real
Property being the subject of a Taking or Destruction, the Company shall
apply or cause to be applied an amount equal to the applicable Net Award
or Net Proceeds, as the case may be, as a result of such Taking or
Destruction, as provided in Section 3.02(B)(a).
(k) On the date of the receipt thereof by the Company and/or any of
its Subsidiaries, the Company shall apply or cause to be applied an amount
equal to 75% of any
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surplus assets of any Pension Plan returned to the Company or such
Subsidiary as provided in Section 3.02(B)(a).
(l) Notwithstanding anything to the contrary contained herein, no
Acceptance may be prepaid prior to the maturity date thereof.
(B) Application:
(a) Prepayments to be applied pursuant to this Section 3.02(B)(a)
shall be applied as follows: (i) first, on a pro rata basis among the A
Term Loans, the B Term Loans and any outstanding Acquisition Term Loans,
in each case, in inverse order of maturity with respect to the remaining
Scheduled A Term Loans Principal Payments, the remaining Scheduled B Term
Loans Principal Payments and the remaining Scheduled Acquisition Term Loan
Principal Payments; provided that each holder of B Term Loans may, upon
reasonable notice to the Borrowers and the Administrative Agent, decline
such prepayment, in which case such prepayment shall be applied to
Scheduled A Term Loans Principal Payments and Scheduled Acquisition Term
Loan Principal Payments as aforesaid; (ii) second, to permanently reduce
the Revolving Loan Commitment (and (y) to the extent such Total Revolving
Loan Commitment exceeds the Maximum Swingline Amount, the Maximum
Swingline Amount on a pro rata basis and (z) if required as a result of
such reduction, to prepay Swingline Loans or Revolving Loans, or, if no
such Loans are outstanding, to cash collateralize Letters of Credit and
Acceptances on a pro rata basis in a manner reasonably satisfactory to the
Administrative Agent); and (iii) third, the Acquisition Term Loan
Commitment, if any, will be permanently reduced in an amount equal to the
amount otherwise required to be prepaid. Amounts applied pursuant to this
Section 3.02(B)(a) may not be reborrowed; and
(b) With respect to each prepayment of Loans required by Section
3.02(A), the Borrowers shall give the Administrative Agent two Business
Days notice and may designate the Types of Loans and the specific
Borrowing or Borrowings which are to be prepaid; provided that (i)(x)
Reserve Adjusted Eurodollar Loans may be designated for prepayment
pursuant to this Section 3.02 only on the last day of an Interest Period
applicable thereto unless all Reserve Adjusted Eurodollar Loans with
Interest Periods ending on such date of required prepayment and all Base
Rate Loans and Prime Rate Loans have been or are con-
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currently being paid in full and (y) if any prepayment of Reserve Adjusted
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than
the Minimum Borrowing Amount, such Borrowing shall immediately be
converted into Base Rate Loans; and (ii) in the case a Reserve Adjusted
Eurodollar Loan is required to be prepaid pursuant to this Section 3.02
prior to the last day of the Interest Period applicable thereto, the
Borrowers may in order to avoid paying any amount pursuant to Section
1.10(f) deposit such prepayment in escrow with the Administrative Agent
(or U.K. Swingline Bank in the case of Pounds Sterling Reserve Adjusted
Eurodollar Loans), which escrow shall be satisfactory to the
Administrative Agent (or U.K. Swingline Bank in the case of Pounds
Sterling Reserve Adjusted Eurodollar Loans), and which amount in escrow
shall be applied as of the last day of the applicable Interest Period to
the repayment of the applicable Loan. In the absence of a designation by
the Borrowers, the Administrative Agent shall, subject to the above, apply
prepayments first to Base Rate Loans and thereafter to Reserve Adjusted
Eurodollar Loans. All prepayments shall include payment of accrued
interest on the principal amount so prepaid, shall be applied to the
payment of interest before application to principal and shall include
amounts payable, if any, under Section 1.10(f).
(c) Any proceeds received by the Company or any of its Subsidiaries
as discussed in Section 3.02(A)(i) or (j) shall be deposited, on the date
of receipt thereof by the Company or any such Subsidiary, with the
Administrative Agent in escrow (or pursuant to other arrangements
satisfactory to the Administrative Agent) until such funds are used in
accordance with either such Section.
3.03. Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments under this Agreement shall be made to
the Administrative Agent (or U.K. Swingline Bank in the case of Pounds Sterling
Reserve Adjusted Eurodollar Loans), for the ratable account of the Banks
entitled thereto, not later than 2:00 P.M. (New York time) in the case of Loans
in U.S. Dollars or Canadian Dollars and no later than the time specified by the
U.K. Swingline Bank in the case of Loans in Pounds Sterling on the date when due
and shall be made in immediately available funds (i) with respect to principal
of, interest on, and any other amount relating to any U.K. Swingline Loan, shall
be made in Pounds Sterling, (ii) with respect to principal of, interest on and
any other amount relat-
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ing to any Canadian Swingline Loan, shall be made in Canadian Dollars and (iii)
with respect to all other amounts payable hereunder, shall be made in U.S.
Dollars to the account specified therefor by the Administrative Agent or if no
account has been so specified at the Administrative Agent's Office, it being
understood that written notice by the Borrowers to the Administrative Agent or
U.K. Swingline Bank, as the case may be, to make a payment from the funds in the
Borrowers' account at the Administrative Agent's Office or the office designated
by the U.K. Swingline Bank, as the case may be, shall constitute the making of
such payment to the extent of such funds held in such account. The
Administrative Agent or U.K. Swingline Bank, as the case may be, will thereafter
cause to be distributed on the same day (if payment is actually received by the
Administrative Agent in New York prior to 2:00 P.M. (New York time) or by the
U.K. Swingline Bank in London prior to 2:00 P.M. (London time), as the case may
be, on such day) funds relating to the payment of principal or interest or fees
ratably to the Banks entitled to receive any such payment in accordance with the
terms of this Agreement. If and to the extent that any such distribution shall
not be so made by the Administrative Agent or U.K. Swingline Bank, as the case
may be, in full on the same day (if payment is actually received by the
Administrative Agent prior to 2:00 P.M. (New York time) or by the U.K. Swingline
Bank prior to 2:00 P.M. (London time) in the case of Loans in Pounds Sterling on
such day), the Administrative Agent or U.K. Swingline Bank, as the case may be,
shall pay to each Bank its ratable amount thereof and each such Bank shall be
entitled to receive from the Administrative Agent or U.K. Swingline Bank, as the
case may be, upon demand, interest on such amount at (i) the Federal Funds Rate
(according to the U.S. Council on International Banking Interbank Compensation
Rules) in the case of a payment in U.S. Dollars, (ii) the Canadian Federal Funds
Rate in the case of a payment in Canadian Dollars and (iii) the Overnight Rate
in the case of a payment in Pounds Sterling for each day from the date such
amount is paid to the Administrative Agent or U.K. Swingline Bank, as the case
may be, until the date the Administrative Agent or U.K. Swingline Bank, as the
case may be, pays such amount to such Bank.
(b) Any payments under this Agreement which are made by the
Borrowers on the date required but later than 2:00 P.M. (New York time) (or 2:00
P.M. (London time) in the case of Loans in Pounds Sterling) shall, solely for
purposes of the calculation of interest and not for purposes of Section 8.01, be
deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Business Day, the due date
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thereof shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension, except that with
respect to Reserve Adjusted Eurodollar Loans, if such next succeeding applicable
Business Day is not in the same month as the date on which such payment would
otherwise be due hereunder or under any Note, the due date with respect thereto
shall be the next preceding applicable Business Day.
3.04. Net Payments. (a) All payments by each Borrower under this
Agreement and/or under any Credit Document shall be made without setoff or
counterclaim and in such amounts as may be necessary in order that all such
payments (after deduction or withholding for or on account of any present or
future taxes, levies, imposts, duties or other charges of whatsoever nature
imposed by any Governmental Authority, other than any tax (including any
franchise tax) imposed on or measured by the net income or net profits of a
Bank, or any tax on or measured by the capital of a Bank, pursuant to the income
tax laws of the jurisdictions where such Bank's principal or applicable lending
office is located (collectively, "Taxes")) shall not be less than the amounts
otherwise specified to be paid under this Agreement and/or under any Credit
Document. If any Borrower is required by law to make any deduction or
withholding on account of Taxes from any payment due hereunder or under the
Notes, then (a) such Borrower shall timely remit such Taxes to the Governmental
Authority imposing the same and (b) the amount payable hereunder or under the
Notes will be increased to such amount which, after deduction from such
increased amount of all amounts required to be deducted or withheld therefrom,
will not be less than the amount otherwise due and payable hereunder. Without
prejudice to the foregoing, if any Bank or any Agent is required to make any
payment on account of Taxes, the Applicable Borrower will, upon notification by
the Bank or the Agent promptly indemnify such person against such Taxes,
together with any interest, penalties and expenses payable or incurred in
connection therewith. Each Borrower shall also reimburse each Bank, upon the
written request of such Bank, for taxes imposed on or measured by the net income
or net profits of such Bank pursuant to the laws of the jurisdiction in which
the principal office or applicable lending office of such Bank is located or
under the laws of any political subdivision or taxing authority of any such
jurisdiction as such Bank shall determine are payable by such Bank in respect of
Taxes paid to or on behalf of such Bank pursuant to this Section 3.04. For
purposes of this Section, the term "Taxes" includes interest, penalties and
expenses payable or incurred
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in connection therewith. A certificate as to any additional amounts payable to a
Bank under this Section 3.04 submitted to the Borrower by such Bank shall,
absent manifest error, be final, conclusive and binding for all purposes upon
all parties hereto. With respect to each deduction or withholding for or on
account of any Taxes, the Borrowers shall promptly furnish to each Bank such
certificates, receipts and other documents as may be required (in the judgment
of such Bank) to establish any tax credit to which such Bank may be entitled.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) that makes a Loan to a U.S. Borrower
agrees to deliver to the U.S. Borrowers and the Administrative Agent on or prior
to the Closing Date, or in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 11.04 (unless the
respective Bank was already a Bank hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor or additional forms) certifying to such
Bank's entitlement to a complete exemption from United States withholding tax
with respect to payments to be made under this Agreement and under any Note or
other Credit Document, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit P (any such certificate, a "Section 3.04
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8 (or successor or additional forms) certifying
to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note or other Credit Document. In addition, each Bank agrees that from
time to time after the Closing Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the U.S. Borrowers and the Administrative
Agent two new accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001, or Form W-8 and a Section 3.04 Certificate, as the
case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Bank to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Note, or it shall immediately notify the U.S. Borrowers and
the Administrative Agent of its inability to deliver any such Form or
Certificate, in which case such Bank
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shall not be required to deliver any such form or certificate pursuant to this
Section 3.04(b). Notwithstanding anything to the contrary contained in Section
3.04(a), but subject to Section 11.04(b) and Section 3.04(c), (x) the Borrowers
shall be entitled, to the extent they are required to do so by law, to deduct or
withhold income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Bank which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent that such Bank has not provided
to the Borrowers U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrowers shall not be
obligated pursuant to Section 3.04(a) hereof to gross up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States if (I)
such Bank has not provided to the Borrowers the Internal Revenue Service Forms
required to be provided to Borrower pursuant to this Section 3.04(b) or (II) in
the case of a payment, other than interest, to a Bank described in clause (ii)
above, to the extent that such Forms do not establish a complete exemption from
withholding of such taxes.
(c) Notwithstanding anything to the contrary contained elsewhere in
this Section 3.04, the Borrowers, jointly and severally, agree to pay additional
amounts and to indemnify each Bank in the manner set forth in Section 3.04(a)
(without regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by it as described
in the last sentence of Section 3.04(b) as a result of any changes after the
Closing Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deduction
or withholding of income or similar Taxes.
(d) Each Bank which is resident for tax purposes in the United
Kingdom and which is making a loan to a U.K. Borrower or which is making a loan
to a U.K. Borrower through a U.K. branch hereby represents that it is a "bank"
within the meaning of section 840A Income and Corporation Taxes Act 1988, and
that it is beneficially entitled to the interest payable to it under this
Agreement, undertakes to notify the U.K. Borrower and the Administrative Agent
if either representation ceases to be correct, and further agrees to ensure that
such interest is brought within the charge to United Kingdom corporation tax by
the person beneficially entitled to the interest.
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(e) Each Bank which is not resident for tax purposes in the United
Kingdom and which is making a loan to a U.K. Borrower through a branch located
outside the United Kingdom agrees to furnish to the tax authorities of the
country in which such Bank is resident for tax purposes on or prior to the
Closing Date (or if such Bank becomes a Bank after the Closing Date, at or prior
to the time the Bank becomes a Bank), for certification and forwarding by such
tax authorities to the United Kingdom Inland Revenue, the form specified by the
United Kingdom Inland Revenue for such purposes. For the avoidance of doubt, a
Bank shall be entitled to receive additional amounts pursuant to Section 3.04(a)
which are attributable to the withholding or deduction imposed during the period
that the form is being processed by the United Kingdom Inland Revenue.
(f) In addition, the Applicable Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by or to it
hereunder or under its Note or from the execution and delivery by it or
registration of, or otherwise with respect to, its participation in this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
(g) If Holdings or any Credit Party pays any additional amount under
this Section 3.04 to a Bank and such Bank determines in its sole discretion that
it has actually received or realized in connection therewith any refund or any
reduction of, or credit against, its tax liabilities in or with respect to the
taxable year in which the additional amount is paid (a "Tax Benefit"), such Bank
shall pay to such Person an amount that the Bank shall, in its sole discretion,
determine is equal to the net benefit, after tax, which was obtained by the Bank
in such year as a consequence of such Tax Benefit; provided, however, that (i)
such Bank shall not be required to make any payment under this paragraph of this
Section 3.04 if an Event of Default shall have occurred and be continuing; (ii)
any taxes that are imposed on a Bank as a result of a disallowance or reduction
(including through the expiration of any tax credit carryover or carryback of
such Bank that otherwise would not have expired) of any Tax Benefit with respect
to which such Bank has made a payment to Holdings or any Credit Party pursuant
to this paragraph of this Section 3.04 shall be treated as a tax for which
Holdings or such Credit Party is obligated to indemnify such Bank pursuant to
this Section 3.04 without any exclusions or defenses; (iii) such Bank shall not
be required to make any payment under this paragraph of this Section 3.04 in
excess of such additional amounts received by such Bank; and
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(iv) nothing in this paragraph of this Section 3.04 shall require the Bank to
disclose to any obligor any information determined by such Bank in its sole
discretion to be confidential (including its tax returns).
3.05. Currency Exchange Fluctuations (a) The Company and its
Subsidiaries will implement and maintain internal controls to monitor the
borrowings and repayments of Loans by the Borrowers and the issuance of and
drawings under Letters of Credit, with the object of preventing any request for
a Credit Extension that would result in (i) the aggregate outstanding Revolving
Loans and the Dollar Equivalent amount of the Swingline Loans and Letter of
Credit Usage being in excess of the lesser of (y) the Total Revolving Loan
Commitments available pursuant to Section 1.01(d) and (z) the Borrowing Base as
shown in the Borrowing Base Certificate that was last delivered pursuant to
Section 6.01; provided such Borrowing Base Certificate was required to be
delivered pursuant to and was in compliance with Section 6.01 or was delivered
after the Borrowing Base Certificate last required to be delivered pursuant to
Section 6.01, or (ii) the aggregate amount of U.K. Swingline Loans or Canadian
Swingline Loans exceeding the applicable Maximum Swingline Amount and of
promptly identifying and remedying any circumstance where, by reason of changes
in exchange rates, such limits have been exceeded.
(b) Subject to Section 1.10(f), if on any Computation Date the
Administrative Agent shall have determined that (i) the aggregate outstanding
Revolving Loans and the Dollar Equivalent amount of the Swingline Loans and
Letter of Credit Usage exceed the lesser of (y) the Total Revolving Loan
Commitment and (z) the Borrowing Base as shown in the Borrowing Base Certificate
that was last delivered pursuant to Section 6.01, provided such Borrowing Base
Certificate was required to be delivered pursuant to and was in compliance with
Section 6.01 or was delivered after the Borrowing Base Certificate last required
to be delivered pursuant to Section 6.01, by more than the Dollar Equivalent
amount of U.S. $750,000, (ii) the aggregate outstanding U.K. Swingline Loans
exceed the applicable Maximum Swingline Amount by more than the Dollar
Equivalent amount of U.S. $750,000 or (iii) the aggregate outstanding Canadian
Swingline Loans exceed the applicable Maximum Swingline Amount by more than the
Dollar Equivalent amount of U.S. $250,000, in each such case due to a change in
applicable rates of exchange between U.S. Dollars, on the one hand, and Pounds
Sterling or Canadian Dollars, on the other hand, then the Administrative Agent
shall give notice to the Applicable Borrowers that a prepayment of Revolving
Loans (or, if no Revolving
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Loans are outstanding, payment of unreimbursed drawings under Letters of Credit
or, if none thereof, Cash collateralization of outstanding Letters of Credit),
U.K. Swingline Loans or Canadian Swingline Loans, as the case may be, is
required under this subsection, and the Applicable Borrowers agree if such
excess shall not have been prepaid within five Business Days of such notice or
during five Business Days such excess has not been eliminated by changes in
currency exchange rates thereupon to make prepayments (by such repayment of
Loans, payment of unreimbursed drawings or Cash collateralization) such that,
after giving effect to such prepayment (or payment or Cash collateralization and
changes in currency exchange rates), (i) the aggregate outstanding Revolving
Loans and the Dollar Equivalent amount of the Swingline Loans and Letter of
Credit Usage do not exceed the lesser of (y) the Total Revolving Loan
Commitments then available pursuant to Section 1.01(d) or (z) the Borrowing Base
as shown in the Borrowing Base Certificate that was last delivered pursuant to
Section 6.01; provided such Borrowing Base Certificate was required to be
delivered pursuant to and was in compliance with Section 6.01 or was delivered
after the Borrowing Base Certificate last required to be delivered pursuant to
Section 6.01, and (ii) the aggregate outstanding U.K. Swingline Loans and
Canadian Swingline Loans do not exceed the applicable Maximum Swingline Amount.
3.06. Authorizations. Without prejudice to the obligations to prepay
as set out in this Section 3, any Applicable Borrower proposing to make any
prepayment under this Section 3 will, prior to making any such prepayment, take
all steps required of it to obtain any consents, authorizations or other
approvals or take any other action which may at any relevant time be required of
it in respect of any such prepayment to be made by it (including taking all
requisite steps under Chapter VI of the Companies Act 1985 of Great Britain).
SECTION 4. Conditions Precedent.
4.01. Conditions Precedent to Initial Loans. The obligations of the
Banks to make the Initial Loans to the Borrowers hereunder are subject, at the
time of the making of each such Initial Loans (except as otherwise hereinafter
indicated), to the substantially contemporaneous satisfaction of the following
conditions:
(a) Officers' Certificate. On the Closing Date, the Agents shall
have received certificates dated such date signed by appropriate officers
of Holdings and each of the Borrowers, stating that all of the applicable
conditions
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set forth in Sections 4.01, 4.02 and, if applicable, 4.03 and 4.04 (in
each case disregarding any reference therein that such condition be deemed
satisfactory by the Agents and/or the Required Banks) have been satisfied
or waived as of such date.
(b) Opinions of Counsel. On the Closing Date, the Agents shall have
received an opinion or opinions addressed to each of the Banks and dated
the Closing Date, each in form and substance satisfactory to the Agents,
from (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York counsel to
each Credit Party, which opinion shall be in the form of Exhibit C-1
hereto, (ii) Linklaters & Paines, United Kingdom counsel to each United
Kingdom Credit Party, which opinion shall be in the form of Exhibit C-2
hereto, (iii) McCarthy Tetrault, Canadian counsel to each Canadian Credit
Party, and Patterson, Palmer, Hunt, Murphy, Canadian counsel to each
Canadian Credit Party, which opinions shall be in the form of Exhibit
C-3(a) and (b) hereto, respectively, (iv) local counsel to the Borrowers
in each jurisdiction in which Collateral is located, which opinions shall
be in the form of Exhibit C-4 hereto, (v) foreign local counsel opinions,
satisfactory in form and substance to the Agents, and (vi) a reliance
letter from Kirkland & Ellis, counsel to HarnCo, entitling the Banks to
rely upon its opinion delivered pursuant to the Recapitalization
Agreement.
(c) Corporate Proceedings. All corporate and legal proceedings in
connection with the Transaction contemplated by the Documents shall be
satisfactory in form and substance to the Agents, and the Agents shall
have received all information and copies of all certificates, documents
and papers, including records of corporate proceedings and governmental
approvals, if any, which the Agents reasonably may have requested from any
Credit Party or any Affiliate of either thereof in connection therewith,
such documents and papers where appropriate to be certified by proper
corporate or governmental authorities. Without limiting the foregoing, the
Agent shall have received (i) evidence satisfactory to them that the
Boards of Directors or Board of Managers or the foreign equivalent, as the
case may be, of each Credit Party, shall have approved the Transaction
contemplated by the Documents, (ii) resolutions of the Boards of Directors
or Board of Managers or the foreign equivalent, as the case may be, of
each Credit Party, approving and authorizing such documents and actions as
are contemplated hereby in form and
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substance reasonably satisfactory to the Agents including without
limitation the execution and delivery of all Documents to be executed by
such Person, certified by its corporate secretary or an assistant
secretary as being in full force and effect without modification or
amendment, and (iii) signature and incumbency certificates of officers of
each Credit Party executing instruments, documents or agreements required
to be executed in connection with the Transaction contemplated by the
Documents.
(d) Transaction Documents; Transaction.
(i) Full, complete and accurate copies of the Transaction Documents
shall have been provided to the Agents. The Transaction Documents and any
amendments thereto shall be in form and substance reasonably satisfactory
to the Agents, and each of the Transaction Documents required to be
executed and delivered on or prior to the Closing Date shall have been
duly authorized, executed and delivered by each of the parties thereto and
shall be in full force and effect. No term or provision of the Transaction
Documents shall have been modified, and no condition to the consummation
of the Transaction shall have been waived, in either case in a manner
detrimental (provided the Agents may waive non-material changes in their
reasonable discretion) to any Credit Party, by any of the parties thereto.
Each Credit Party and any of their Affiliates shall have in all material
respects done and performed such acts and observed such covenants which
each is required to do or perform under the Transaction Documents and in
order to consummate the Transaction on or prior to the Effective Date.
(ii) Each Credit Party shall have provided evidence satisfactory in
form and substance to the Agents that the Transaction is being consummated
contemporaneously.
(e) Additional Financing.
(i) Holdings shall have received gross proceeds (before deducting
the initial purchasers' discount) of at least $60.0 million from the
issuance of the Series A Preferred Units and MHE Investments shall have
received gross cash proceeds of $54 million from the issuance of equity
securities, and the terms and conditions of such Preferred Units, equity
investment and such capital contribution shall be satisfactory to the
Agents.
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(ii) Holdings shall have issued the Series B Preferred Units to
HarnCo.
(iii) The Company shall have received gross proceeds (before
deducting the initial purchasers' discount) of $200 million from the
issuance of Public Notes, and the terms and conditions of such Public
Notes shall be satisfactory to the Agents.
(f) Organizational Documentation, etc. On or prior to the Closing
Date, the Banks shall have received copies of true and complete certified
copies of the following documents of each Credit Party, the provisions of
which shall be reasonably satisfactory to the Agents:
(i) Each such Person's respective Certificate or Articles of
Incorporation or Certificate of Formation or the foreign equivalent,
which shall be certified and be accompanied by a good standing
certificate or the foreign equivalent, if any, from the jurisdiction
of its organization and good standing certificates, if any, from the
jurisdictions in which it is qualified to do business as a foreign
corporation, each to be dated a recent date prior to the Closing
Date; and
(ii) Each such Person's respective By-laws or operating
agreement or the foreign equivalent, certified as of the Closing
Date by its corporate secretary.
(g) Credit Documents. Each of this Agreement and each other Credit
Document shall (i) be in form and substance satisfactory to the Agents and
(ii) have been, on or prior to the Closing Date, duly authorized, executed
and delivered by each of the parties signatory thereto.
(h) Notes. There shall have been delivered to the Administrative
Agent for the account of each of the Banks which has so requested the Term
Notes, the Acquisition Term Notes, the Revolving Notes and the Swingline
Notes executed by the applicable Borrower in the amounts and maturities
and as otherwise provided herein.
(i) Certain Fees.
(i) All costs, fees and expenses (including, without limitation,
legal fees and expenses) payable to CIBC and
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Indosuez pursuant to the letter agreement between Chartwell and Indosuez
dated March 4, 1998 shall have been paid in full.
(ii) The Borrowers shall have paid or have caused to be paid the
commitment and other fees and expenses (including, without limitation,
reasonable legal fees and expenses) contemplated hereby and/or in
connection with the other Documents.
(j) Financial Statements, etc.
(i) Prior to the Closing Date, the Agents shall have received
combined financial statements audited by Price Waterhouse LLP, including a
balance sheet as of October 31, 1996 and October 31, 1997 and statements
of income and cash flows of the MHE Business for the fiscal years ended
October 31, 1995, October 31, 1996 and October 31, 1997 and unaudited
financial statements for the thirteen-week period ended January 31, 1998,
and the pro forma balance sheet of the Company as of January 31, 1998,
after giving effect to the Transaction and the Borrowings under this
Agreement. The Company shall have delivered to the Agents five-year
financial projections, accompanied by a statement by the Company that such
projections are based on assumptions believed by it in good faith to be
reasonable as to the future financial performance of the Company at the
time made, reasonably satisfactory to the Agents, it being recognized by
the Banks that such projections as to future events are not to be viewed
as facts and that actual results during the period or periods covered by
any such projections may differ from the projected results.
(ii) Prior to the Closing Date, the Agents shall have received an
accounting review prepared by Coopers & Lybrand LLP in form and substance
reasonably satisfactory to the Agents.
(k) Insurance.
(i) Set forth on Schedule 6.01(i) is a summary of all insurance
policies maintained by the Company and its Subsidiaries, and the insurance
coverage provided for the Company and its Subsidiaries by such insurance
policies shall be reasonably satisfactory to the Agents.
(ii) Prior to the Closing Date, the Agents shall have received an
insurance review prepared by J.H. Marsh &
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McLennan in form and substance reasonably satisfactory to the Agents.
(iii) On the Closing Date, the Agents shall have received the
insurance certificates in respect of the Collateral required by the
Security Documents.
(l) Performance Bonds; Surety Lines.
(i) On the Closing Date, the Agents shall be reasonably satisfied
that the Borrowers will be able to service and maintain any performance
bonds that may be required in the ordinary course of business on
reasonable terms and conditions.
(ii) Prior to the Closing Date, the Company and its Subsidiaries
shall have established independent surety lines on terms satisfactory to
the Banks.
(m) Indebtedness, etc. On or prior to the Closing Date and except as
set forth on Schedule 5.21(a) (which shall only cover balance sheet
categories), the Credit Parties and their respective Subsidiaries shall
have repaid or defeased all existing Indebtedness of the categories
specified in clauses (i), (iii), (iv), (v) and (vii) of the definition of
Indebtedness in a manner satisfactory to the Agents.
(n) Security Documents and Guarantees. The Security Documents and
the Guarantees shall have been duly executed and delivered by the
respective parties thereto and there shall have been delivered to the
Collateral Agent (i) certificates representing all Pledged Securities (if
certificated), together with executed and undated stock powers and/or
assignments in blank, (ii) evidence of the filing or making of arrangement
for filing of appropriate financing statements or comparable documents
under the provisions of the UCC and applicable domestic, foreign or local
laws, rules or regulations in each of the offices (including, without
limitation, the United States Patent and Trademark Office and the United
States Copyright Office) where such filing is necessary or appropriate to
grant to the Collateral Agent a perfected first priority Lien in such
Collateral superior to and prior to the rights of all third persons other
than the holders of Prior Liens and subject to no other Liens except Liens
expressly permitted by the applicable Security Document, (iii) tax lien
and judgment searches, to the extent avail-
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able, and certified copies of Requests for Information (Form UCC-11 or the
equivalent) or equivalent reports or lien search reports in the United
States, the United Kingdom and Canada listing all effective financing
statements or comparable documents which name any Credit Party or any of
its Subsidiaries (prior to and after giving effect to the Transaction) as
debtor and which are filed in those jurisdictions in which any of the
Collateral is located and the jurisdictions in which any Credit Party or
any of its Subsidiaries maintains its chief executive office, none of
which shall encumber the Collateral covered or intended or purported to be
covered by the Security Documents except Prior Liens and other Liens
expressly permitted by the applicable Security Document and (iv) evidence
of the completion of all recordings and filings of each Security Document
and delivery of such other security and other documents as may be
necessary (which, in respect of the U.K., will be provided reasonably
contemporaneously with the execution and delivery of the Security
Documents and the Guarantees) or, in the opinion of the Collateral Agent,
desirable to perfect the Liens created, or purported or intended to be
created, by the Security Documents.
(o) No Material Adverse Change. From October 31, 1997 to and
including the Closing Date, there shall have been no material adverse
change in the business, assets, properties, condition (financial or
otherwise) or prospects of the MHE Business or the Company and its
Subsidiaries, taken as a whole, or in the industries in which they
compete, other than the Transaction and the obligations incurred under the
Credit Documents.
(p) Consents, etc. All material governmental and third party
approvals and consents (including, without limitation, all material
approvals and consents required in connection with any environmental
statutes, rules or regulations), if any, in connection with the
Transaction, the transactions contemplated by the Credit Documents and the
Transaction Documents, and in either case otherwise referred to herein or
therein to be completed on or before the Closing Date shall have been
obtained and remain in effect, and all applicable waiting periods shall
have expired without any action being taken by any competent authority
which restrains, prevents or imposes, in the judgment of the Agents,
materially adverse conditions upon the consummation of the Transaction.
There shall not exist any judgment, order, injunction or other restraint
is-
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sued or filed with respect to the making of the Loans hereunder or the
consummation of the Transaction.
(q) Environmental Review. Prior to the Closing Date, there shall
have been delivered to the Agents for each of the Banks an Officers'
Certificate of the Company in substantially the form of Exhibit M hereto
and environmental reviews in form and substance satisfactory to the Agents
from Collier, Shannon, Rill & Scott with respect to the assets of the
Company and its Subsidiaries.
(r) Borrowing Base Certificate. Prior to the initial Revolving Loan,
the Agents and the Banks shall have received and the Agents shall be
satisfied (both as to form and substance) with a Borrowing Base
Certificate which shall be prepared as of a date prior to the Closing Date
that is satisfactory to the Agents which Borrowing Base Certificate shall
indicate that the Borrowing Base as of February 28, 1998 will exceed the
Revolving Loan Borrowing to be incurred on the Closing Date by at least
$1,000,000.
(s) Leases. All material Capital Leases of the Credit Parties or
their respective Subsidiaries and all material Operating Leases of the
Credit Parties or their respective Subsidiaries outstanding immediately
prior to the Transaction shall remain in force after giving effect to the
Transaction.
(t) Solvency. On the Closing Date, the Banks shall have received an
opinion from Valuation Research Corporation and an Officers' Solvency
Certificate in the form of Exhibit N hereto, in each case supporting the
conclusions that, before and after giving effect to the Transaction, the
contemplated borrowings of the full amounts which will be available under
the Total Term Loan Commitments and the Total Revolving Loan Commitments,
the execution of the Guarantees and the Security Documents, none of the
Credit Parties will be insolvent, will be rendered insolvent by the
indebtedness incurred in connection therewith, will be left with
unreasonably small capital with which to engage in its business or will
have incurred debts, including Contingent Obligations, beyond its ability
to pay such debts as they mature.
(u) Conditions Relating to Mortgaged Real Property and Real
Property. On or prior to the Closing Date, the Company shall have caused
to be delivered to the Collat-
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eral Agent, on behalf of the Banks, the following documents and
instruments:
(i) Mortgages encumbering each Mortgaged Real Property set
forth on Schedule 4.01(u)(i) in favor of the Collateral Agent, for
the benefit of the Banks, duly executed and acknowledged by the
Applicable Borrower, and otherwise in form for recording in the
recording office where each such Mortgaged Real Property is
situated, together with such certificates, affidavits,
questionnaires or returns as shall be required in connection with
the recording or filing thereof to create a lien under applicable
law, and such UCC-1 financing statements and other similar
statements as are contemplated by the counsel opinions described in
Section 4.01(b)(iv) in respect of such Mortgage, all of which shall
be in form and substance satisfactory to the Collateral Agent, and
any other instruments necessary to grant a mortgage lien under the
laws of any applicable jurisdiction, which Mortgage and financing
statements and other instruments shall when recorded be effective to
create a first priority Lien on such Mortgaged Real Property subject
to no Liens other than Prior Liens and other Liens expressly
permitted by such Mortgage;
(ii) with respect to each Mortgaged Real Property, (x) such
consents, approvals, amendments, supplements and (y) except in
respect of such property in the United Kingdom, estoppels and tenant
subordination agreements or other instruments as necessary or
required to consummate the Transaction contemplated hereby or as
shall reasonably be deemed necessary by the Collateral Agent in
order for the owner or holder of the fee or leasehold interest
constituting such Mortgaged Real Property to grant the Lien
contemplated by the Mortgage with respect to such Mortgaged Real
Property;
(iii) with respect to each Mortgage of real property located in
the United States, a policy (or commitment to issue a policy) of
title insurance insuring (or committing to insure) the Lien of such
Mortgage as a valid first mortgage Lien on the real property and
fixtures described therein in an amount not less than 115% of the
fair market value thereof, which policies (or commitments) shall (w)
be issued by the Title Company, (x) include such reinsurance
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arrangements (with provisions for direct access) as shall be
reasonably acceptable to the Collateral Agent, (y) contain a
"tie-in" or "cluster" endorsement (if available under applicable
law) (i.e., policies which insure against losses regardless of
location or allocated value of the insured property up to a stated
maximum coverage amount) and have been supplemented by such
endorsements (or where such endorsements are not available, opinions
of special counsel, architects or other professionals reasonably
acceptable to the Collateral Agent to the extent that such opinions
can be obtained at a cost which is reasonable with respect to the
value of the real property subject to such Mortgage) as shall be
reasonably requested by the Collateral Agent (including, without
limitation, endorsements on matters relating to usury, first loss,
last dollar, zoning, contiguity, revolving credit, doing business
and so-called comprehensive coverage over covenants and
restrictions) and (z) contain only such exceptions to title as shall
be Prior Liens or are otherwise agreed to by the Collateral Agent on
or prior to the Closing Date with respect to such Mortgaged Real
Property;
(iv) with respect to each Mortgage of Real Property in Canada,
a legal opinion of counsel to the applicable Credit Party as to
title, encumbrances, priorities and other matters in form and
substance reasonably satisfactory to the Administrative Agent;
(v) with respect to each Mortgaged Real Property, policies or
certificates of insurance as required by the Mortgage relating
thereto, which policies or certificates shall comply with the
insurance requirements contained in such Mortgage;
(vi) with respect to each Mortgaged Real Property, a survey;
(vii) with respect to each Mortgaged Real Property (other than
Mortgaged Real Property in the United Kingdom), UCC, judgment and
tax lien searches (or foreign jurisdiction equivalents, to the
extent available) confirming that the personal property comprising a
part of such Real Property or Mortgaged Real Property is subject to
no Liens other than Prior Liens;
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(viii) with respect to each Mortgaged Real Property (other
than Mortgaged Real Property in the United Kingdom), such
affidavits, certificates, information (including financial data) and
instruments of indemnification (including, without limitation, a
so-called "gap" indemnification) as shall be required to induce the
Title Company to issue the policy or policies (or commitment) and
endorsements contemplated in subparagraph (iii) above;
(ix) evidence acceptable to the Collateral Agent of payment
(should it be required to be made on or prior to the Closing Date)
by the appropriate Credit Party or Subsidiary thereof of all
applicable title insurance premiums (if applicable), search and
examination charges, survey costs and related charges, mortgage
recording taxes, fees, charges, costs and expenses required for the
recording of the Mortgages and issuance of the title insurance
policies (if applicable) referred to in subparagraph (iii) above;
(x) with respect to each Real Property or Mortgaged Real
Property, copies of all Leases, leases in which a Credit Party or
Subsidiary thereof holds the tenant's interest or other agreements
relating to possessory interests. To the extent any of the foregoing
affect any Mortgaged Real Property, the interest of any tenant of a
Credit Party created by such agreement shall be subordinate to the
Mortgage to be recorded against such Mortgaged Real Property (other
than Mortgaged Real Property in the United Kingdom) and otherwise
acceptable to the Collateral Agent; and
(xi) with respect to each Mortgaged Real Property (other than
Mortgaged Real Property in the United Kingdom), an Officers'
Certificate or other evidence satisfactory to the Collateral Agent
that as of the date thereof there (x) has been issued and is in
effect a valid and proper certificate of occupancy or other local
equivalent, if any, for the use then being made of such Mortgaged
Real Property and that there is not outstanding any citation,
violation or similar notice indicating that such Mortgaged Real
Property contains conditions which are not in compliance with local
codes or ordinances relating to building or fire safety or
structural soundness, (y) has not occurred any Taking or Destruction
of any Mortgaged Real Property or Real Property and (z) are
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no disputes regarding boundary lines, location, encroachment or
possession of any Real Property or Mortgaged Real Property and no
state of facts existing which could give rise to any such claim
which could reasonably be expected to have a material adverse effect
on the value or utility of such Real Property or Mortgaged Real
Property.
(v) Labor Matters. There shall be no labor disputes, strikes or work
stoppages, pending or threatened, involving any Credit Party or any of
their Subsidiaries that could reasonably be expected to adversely affect
the consummation of the Transaction or that could reasonably be expected
to have a Material Adverse Effect.
(w) Recapitalization Documents, etc. There shall be no litigation by
any Person pending, or to any Borrower's knowledge threatened, with
respect to the Recapitalization documents that, in the Agents' good faith
judgment, could reasonably be expected to have a Material Adverse Effect
after giving effect to the Recapitalization, and the Agents shall be
reasonably satisfied with the capital, organizational and management
structure of Holdings and the Borrowers and each of their Subsidiaries.
The acceptance of the proceeds of each Borrowing of Initial Loans
shall constitute a representation and warranty by each Borrower to each of the
Banks that all of the applicable conditions specified above have been satisfied
or waived as of that time and that, at the time of a Borrowing of such Initial
Loan (or substantially contemporaneous therewith), the conditions specified in
Section 4.02 have been satisfied, in all material respects, or waived. All of
the certificates, legal opinions and other documents and papers referred to in
this Section 4.01, unless otherwise specified, shall be delivered to each Agent
at the Administrative Agent's Office (or such other location as may be specified
by the Agents) for the account of each of the Banks and in sufficient
counterparts for each of the Banks and shall be satisfactory in form and
substance to the Agents.
4.02. Conditions Precedent to All Loans. The obligation of the Banks
to make all Loans (which term shall not include a conversion or continuation of
a Loan), including the Initial Loans, is subject, at the time of each such Loan,
to the satisfaction of the following conditions:
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(a) Effectiveness. This Agreement shall have become effective as
provided in Section 11.10.
(b) No Default; Representations and Warranties. At the time of the
making of each Loan and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties contained herein or in the other Credit Documents in effect at
such time shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and
as of the date of the making of such Loan, unless such representation and
warranty expressly indicates that it is being made as of any other
specific date in which case on and as of such other date.
(c) Adverse Change, etc. (i) Since October 31, 1997, nothing shall
have occurred or become known which the Required Banks or the
Administrative Agent shall have determined could reasonably be expected to
have a Material Adverse Effect.
(ii) All material governmental and third party approvals and consents
(including, without limitation, all material approvals and consents
required in connection with any environmental statutes, rules or
regulations), if any, in connection with the conduct of the business of
the Company and its Subsidiaries, taken as a whole, shall have been
obtained and remain in effect.
(iii) There shall not exist any judgment, order, injunction or other
restraint issued or filed with respect to the making of any Loan hereunder
in accordance with the terms of this Agreement.
(d) Documentation and Opinions of Counsel. The Administrative Agent
shall have received such documentation and opinion or opinions, addressed
to each of the Banks, from counsel to each Credit Party as may be
reasonably required, with reasonable notice under the circumstances, by
and shall be reasonably satisfactory to the Administrative Agent from (i)
such counsel to each Credit Party and (ii) appropriate local counsel,
which opinions shall cover such matters as reasonably requested by, and be
in form and substance satisfactory to, the Administrative Agent.
(e) Margin Rules. On the date of each Borrowing of Loans, neither
the making of any Loan nor the use of the
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proceeds thereof will violate the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System.
(f) Borrowing Base Certificate. The Administrative Agent and the
Required Banks shall have received and shall be reasonably satisfied (both
as to form and substance) with the Borrowing Base Certificate last
delivered to the Banks.
(g) Real Property Disclosure. Each Credit Party shall have made all
notifications, registrations, and filings in accordance with all State,
Local and Foreign Disclosure Requirements applicable to the Real Property,
including the use of forms provided by state or local agencies, where such
forms exist, whether to the Borrowers or to or with the state or local
agency to the extent failure to make such filings could reasonably be
expected to have a Material Adverse Effect.
The acceptance of the proceeds of each Borrowing of Loans shall
constitute a representation and warranty by each Borrower to each of the Banks
that all of the applicable conditions specified in Section 4.02 have been
satisfied or waived.
All of the certificates, legal opinions and other documents and
papers referred to in this Section 4.02, unless otherwise specified, shall be
delivered to the Administrative Agent at the Administrative Agent's Office (or
such other location as may be specified by the Administrative Agent) for the
account of each of the Banks and in sufficient counterparts for each of the
Banks and shall be satisfactory in form and substance to the Administrative
Agent.
4.03. Additional Conditions Precedent to Acquisition Term Loans. The
obligations of the Banks to make the Acquisition Term Loans (which shall not
include a conversion or continuation of any such Loan), including any
Acquisition Term Loan made on the Closing Date, are subject to the satisfaction
of the following additional conditions:
(a) Each Acquisition Term Loan shall be made solely to effect a
Designated Acquisition and costs and expenses incurred therewith, or to
repay Indebtedness incurred pursuant to Section 7.04(i);
(b) No later than ten Business Days (or four Business Days with
respect to a Designated Acquisition for
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which the consent of the Required Banks is not required) prior to the
Acquisition Term Loan Closing Date (except to the extent the
Administrative Agent agrees to a shorter period), the Administrative Agent
shall have received each of the following with respect to the consummation
of the Designated Acquisition to be financed with the proceeds of such
Acquisition Term Loan; provided that if the Designated Acquisition
involves a total acquisition price of $5,000,000 or less the information
specified in (y) clause (i) below need not be audited or reviewed and
shall only be provided if available from the Designated Acquisition or can
be prepared without undue expense and (z) clause (iii) below need not be
furnished:
(i) (A) audited financial statements, prepared in accordance
with GAAP, including a balance sheet and statements of income and
cash flows of the entity listed as the Designated Acquisition for
the most recent full fiscal year or years that would be required to
be included in any filing made with the SEC; provided that if such
audited financial statements are not available, then a detailed
accounting review similar to those undertaken and completed in
transactions previously consummated by the Company and its
Subsidiaries shall be performed by a "Big Five" accounting firm (or
other firm reasonably satisfactory to the Administrative Agent) and
(B) unaudited financial statements, prepared in accordance with
GAAP, including a balance sheet and statements of income and cash
flows of the entity listed as the Designated Acquisition for each of
the interim periods subsequent to the audited financial statements
referred to in clause (A) above;
(ii) a pro forma Borrowing Base Certificate and a pro forma
balance sheet and pro forma consolidated statements of income and
cash flows of the Company and its Subsidiaries, after giving effect
to the consummation of the Designated Acquisition, as at the end of
the most recent month for which financial statements are available;
(iii) projections for the Designated Acquisition, substantially
in the form of the projections provided pursuant to Section 4.01(j)
or otherwise in a form acceptable to the Administrative Agent, for
the Designated Acquisition's then current calendar year or the
Company's then current fiscal year and the next
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four succeeding calendar years of the Designated Acquisition or
fiscal years of the Company, prepared in accordance with the
Designated Acquisition's normal accounting procedures (and which
will represent management's reasonable estimate of the projected
performance of the Designated Acquisition and its Subsidiaries
during such periods) applied on a consistent basis, including,
without limitation (i) forecasted consolidated balance sheets,
consolidated statements of operations, of stockholders' equity and
of cash flows of the Designated Acquisition and its Subsidiaries on
a consolidated basis for such periods, (ii) the amount of forecasted
capital expenditures for the Designated Acquisition for such
periods, and (iii) an appropriate discussion of the principal
assumptions on which such projections are based; provided, however,
that if any such forecast indicates that the Company may not be in
compliance with any provision of this Agreement at some future date,
such forecast shall not constitute a Default or Event of Default or
anticipatory or other breach hereof,
(iv) an Officers' Certificate of the Company with respect to
the Designated Acquisition,
(x) certifying to the preparation of the pro forma
financial statements referenced in subclauses (ii) and (iii),
if required, and certifying that, both before and after giving
effect to such Designated Acquisition, no Default or Event of
Default shall exist, and that, on a pro forma basis, the
Company and its Subsidiaries (including any direct or indirect
Subsidiary of the Company to be acquired in the contemplated
Designated Acquisition) will be in compliance with the
covenants set forth herein (based on the latest twelve months
results of operations), and setting forth the calculations
required to establish such pro forma compliance;
(y) certifying that from the date of the financial
statements delivered pursuant to Section 4.03(b)(i)(A) to and
including the Acquisition Term Loan Closing Date, there shall
have been no material adverse change in the business, assets,
properties, condition (financial or otherwise) or prospects of
the Company and its Sub-
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sidiaries, taken as a whole, or the Designated Acquisition
entity; and
(z) certifying that the conditions set forth in each of
Sections 4.02 and 4.03 (other than the completion of filings
and recordings to be performed upon the Acquisition Term Loan
Closing Date) have been satisfied with respect to such
proposed Acquisition Term Loan Borrowing;
(c) If the Designated Acquisition involves a Borrowing of
Acquisition Term Loans or the use of proceeds of other Indebtedness of
$10,000,000 or more or a total acquisition price of $15,000,000 or more,
the consent of the Required Banks;
(d) The Company and its Subsidiaries shall have complied, in all
material respects, with the provisions of Sections 6.14, 6.15 (including a
Phase I (or a review similar in scope for foreign Designated Acquisitions)
environmental review of the Designated Acquisition entity or an additional
review at the request of the Administrative Agent from an environmental
assessment firm of national standing, in a form satisfactory to the
Administrative Agent) and 6.16 as to any property acquired or to be
acquired in connection with such Designated Acquisition, except for any
such provisions with which compliance is waived by the Administrative
Agent in its sole discretion, including, without limitation and to the
extent required by the referenced Sections, that the Company and its
Subsidiaries (including any Subsidiary so acquired) shall execute and
deliver to the Administrative Agent any additional Security Documents (or
Guarantees) required to provide the Administrative Agent for the benefit
of the Banks with a valid, perfected Lien in any Collateral to be acquired
in such Designated Acquisition;
(e) The Administrative Agent shall be reasonably satisfied that the
Company and its Subsidiaries shall have completed their appropriate and
customary due diligence with respect to the Designated Acquisition entity,
including but not limited to environmental, legal, accounting and
operational reviews similar to those undertaken and completed in
transactions previously consummated by the Company;
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(f) There shall be delivered to the Administrative Agent upon
consummation of the Designated Acquisition, a complete set of the
documents effecting such acquisition, together with all schedules and
exhibits (including, without limitation the acquisition agreement);
(g) Any fees or expenses of any Agent or the Banks which are then
due and payable, whether due in connection with such Acquisition Term Loan
Borrowing or otherwise, shall have been paid in full prior to, or
simultaneously with, the Acquisition Term Loan Closing; and
(h) From the date of the financial statements delivered pursuant to
Section 4.03(b)(i)(A) to and including the date of the Acquisition Term
Loan Borrowing, there shall have been no material adverse change in the
business, assets, properties, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or the
Designated Acquisition entity.
4.04. Conditions Precedent to All Letters of Credit. The right of
any Borrower to obtain the issuance of any Letter of Credit that the relevant
Issuing Bank determines to issue in its sole discretion hereunder is subject to
prior or concurrent satisfaction of all of the following conditions:
(A) Required Documentation. On or prior to the date of issuance of a
Letter of Credit, the Administrative Agent shall have received, in
accordance with the provisions of Section 1.13, a request for issuance
with respect to such Letter of Credit (the furnishing by such Borrower of
each such request for issuance shall be deemed to constitute a
representation and warranty of the Borrower to the effect that the
conditions set forth in Sections 4.01 (to the extent Letters of Credit are
issued on the date the Initial Loans are made) and 4.02 are satisfied as
of the date of delivery and will be satisfied on the relevant date of
issuance), all other information specified in Section 1.13, and such other
documents as the Issuing Bank may reasonably require in connection with
the issuance of such Letter of Credit.
(B) Conditions. On the date of issuance of each such Letter of
Credit, all conditions precedent described in Sections 4.01 (to the extent
Letters of Credit are issued on the date the Initial Loans are made) and
4.02 shall be satisfied to the same extent as though the issu-
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ance of such Letter of Credit were the making of a Revolving Loan.
SECTION 5. Representations, Warranties and Agreements. In order to
induce the Agents and the Banks to enter into this Agreement and to make the
Loans provided for herein, the Borrowers, jointly and severally, make the
following representations and warranties to, and agreements with, the Agents and
the Banks, all of which shall survive the execution and delivery of this
Agreement and the making of the Loans (with the execution and delivery of this
Agreement and the making of each Loan thereafter being deemed to constitute a
representation and warranty that the matters specified in this Section 5 are
true and correct in all material respects both before and after giving effect to
the Transaction and the related transactions and as of the date of each such
Loan unless such representation and warranty expressly indicates that it is
being made as of any specific date):
5.01. Status. (a) The Company and each of the Company's Subsidiaries
(i) is a duly organized and validly existing corporation, limited liability
company or other entity in good standing under the laws of the jurisdiction of
its organization; (ii) has the requisite corporate or other organizational power
and authority and has obtained all requisite governmental licenses,
authorizations, consents and approvals to own and operate its property and
assets and to transact the business in which it is engaged and presently
proposes to engage, except for those governmental licenses, authorizations,
consents or approvals the failure of which to be so obtained would not have a
Material Adverse Effect and (iii) is duly qualified, or as of the Closing Date
has taken appropriate steps to qualify, and is authorized to do business, or as
of the Closing Date has taken appropriate steps to be authorized to do business,
and is in good standing in all jurisdictions where it is required to be so
qualified and where the failure to be so qualified would have a Material Adverse
Effect.
(b) The Company was incorporated on March 4, 1998. Prior to the
Closing Date, the Company has not engaged in any business or incurred any
liabilities except for activities, expenses and liabilities incident to its
organization and to the carrying out of the Transaction or the Transaction
Documents.
5.02. Corporate Power and Authority; Business. Each Credit Party and
each of its respective Subsidiaries has the requisite corporate or other
organizational power and authority to execute, deliver and carry out the terms
and provisions of
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the Documents to which it is a party and has taken all necessary corporate or
other organizational action to authorize the execution, delivery and performance
of the Documents to which it is a party. Each Credit Party and each of its
respective Subsidiaries has duly executed and delivered each Document to which
it is a party and each such Document constitutes the legal, valid and binding
obligation of such Person enforceable in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
5.03. No Violation. Neither the execution, delivery and performance
by any Credit Party or its respective Subsidiaries of this Agreement or the
other Documents to which it is a party nor compliance with the terms and
provisions hereof and thereof, nor the consummation of the Transaction
contemplated herein and therein (i) will contravene any applicable provision of
any law, statute, rule, regulation, order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or (other than pursuant to the
Security Documents, the Surety Arrangement or trustee liens under the Indenture)
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of any Credit Party or its
respective Subsidiaries pursuant to the terms of any indenture, mortgage, deed
of trust, agreement or other instrument to which any Credit Party or its
respective Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it may be subject or (iii) will violate any
provision of the charter or by-laws or the certificate of formation or operating
agreement, or the foreign equivalent of such documents, as applicable, of any
Credit Party or its respective Subsidiaries, except, in each case, where such
contravention, conflict, inconsistency, breach, default, creation, imposition,
obligation or violation would not have a Material Adverse Effect.
5.04. Litigation. Schedule 5.04 lists all outstanding litigation of
the Company and its Subsidiaries. There are no actions, judgments, suits or
proceedings pending or, to any Borrower's knowledge, threatened with respect to
(i) the transactions contemplated by the Documents or (ii) any Credit Party or
its respective Subsidiaries which could reasonably be expected to have a
Material Adverse Effect.
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5.05. Use of Proceeds. (a) The proceeds of all A Term Loans and B
Term Loans to be made to the Company hereunder shall be utilized by the Company
to finance the Recapitalization and to pay related fees and expenses.
(b) Proceeds the Revolving Loans and proceeds of the Swingline Loans
shall be utilized for working capital and other general corporate purposes;
provided that on and after the earlier to occur of (x) the Acquisition Term Loan
Commitment Termination Date or (y) after the Acquisition Term Loans have been
fully borrowed, if the applicable borrowing conditions have been met, up to
$12,500,000 aggregate principal amount at any time outstanding of Revolving
Loans (plus at any time an amount, determined in accordance with Section 6.18,
of Cash that is used to pay or replace Revolving Loans that may be reborrowed to
finance Designated Acquisitions) may be used to finance Designated Acquisitions
if, on a pro forma basis after giving effect to the Designated Acquisition, the
ratio of Indebtedness for borrowed money of the Company and its Subsidiaries,
after giving effect to the Revolving Loans to be made, on the last day of the
fiscal quarter immediately preceding the date of calculation to Consolidated
EBITDA of the Company for the Test Period ending at the end of such fiscal
quarter is less than 4.75 to 1.00 on a pro forma basis after giving effect to
any Designated Acquisitions made during the Test Period and there would be at
least $10,000,000 of Revolving Loans available to be borrowed, after giving
effect to the Borrowing for the Designated Acquisition.
(c) All the proceeds of each of the Acquisition Term Loans to be
made hereunder shall be utilized to provide the financing required to consummate
Designated Acquisitions, to pay related fees and expenses and to pay
Indebtedness permitted by Section 7.04(i).
(d) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
5.06. Governmental Approvals, etc. Except as set forth on Schedule
5.06, no order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any third party or any
foreign or domestic governmental or public body or authority, or by any
subdivision thereof (other than those orders, consents, approvals, licenses,
authorizations or validations which, if not obtained or made, would not
reasonably be expected to have a Ma-
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terial Adverse Effect or which have previously been obtained or made, or filings
to perfect security interests granted pursuant to the Security Documents, which
will be accomplished on or prior to the Closing Date), is required to authorize
or is required in connection with (i) the execution, delivery and performance of
any Document or the Transaction contemplated therein or (ii) the legality,
validity, binding effect or enforceability of any Document. At the time of the
making of the Initial Loans, there does not exist any judgment, order,
injunction or other restraint issued or filed with respect to the consummation
of the Transaction or the making of Loans or the performance by the Credit
Parties or their respective Subsidiaries of their respective obligations under
the Documents.
5.07. Investment Company Act. No Credit Party or any of its
respective Subsidiaries is, or will be after giving effect to the transactions
contemplated hereby, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, or subject to any foreign, federal or local statute or regulation
limiting its ability to incur indebtedness for money borrowed or guarantee such
indebtedness as contemplated hereby or by any other Credit Document.
5.08. Public Utility Holding Company Act. No Credit Party or any of
its respective Subsidiaries is, or will be after giving effect to the
transactions contemplated hereby, a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.09. True and Complete Disclosure. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Credit Parties in writing to any Bank (including, without limitation, all
information contained in the Credit Documents) pursuant to this Agreement is (or
was, on the date of making the Initial Loans), and all other such factual
information (taken as a whole) hereafter furnished by any such Person in writing
to any Bank pursuant to this Agreement will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information not misleading at such time in light of the circumstances under
which such information was provided. The projections and pro forma financial
information contained in such materials are based on good faith estimates and
assumptions believed by such Persons to be reasonable
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at the time made, it being recognized by the Banks that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected
results. There is no fact known to any Credit Party which materially and
adversely affects the business, operations, property, assets, nature of assets,
liabilities, condition (financial or otherwise) or prospects of the Credit
Parties, taken as a whole, which has not been disclosed herein or in such other
documents, certificates and written statements furnished to the Banks.
5.10. Transaction. At the time of making the Initial Loans, all
necessary governmental and third-party approvals in connection with the
Transaction have been or, prior to the time when required, will have been,
obtained and remain in effect, and all applicable waiting periods have or, prior
to the time when required, will have, expired without, in all such cases, any
action being taken by any competent authority which is reasonably likely to have
a Material Adverse Effect on the Transaction.
5.11. Financial Condition; Financial Statements; Projections. (a) No
Credit Party is entering into the arrangements contemplated hereby and by the
other Credit Documents, or intends to make any transfer or incur any obligations
hereunder or thereunder with actual intent to hinder, delay or defraud either
present or future creditors. On and as of the Closing Date, on a pro forma basis
after giving effect to the Transaction and to all Indebtedness incurred and
Liens and Guarantees created, or to be created, by each Credit Party or its
respective Subsidiaries in connection with the Transaction, (w) none of the
Borrowers expects that final judgments against any Credit Party or its
respective Subsidiaries in actions for money damages with respect to pending or,
to its knowledge, threatened litigation will be rendered at a time when, or in
an amount such that, such Credit Party will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered and the cash available
to each Credit Party or its respective Subsidiaries, after taking into account
all other anticipated uses of the cash of such Credit Party or its respective
Subsidiaries (including the payments on or in respect of debts and insurance
proceeds (including their Contingent Obligations)); (x) no Credit Party or its
respective Subsidiaries will have incurred or intends to, or believes that it
will, incur debts beyond its ability to pay such debts as such debts mature
(taking into account the
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timing and amounts of cash to be received by such Credit Party or its respective
Subsidiaries from any source, and of amounts to be payable on or in respect of
debts of such Credit Party or its respective Subsidiaries and the amounts
referred to in the preceding clause (w)); (y) each Credit Party or its
respective Subsidiaries, after taking into account all other anticipated uses of
the cash of such Credit Party or its respective Subsidiaries, anticipates being
able to pay all amounts on or in respect of debts of such Credit Party or its
respective Subsidiaries when such amounts are required to be paid; and (z) each
Credit Party and its respective Subsidiaries will have sufficient capital with
which to conduct its present and presently proposed business and the property of
such Credit Party and its respective Subsidiaries does not constitute
unreasonably small capital with which to conduct its present or proposed
business, taking into account the particular capital requirements of the
business conducted by such Credit Party, the projected capital requirements
thereof and the capital availability thereof. For purposes of this Section 5.11,
"debt" means any liability on a claim, and "claim" means a (i) right to payment
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured; or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured. On the date of each
Borrowing and the issuance of each Letter of Credit (and after giving effect to
all Borrowings and Letters of Credit as of such date), the representations set
forth in this Section 5.11(a) shall be true and correct with respect to such
Borrower on such date and any Credit Party which is a guarantor with respect to
any or all of such Borrowings or Letters of Credit.
(b) The Company has heretofore delivered to the Banks combined
financial statements audited by Price Waterhouse LLP including a balance sheet
as of the years ended October 31, 1996 and October 31, 1997 and statements of
income and of cash flows of the MHE Business for the fiscal years ended October
31, 1995, October 31, 1996 and October 31, 1997 and unaudited financial
statements for the thirteen-week period ended January 31, 1998. Except as
otherwise noted therein, the financial statements referred to in the preceding
sentence were prepared in accordance with GAAP consistently applied and fairly
present the financial position and results of operations of the MHE Business for
the periods covered thereby. There has also been delivered the pro forma (after
giving effect to the Transac-
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tion) balance sheet of the Company and its Subsidiaries as of January 31, 1998,
which presents a good faith estimate of the consolidated pro forma financial
position of the Company and its Subsidiaries for such periods.
The assumptions made in preparing such pro forma balance sheet are
reasonable as of the date of such statements and as of the Closing Date and all
material assumptions are set forth therein. Except as contemplated hereby, since
October 31, 1997 (on a pro forma basis after giving effect to the Transaction)
no event or events have occurred that could reasonably be expected to have a
Material Adverse Effect.
(c) There have heretofore been delivered to the Banks pro forma
consolidated income projections for the Company and its Subsidiaries, pro forma
consolidated balance sheet projections for the Company and its Subsidiaries and
pro forma consolidated cash flow projections for the Company and its
Subsidiaries, all for the fiscal years ending October 31, 1998 through October
31, 2002, inclusive (the "Projected Financial Statements"), which give effect to
the Transaction and all Indebtedness incurred or created in connection with the
Transaction. The assumptions made in preparing the Projected Financial
Statements are reasonable as of the date of such projections and as of the
Closing Date and all material assumptions with respect to the Projected
Financial Statements are set forth therein, it being recognized by the Banks
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results.
(d) As of the Closing Date, except as fully reflected or reserved
against in the financial statements and the notes thereto described in Section
5.11(b), to the knowledge of the Borrowers there were no liabilities or
obligations with respect to the Company or its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, would reasonably be
expected to result in a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole. As of the Closing Date, no Borrower knows of any
basis for the assertion against the Company or its Subsidiaries of any liability
or obligation of any nature whatsoever that is not fully reflected in the
financial statements described in Section 5.11(b) or (c), except as incurred by
the Company or its Subsidiaries in connection with the Transaction, which,
either individually or in the aggregate, could reasonably be expected
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to be material to the Company and its Subsidiaries, taken as a whole.
5.12. Security Interests. The Security Documents, taken as a whole,
if a filing will perfect a Lien, when filed and/or recorded, will create, in
favor of the Collateral Agent for the benefit of the Banks, as security for the
obligations purported to be secured thereby, a valid and enforceable perfected
first priority security interest in and Lien upon all of the Collateral,
superior to and prior to the rights of all third persons other than holders of
Prior Liens and subject to no other Liens except Liens expressly permitted by
the applicable Security Document. The mortgagor under each Mortgage has good and
marketable (or indefeasible) title to the Mortgaged Real Property owned by such
Credit Party free and clear of all Liens other than Prior Liens. The respective
Pledgor or assignor, as the case may be, has (or on and after the time it
executes the respective Security Document, will have) good and marketable title
(subject to securities laws affecting such transferability) to all items of
Collateral (other than real property subject to a Mortgage and except as set
forth on Schedule 5.21(b) hereto) owned by such Credit Party covered by such
Security Document free and clear of all Liens except Prior Liens and other Liens
expressly permitted by the applicable Security Document. No filings or
recordings are required in order to perfect the security interests created under
any Security Document except for filings or recordings required in connection
with any such Security Document which shall have been made prior to or
reasonably contemporaneously with the execution and delivery thereof.
5.13. Tax Returns and Payments. Each of the Credit Parties and each
of its respective Subsidiaries has timely filed all material federal, state,
provincial and other material returns, statements, forms and reports for taxes
(the "Returns") required to be filed by it with respect to its income,
properties or operations and has paid all material taxes (including, without
limitation, taxes based on net income or net profits) and assessments payable by
it which have become due, other than those not yet delinquent and except for
those contested in good faith and for which adequate reserves have been
established. Each of the Credit Parties and each of its respective Subsidiaries
has paid, or has provided adequate reserves (in accordance with GAAP) for the
payment of, all federal, state, local and foreign income taxes (including,
without limitation, franchise taxes based upon income or profits) applicable for
all prior fiscal years and for the current fiscal year to the date hereof other
than as set forth on Schedule
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5.13. No Borrower knows of any proposed tax assessment against any Credit Party
or any of its respective Subsidiaries that could reasonably be expected to have
a Material Adverse Effect which is not being actively contested in good faith by
such Person to the extent affected thereby in good faith and by appropriate
proceedings; provided that such reserves or other appropriate provisions, if
any, as shall be required in conformity with GAAP shall have been made or
provided therefor. The pro forma financial statements delivered pursuant to
Section 5.11(b) reflected all taxes reasonably believed at the time of delivery
thereof to result from the transactions contemplated by the Transaction.
5.14. ERISA. No ERISA Event has occurred or is reasonably expected
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations of all underfunded Pension Plans (based on the assumptions
used for purposes of Statement of Financial Accounting Standards No. 87) did
not, as of the date of the most recent financial statements reflecting such
amounts, exceed by more than $250,000 the fair market value of the assets of all
such underfunded Pension Plans. Each ERISA Entity is in compliance in all
material respects with the presently applicable provisions of ERISA and the Code
with respect to each Employee Benefit Plan. Each ERISA Entity and each of the
Foreign Plans are in compliance in all material respects with all applicable
laws and regulations with respect to the Foreign Plans and the terms of the
Foreign Plans, and all required contributions have been made to the Foreign
Plans.
5.15. Subsidiaries. After giving effect to the Transaction, all of
the outstanding units or common stock, as the case may be, of each Credit Party
shall be validly issued, fully paid and nonassessable and shall be owned
beneficially and of record by each Credit Party as set forth as Schedule 5.15
hereto, subject to no Liens other than Liens in favor of the Collateral Agent.
Other than as set forth on Schedule 5.19, after giving effect to the
Transaction, there shall be no preemptive rights on the part of any holder of
any class of securities of any Credit Party or other rights, such as warrants or
options, to acquire any class of securities of any Credit Party.
5.16. Patents, etc. Each Credit Party or its respective Subsidiaries
owns or possesses adequate licenses or other rights to use all material patents,
patent applications,
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trademark registrations, trademark applications, servicemark registrations,
servicemark applications, trade names, copyright registrations, trade secrets
and know how (collectively, the "Intellectual Property") that are necessary for
the operation of its respective businesses as presently conducted and as
currently proposed to be conducted. No claim is pending or, to the knowledge of
each Credit Party and its respective Subsidiaries, threatened to the effect that
any Credit Party or its respective Subsidiaries infringes upon or conflicts with
the asserted rights of any other person under any Intellectual Property, and, to
the knowledge of each Borrower, there is no basis for any such claim (whether or
not pending or threatened), except for such claims that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect. No
claim is pending or, to the knowledge of each Borrower, threatened to the effect
that any such Intellectual Property owned or licensed by any Credit Party or its
respective Subsidiaries or which any Credit Party or its respective Subsidiaries
otherwise has the right to use, is invalid or unenforceable by such Credit Party
or its respective Subsidiaries, and, to the knowledge of each Borrower, there is
no basis for any such claim (whether or not pending or threatened).
5.17. Compliance with Laws, etc. Each Credit Party and its
respective Subsidiaries is in material compliance with all laws and regulations
in all jurisdictions in which it is presently doing business, and each Credit
Party and its respective Subsidiaries will comply with all such laws and
regulations which may be imposed in the future in jurisdictions in which it or
such Subsidiary may then be doing business, except to the extent the
non-compliance with such laws and regulations would not reasonably be expected
to have a Material Adverse Effect. To the knowledge of each Borrower, no Credit
Party is currently under investigation for the violation of any crime the
conviction for which would reasonably be expected to have a Material Adverse
Effect.
5.18. Properties. Each Credit Party or its respective Subsidiaries
has good and marketable (or indefeasible) title to and beneficial ownership of
all material properties owned by it, including after giving effect to the
Transaction all property reflected in the pro forma balance sheet referred to in
Section 5.11(b) (except as sold or otherwise disposed of since the date of such
balance sheet in the ordinary course of business or as permitted by this
Agreement or the Security Documents), free and clear of all Liens, other than,
in the case of property not constituting Collateral, Permitted Encumbrances and,
in the case of property constituting Collateral,
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Prior Liens and other Liens expressly permitted by the applicable Security
Document. Each Credit Party or its respective Subsidiaries holds all licenses,
certificates of occupancy or operation and similar certificates and clearances
of municipal and other authorities necessary to own and operate its properties
in the manner and for the purposes currently operated by such party except where
the failure to hold such licenses, certificates or clearances would not
reasonably be expected to have a Material Adverse Effect. Each Real Property and
each Mortgaged Real Property is suitable for its intended purposes and is served
by such utilities as are necessary for the operation thereof. Except as
disclosed to the Administrative Agent in writing, there are no actual,
threatened or alleged defaults of a material nature with respect to any material
Leases of Real Property under which any Credit Party or any of its respective
Subsidiaries is lessor or lessee.
5.19. Securities. Except as set forth on Schedule 5.19 hereto, there
are not, as of the Closing Date, any existing options, warrants, calls,
subscriptions, convertible or exchangeable securities, rights, agreements,
commitments or arrangements for any Person to acquire any equity security of any
Credit Party or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any such equity security.
5.20. Collective Bargaining Agreements. Set forth on Schedule 5.20
hereto is a list and description (including dates of termination) of all
collective bargaining or similar agreements between or applicable to any Credit
Party or its respective Subsidiaries as of the date hereof and any union, labor
organization or other bargaining agent in respect of the employees of any Credit
Party or its respective Subsidiaries on the date indicated in Schedule 5.20
hereto.
5.21. Indebtedness Outstanding; Prior Liens. (a) Set forth on
Schedule 5.21(a) hereto is a list and description of (i) all Indebtedness of the
types specified in clauses (i), (iii), (iv), (v) and (vii) of the definition of
Indebtedness of the Credit Parties and their respective Subsidiaries (other than
the Loans) that shall be outstanding immediately after the Closing Date and (ii)
all Indebtedness of the Credit Parties and their respective Subsidiaries that
was repaid, defeased, transferred or otherwise terminated on or prior to the
Closing Date in connection with the Transaction.
(b) Schedule 5.21(b) hereto sets forth a true list, with respect to
assets in the United States, United Kingdom and
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Canada and, to the Company's knowledge, other jurisdictions, of all Liens other
than Permitted Encumbrances as described in Sections 7.03(a)-(n) on the property
of the Credit Parties immediately following the Closing Date.
5.22. Environmental Protection. Except as set forth on Schedule 5.22
hereto and except as would not be reasonably expected to have a Material Adverse
Effect,
(a) Each Credit Party and its respective Subsidiaries has obtained
all permits, licenses and other authorizations (hereinafter collectively
referred to as "Authorizations") which are required with respect to the
operation of the business and assets, and use, ownership and operation of
Real Property of the Company and its Subsidiaries, in each case taken as a
whole, under any Environmental Law and each such authorization is in full
force and effect.
(b) Each Credit Party and its respective Subsidiaries is in
compliance with all terms and conditions of the permits, licenses and
authorizations specified in subsection 5.22(a) above, and is also in
compliance with, and not subject to liability under, any Environmental
Laws applicable to it and its business, assets, operations and Real
Property (including, without limitation, compliance with standards,
schedules and timetables therein).
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the
knowledge of any Borrower, threatened against any Credit Party or any of
its respective Subsidiaries under any Environmental Law.
(d) None of the Credit Parties nor any of its respective
Subsidiaries has received written notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (CERCLA) or
any comparable state or foreign law nor has any Credit Party or any of its
respective Subsidiaries received any written notification that any
Hazardous Materials that it, or any of its Subsidiaries, or any of their
respective predecessors in interest has used, generated, stored, treated,
handled, transported or disposed of, or arranged for disposal or treatment
of, or arranged with a transporter for transport for disposal or treatment
of, have been found at
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any site at which any governmental agency or private party is conducting
or plans to conduct a remedial investigation or other action pursuant to
any Environmental Law.
(e) There have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping) of
Hazardous Materials by any Credit Party or any of its respective
Subsidiaries or their respective predecessors in interest on, at, upon,
under, into or from any of the Real Properties. To the knowledge of each
Borrower after due inquiry there have been no such releases on, at, upon,
under, from or into any real property in the vicinity of any of the Real
Properties that, through soil, air, surface water or groundwater migration
or contamination, may have migrated to or under such Real Properties.
(f) No asbestos is present in, on, or at any Real Properties or any
facility or equipment of any Credit Party or any of its respective
Subsidiaries.
(g) No Real Properties of any Credit Party or any of its respective
Subsidiaries or, to the knowledge of each Credit Party, any of their
respective predecessors in interest are (i) listed or proposed for listing
on the National Priorities List under CERCLA or (ii) listed in the
Comprehensive Environmental Response, Compensation, Liability Information
System List promulgated pursuant to CERCLA or (iii) included on any
comparable lists maintained by any governmental authority.
(h) There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere
with or prevent compliance with any Environmental Law, or which may give
rise to any liability under any Environmental Law, including, without
limitation, liability under CERCLA or similar state, local or foreign
laws, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing or notice of violation, notice of potential liability
or investigation, based on or related to the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport,
shipping or handling, or the emission, discharge, release or threatened
release into the environment, of any Hazardous Materials.
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(i) No Lien has been recorded under any Environmental Law with
respect to any assets, facility, inventory or Real Property owned,
operated, leased or controlled by any Credit Party or any of its
respective Subsidiaries.
(j) No Credit Party has assumed by contract, agreement or otherwise
any liability or obligation under any Environmental Law.
5.23. Environmental Investigations. To the knowledge of senior
management of the Company, all environmental investigations, studies, audits,
assessments or reviews in the possession, custody or control of any Credit Party
which relates to the current or prior business or assets of any Credit Party or
any of its respective Subsidiaries or any Real Property, assets or facility now
or previously owned, operated, leased, used or controlled by any Credit Party or
any of its respective Subsidiaries have been delivered to the Administrative
Agent.
5.24. Representations and Warranties in the Recapitalization
Agreement. To each Borrower's knowledge, all representations and warranties set
forth in the Recapitalization Agreement were true and correct as of the time as
of which such representations and warranties were made, except as disclosed in
supplemental schedules thereto, and shall be true and correct as of the Closing
Date as if such representations and warranties were made on and as of such date
(unless such representation or warranty is given as of a specific date).
SECTION 6. Affirmative Covenants. Each Borrower, jointly and
severally, covenants and agrees that on the Effective Date and thereafter for so
long as this Agreement is in effect and until the Commitments have terminated
and the Loans together with interest and fees are paid in full and all other
Obligations incurred hereunder, to the extent due and payable, are paid in full:
6.01. Information Covenants. The Company will furnish or cause to be
furnished to each Bank:
(a) As soon as available and in any event within 90 days after the
close of each fiscal year of the Company, the consolidated balance sheets
of the Company and its Subsidiaries as at the end of such fiscal year and
the related consolidated statements of income, of stockholders' equity and
of cash flows for such fiscal year, setting forth comparative consolidated
figures for the preceding
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fiscal year and a report on such consolidated balance sheets and financial
statements by independent certified public accountants of recognized
national standing (which shall be one of the "Big Five" accounting firms),
which report shall not be qualified as to the scope of audit or as to the
status of the Company and its Subsidiaries as a going concern and shall
state that such consolidated financial statements present fairly the
consolidated financial position of the Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except for such changes with which the
independent certified public accountants concur) and the examination by
such accountants was conducted in accordance with generally accepted
auditing standards.
(b) As soon as practicable and in any event (x) within 30 days after
the end of the each month ending after the Closing Date, (i) the
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such period and (ii) the related statements of income and cash
flows of the Company and its Subsidiaries, in each case for such fiscal
month and for the period from the beginning of the then current fiscal
year to the end of such fiscal month, setting forth in comparative form
the corresponding periods of the prior fiscal year commencing with fiscal
year 1999, the corresponding periods of the current fiscal year's budget,
and (y) within 45 days after the end of each of the Company's first three
fiscal quarters in each fiscal year and within 90 days after the end of
each of the Company's fiscal years, a Management's Discussion and Analysis
for such financial statements covering the quarter then ended and the year
to date.
(c) Together with each delivery of financial statements of the
Company and its Subsidiaries pursuant to subsection (a) above, a written
statement by the independent public accountants giving the report thereon
(i) stating that their audit examination has included a review of the
terms of Sections 6, 7, 8 and 9 of this Agreement as they relate to
accounting matters but without having conducted any special auditing
procedures in connection therewith, (ii) stating whether, in connection
with their audit examination, any condition or event which constitutes a
Default or Event of Default has come to their attention, and if such a
condition or event has come to their attention, specifying the nature and
period of existence thereof;
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provided that such accountants shall not be liable by reason of any
failure to obtain knowledge of any such Default or Event of Default that
would not be disclosed in the course of their audit examination, and (iii)
stating that based on their audit examination nothing has come to their
attention which causes them to believe that as of the end of such fiscal
year of the Company there existed a Default or an Event of Default related
to the breach of any covenant set forth in Section 6 or 7 as they relate
to accounting matters and if such a condition or event has come to their
attention, specifying the nature and period of existence thereof and what
action the Company has taken, is taking and propose to take with respect
thereto.
(d) At the time of the delivery of the financial statements provided
for in Sections 6.01(a) and (b), (y) a certificate of the chief financial
officer or other Authorized Officer of the Company to the effect that no
Default or Event of Default exists, or, if any Default or Event of Default
does exist, specifying the nature and extent thereof and what actions have
been or will be taken in respect thereof, which certificate shall be
accompanied on a quarterly basis (i.e., within 45 days after the end of
each of the Company's first three fiscal quarters in each fiscal year and
within 90 days after the end of the Company's fiscal year) by a Compliance
Certificate in a form reasonably acceptable to the Administrative Agent
setting forth the calculations required to establish whether the Company
was in compliance with the covenants in this Agreement (including without
limitation the covenants set forth in Sections 7.05 and 7.10 through 7.13
inclusive) as at the end of such fiscal period or year, as the case may
be, and (z) a comparison of the current year to date financial results
against the plan/budget required to be submitted pursuant to subsection
(k) shall be presented.
(e) Promptly upon receipt thereof, a copy, if any, of each annual
"management letter" submitted to the Company by its independent
accountants in connection with any annual audit made by them of the books
of the Company or any of its Subsidiaries.
(f) Promptly upon their becoming available, copies of all
consolidating and consolidated financial statements, reports, notices and
proxy statements sent or made available generally by the Company or any
Subsidiary of the Company to its security holders in their capacity as
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such (other than to the Company or another Subsidiary) of all regular and
periodic reports and all registration statements and prospectuses, if any,
filed by the Company or any of its Subsidiaries with any securities
exchange or with the SEC and of all press releases and other statements
made available generally by the Company or any Subsidiary of the Company
to the public concerning material developments in the business of the
Company and its Subsidiaries.
(g) Promptly upon any senior officer of any Borrower obtaining
knowledge (w) of any condition or event which constitutes a Default or
Event of Default, or becoming aware that any Bank has given any written
notice or taken any other action with respect to a claimed Default or
Event of Default under this Agreement, (x) that any Person has given any
written notice to any Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section
8.04, or (y) of a material adverse change in the business, operations,
properties, assets, nature of assets, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries, taken as a whole, an
Officers' Certificate specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by
such holder or Person and the nature of such claimed Default, Event of
Default, event or condition, or material adverse change, and what action
the Company has taken, is taking and propose to take with respect thereto.
(h) (w) Promptly upon any senior officer of any Borrower obtaining
knowledge of the institution of, or written threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting
any Credit Party or its respective Subsidiaries or any property of any
Credit Party or its respective Subsidiaries not previously disclosed to
the Banks, which action, suit, proceeding, governmental investigation or
arbitration seeks (or in the case of multiple actions, suits, proceedings,
governmental investigations or arbitrations arising out of the same
general allegations or circumstances which seek) recovery from any Credit
Party or its respective Subsidiaries aggregating $5,000,000 or more
(exclusive of claims covered by insurance policies unless the insurers of
such claims have disclaimed coverage or reserved the right to disclaim
coverage on such claims), the Company shall give notice thereof to the
Banks and provide such
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other information as may be reasonably available to enable the Banks and
their counsel to evaluate such matters; (x) as soon as practicable and in
any event within 45 days after the end of each fiscal quarter, the Company
shall provide a quarterly report to the Banks covering the institution of,
or written threat of, any action, suit, proceeding, governmental
investigation or arbitration (not previously reported) against or
affecting any Credit Party or its respective Subsidiaries or any property
of any Credit Party or its respective Subsidiaries not previously
disclosed to the Banks, which action, suit, proceedings, governmental
investigation or arbitration seeks (or in the case of multiple actions,
suits, proceedings, governmental investigations or arbitrations arising
out of the same general allegations or circumstances which seek) recovery
from any Credit Party or its respective Subsidiaries aggregating
$5,000,000 or more (exclusive of claims covered by insurance policies
unless the insurers of such claims have disclaimed coverage or reserved
the right to disclaim coverage on such claims), and shall provide such
other information at such time as may be reasonably available to enable
the Banks and their counsel to evaluate such matters; (y) in addition to
the requirements set forth in clauses (w) and (x) of this Section 6.01(h),
the Company upon the written request of the Administrative Agent shall
promptly give notice of the status of any action, suit, proceeding,
governmental investigation or arbitration covered by a report delivered to
the Banks pursuant to clause (w) or (x) above to the Banks and provide
such other information as may be reasonably available to them to enable
the Banks and their counsel to evaluate such matters and (z) promptly upon
any senior officer of any Borrower obtaining knowledge of any dispute in
respect of or the institution of, or written threat of, any action, suit,
proceeding, governmental investigation or arbitration in respect of any
material contract of any Credit Party or its respective Subsidiaries, the
Company shall give notice thereof to the Banks and shall provide such
other information as may be reasonably available to enable the Banks and
their counsel to evaluate such matters.
(i) Within 15 days of any material changes to the terms of any
material insurance policy as in effect on the Effective Date and described
on Schedule 6.01(i) or any cancellation of any such material policy
without replacement with a substantially similar policy, a report in form
and substance reasonably satisfactory to the Administra-
<PAGE>
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tive Agent outlining such changes or the terms of the replacement policy,
as the case may be.
(j) To the extent reasonably requested by the Administrative Agent,
as soon as practicable and in any event within ten days of the later of
such request and the making of any such amendment or waiver, copies of
amendments or waivers with respect to Indebtedness of any Credit Party or
its respective Subsidiaries.
(k) On or prior to November 1, 1998 and each November 1 thereafter,
a consolidated plan/budget for each month in the succeeding fiscal year,
prepared in accordance with the Company's normal accounting procedures,
including, without limitation, (i) forecasted consolidated balance sheets,
consolidated statements of operations and of cash flows of the Company and
its Subsidiaries on a consolidated basis for such periods, (ii) the amount
of forecasted capital expenditures for such fiscal periods, (iii)
forecasted compliance with Sections 7.05 and 7.10-7.13 and (iv) an
appropriate discussion of the principal assumptions on which such
plan/budget is based; provided that if any such forecast indicates that
the Company may not be in compliance with any provision of this Agreement
at some future date, such forecast shall not constitute a Default or an
Event of Default or anticipatory or other breach hereof.
(l) Within ten (10) Business Days after the last Business Day of
each month and, at the Company's option, on any other day, a borrowing
base certificate in the form of Exhibit L hereto (the "Borrowing Base
Certificate") detailing Eligible Accounts Receivable and Eligible
Inventory as of the last day of such month (or as of the day specified in
any optional Borrowing Base Certificate), certified as complete and
correct on behalf of the Company by the chief financial officer or other
Authorized Officer of the Company. In addition, each Borrowing Base
Certificate shall have attached to it such additional schedules and/or
other information as the Administrative Agent may reasonably request. If
the Company fails to deliver any such required Borrowing Base Certificate
within twenty-five (25) days after the end of any such month, then the
Borrowing Base shall be deemed to be $0 until such time as the Company
shall deliver such required Borrowing Base Certificate.
<PAGE>
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(m) With reasonable promptness, such other information and data with
respect to any Credit Party or its respective Subsidiaries or any other
similar entity in which the Company has an investment, as from time to
time may be reasonably requested by the Administrative Agent; provided
that no information or data shall be required to be delivered hereunder or
under any other provision of this Agreement to the extent it is
determined, after consultation with the Administrative Agent, that
providing such information would constitute a waiver of an attorney-client
privilege.
6.02. Books, Records and Inspections. The Company will, and will
cause each of its Subsidiaries to, keep true books of records and accounts in
which full and correct entries will be made of all of its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP. The Company will, and
will cause each of its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect any
of the properties or assets of the Company or any of its Subsidiaries in
whosesoever possession, and to examine the books of account of the Company or
any of its Subsidiaries and discuss the affairs, finances and accounts of the
Company or any of its Subsidiaries with, and be advised as to the same by, its
and their officers and independent accountants (in the presence of such
officers), all at such reasonable times and intervals and to such reasonable
extent as the Administrative Agent or any Bank may reasonably request.
6.03. Maintenance of Property; Insurance. (a) The Company and its
Subsidiaries will exercise commercially reasonable efforts to maintain or cause
to be maintained in good repair, working order and condition (subject to normal
wear and tear) all properties used in its businesses and from time to time will
make or cause to be made all appropriate repairs, renewals and replacements
thereof and will maintain and renew as necessary all licenses, permits and other
clearances necessary to use and occupy such properties.
(b) Subject to the provisions of subsections 6.03(c) and (d) below,
the Company and its Subsidiaries will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or similar
businesses and similarly situated, of such types and
<PAGE>
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in such amounts as are customarily carried under similar circumstances by such
other corporations to the extent that such types and such amounts of insurance
are available at commercially reasonable rates. The Company will, and will cause
each of its Subsidiaries to, furnish to each Bank, upon reasonable request,
information as to the insurance carried, and will not cancel, without
replacement with a substantially similar policy, any such material insurance
without the reasonable consent of the Required Banks.
(c) The Company will, and will cause each of its Subsidiaries to,
maintain in full force the insurance coverages in respect of the Collateral as
set forth in the Security Documents.
(d) Where the lease under which any Real Property is held provides
that insurance is to be effected by the landlord and/or that insurance may not
be effected by the tenant, Section 6.03(b) shall be interpreted as requiring the
Company and its Subsidiaries to use all reasonable endeavors to ensure that the
landlord complies with its obligations (if any) to effect such insurance.
6.04. Payment of Taxes. The Company will, and will cause each of its
Subsidiaries to, pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which material
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien or charge upon any properties of the Company or any of its Subsidiaries or
cause a failure or forfeiture of title thereto; provided that neither the
Company nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge, levy or claim that is being contested in good faith and by
proper proceedings promptly instituted and diligently conducted, which
proceedings have the effect of preventing the forfeiture or sale of the property
or asset that may become subject to such Lien, if it has maintained adequate
reserves with respect thereto in accordance with and to the extent required
under GAAP.
6.05. Corporate Franchises. The Company will, and will cause each of
its Subsidiaries to, do or cause to be done all things necessary to preserve and
keep in full force and effect its existence, rights and authority, and its
Intellectual Property, except where such failure to keep in full force and
effect such rights and authority would not have a Material Adverse Effect.
<PAGE>
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6.06. Compliance with Statutes, etc. The Company will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls) other than non-compliance which could not reasonably be expected to
have a Material Adverse Effect.
6.07. ERISA. The Company will furnish to each of the Banks:
(a) promptly, upon the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, could reasonably
be expected to result in liability of the Credit Parties in an aggregate
amount exceeding $150,000, a written notice specifying the nature thereof,
what action the Credit Parties or members of their ERISA Group have taken,
are taking or propose to take with respect thereto, and, when known, any
action taken or threatened by the Internal Revenue Service, Department of
Labor, PBGC or Multiemployer Plan sponsor with respect thereto; and
(b) upon request by the Administrative Agent, copies of: (i) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by an ERISA Entity with the Internal Revenue Service with respect to
each Pension Plan; (ii) the most recent actuarial valuation report for
each Pension Plan; (iii) all notices received by an ERISA Entity from a
Multiemployer Plan sponsor or any governmental agency concerning an ERISA
Event; and (iv) such other documents or governmental reports or filings
relating to any Employee Benefit Plan as the Administrative Agent shall
reasonably request.
6.08. Performance of Obligations. The Company will, and will cause
each of its Subsidiaries to, perform in all material respects all of their
respective obligations under the terms of each mortgage, indenture, security
agreement, other debt instrument and material contract by which they are bound
or to which they are a party, except where such nonperformance would not have a
Material Adverse Effect.
6.09. End of Fiscal Years; Fiscal Quarters. Each Credit Party will,
for financial reporting purposes, and will
<PAGE>
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cause each of its Subsidiaries to, have its (i) fiscal years end on October 31,
and (ii) fiscal quarters end on or about January 31, April 30, July 31, and
October 31.
6.10. Use of Proceeds. All proceeds of the Loans shall be used as
provided in Section 5.05.
6.11. Landlord Lien Waivers. The Company shall, and shall cause each
of its applicable Subsidiaries to, use commercial best efforts to obtain within
60 days after the Closing Date agreements from the respective landlords of such
of the Real Property in the United States and Canada, as applicable, that is
being leased by such Credit Party and on which inventory or equipment of such
Credit Party is maintained confirming that such landlords have subordinated
their landlord liens on such Credit Party's personal property to the security
interests held by the Collateral Agent pursuant to the applicable Security
Documents and that such landlords will provide the Collateral Agent with
reasonable access to such facilities to exercise the Collateral Agent's remedies
pursuant to such applicable Security Documents.
6.12. Equal Security for Loans and Notes; No Further Negative
Pledges. (a) If the Company or any of its Subsidiaries shall create or assume
any Lien upon any of its property or assets, whether now owned or hereafter
acquired and whether or not such property or assets constitute Collateral, other
than Liens permitted to exist with respect to such property or assets pursuant
to Section 7.03 hereof or other than Prior Liens or Liens otherwise permitted to
exist pursuant to the Security Documents (unless prior written consent to the
creation or assumption thereof shall have been obtained from the Administrative
Agent and the Required Banks), the Company shall, and shall cause any applicable
Subsidiary to, make or cause to be made effective provisions whereby the
Obligations will be secured by such Lien equally and ratably with any and all
other Indebtedness thereby secured as long as any such Indebtedness shall be
secured; provided that this covenant shall not be construed as consent by the
Administrative Agent and the Required Banks to any violation by the Company of
the provisions of Section 7.03.
(b) Except (i) with respect to prohibitions against other
encumbrances on specific property encumbered to secure payment of particular
Indebtedness permitted hereunder, (ii) the restriction on Liens set forth in the
indenture governing the Public Notes and (iii) restrictions on Liens that may be
contained in the Indebtedness permitted by Sections
<PAGE>
-98-
7.04(f) and (g), neither the Company nor any of its Subsidiaries shall enter
into any agreement prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
6.13. Bank Meeting. The Company will participate in a meeting of the
Banks once during each fiscal year (with the first meeting to be held within
twelve months of the Closing Date) relating to the financial statements of the
previous fiscal year to be held at a location and a time selected by the Company
and reasonably acceptable to the Administrative Agent.
6.14. Pledge of Additional Collateral. Subject to Section 6.12(b),
and in any event within 30 days after the acquisition by the Company or any of
its Subsidiaries of (i) Real Property in the United States or the United
Kingdom, (ii) assets (other than the Real Property) of the type that would have
constituted Collateral (pursuant to the appropriate Security Document on the
Closing Date or Effective Date, as applicable, executed by such Person) at the
Closing Date or the Effective Date or (iii) capital stock or other equity
interest of any Subsidiary (other than a Subsidiary of a Non-Guarantor
Subsidiary), which shall be limited to 65% of the capital stock or other equity
interest in the case of a Foreign Subsidiary that is not a pass-through entity
and where the pledge would have the effects set forth in clause (a)(i) or (ii)
of the definition of Non-Guarantor Subsidiary (whether by capital contribution
or acquisition) (collectively, (i), (ii), (iii) and the assets of any Subsidiary
described in (iii), the "Additional Collateral"), the Company will, and will
cause each of its Subsidiaries to, take all necessary action, including the
filing of appropriate financing statements under the provisions of the UCC,
applicable foreign, domestic or local laws, rules or regulations in each of the
offices where such filing is necessary or appropriate, entering into or amending
Security Documents or, in the case the Company or any of its Subsidiaries
creates or acquires a Subsidiary, entering into such additional pledge
agreements and security agreements in form and substance satisfactory to the
Collateral Agent (and, in the case of the acquisition of Real Property in the
United States or the United Kingdom, satisfaction of the conditions set forth in
Sections 4.01(b)(iv), 4.01(q) and 4.01(u) and, in the case of the acquisition of
personal property, satisfaction of the conditions set forth in Sections
4.01(b)(iv) and 4.01(n)), to grant to the Collateral Agent a perfected first
priority Lien in such Collateral subject to no other Liens other than Prior
Liens and other Liens expressly permitted by the applicable Security Document
pursuant to and to the full extent required by
<PAGE>
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the Security Documents and this Agreement. Notwithstanding the foregoing, (i)
Non-Guarantor Subsidiaries, (ii) to the extent that such Additional Collateral
consisting of inventory and receivables is not permitted to be pledged to the
Banks by Indebtedness incurred pursuant to Section 7.04(f), Foreign Subsidiaries
acquired pursuant to a Designated Acquisition and (iii) the Company's
Subsidiaries in Mexico, Singapore and South Africa shall not be required to
comply with the provisions of the foregoing sentence and no Liens will be
required if prohibited by a prohibition on Liens permitted to exist by Section
6.12(b). The Borrowers shall use their reasonable best efforts to limit the
collateral that Foreign Subsidiaries acquired pursuant to a Designated
Acquisition or otherwise shall provide to lenders providing the facilities
permitted by Sections 7.04(f) and 7.04(g). All actions taken by the parties in
connection with the pledge of Additional Collateral, including, without
limitation, costs of counsel for the Agents or the Collateral Agent, shall be
for the account of the Borrowers, which shall pay all sums due on demand.
6.15. Security Interests. The Company will, and will cause its
Subsidiaries to, perform any and all acts and execute any and all documents
(including, without limitation, the execution, amendment or supplementation of
any financing statement and continuation statement) for filing in any
appropriate jurisdiction under the provisions of the UCC, local law or any
statute, rule or regulation of any applicable jurisdiction which are necessary
in order to maintain or confirm in favor of the Collateral Agent for the benefit
of the Banks a valid and perfected Lien on the Collateral and any Additional
Collateral, subject to no Liens except for Prior Liens and other Liens expressly
permitted by the applicable Security Document. The Company shall, as promptly as
practicable after the filing of any financing statements, deliver or cause to be
delivered to the Administrative Agent acknowledgment copies of, or copies of
lien search reports confirming the filing of, financing statements duly filed
under the UCC of all jurisdictions as may be necessary or, in the reasonable
judgment of the Administrative Agent, desirable to perfect the Lien created, or
purported or intended to be created, by each Security Document.
6.16. Subsidiary Guarantees. In the event the Company or any of its
Subsidiaries creates or acquires a Subsidiary (other than a Non-Guarantor
Subsidiary), the Company will cause such Subsidiary to execute and deliver to
the Collateral Agent for the benefit of the Banks a subsidiary guarantee, in
form and substance satisfactory to the Collateral Agent, guaranteeing the
Obligations.
<PAGE>
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6.17. Environmental Events. (a) The Company will promptly give
notice to the Administrative Agent upon becoming aware thereof (i) of any
violation of any Environmental Law, (ii) of any inquiry, proceeding,
investigation or other action, including a request for information or a notice
of potential liability under any Environmental Law from any Person or (iii) of
the discovery of the release or threatened release of any Hazardous Material at,
on, upon, under or from any of the Real Properties or any facility or equipment
thereat in excess of reportable quantities or allowable standards or levels
under any Environmental Law, or in a manner and/or amount which could reasonably
be expected to result in liability under any Environmental Law, in each case
which would have a Material Adverse Effect.
(b) In the event of the presence of any Hazardous Material on, at,
upon or under any of the Real Properties which is in violation of, or which
could reasonably be expected to result in liability under, any Environmental
Law, in each case which would have a Material Adverse Effect, the Company or any
of its Subsidiaries, upon discovery thereof, shall take all necessary steps to
initiate and expeditiously complete all response, corrective and other action
required under any Environmental Law to mitigate and eliminate any such adverse
effect.
(c) The Company shall as promptly as practicable notify the
Administrative Agent of the occurrence of any event specified in Section 6.17(b)
and shall thereafter keep the Administrative Agent informed on a periodic basis
of any actions taken in response to such event and the results of such actions.
(d) The Company shall provide the Administrative Agent with copies
of any notice, submittal or documentation provided by the Company or any of its
Subsidiaries to any governmental authority or third party under any
Environmental Law if the matter which is the subject of the notice, submittal or
other documentation could reasonably be expected to result in a materially
Adverse Effect. Such notice, submittal or documentation shall be provided to the
Administrative Agent promptly and, in any event, within 5 Business Days after
such material is provided to the governmental authority or third party.
6.18. Use of Cash on Hand to Effect Designated Acquisition. The
Company may use (i) Cash on hand (including Borrowings under the Revolving Loans
to the extent Cash on hand calculated pursuant to this clause (i) was used to
prepay Revolving Loans and to the extent of clause (iii) below) in an
<PAGE>
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amount not to exceed the Company's Excess Cash Flow for the preceding six months
(plus an amount equal to the cumulative amounts calculated hereunder for prior
periods which have not been used to make a Designated Acquisition), determined
semi-annually as of each October 31 and April 30, commencing October 31, 1998;
provided that such Cash on hand need not be used in the six-month period or the
fiscal year in which generated but shall be available in future years, together
with any additional Cash available in such future years as calculated hereunder;
provided, further, that this clause (i) shall not be deemed to prevent payments
otherwise due under and in accordance with Section 3.02(A)(g) but such Section
3.02(A)(g) calculation will be made after taking into account the expenditure of
funds for such Designated Acquisitions in accordance with such Section
3.02(A)(g) and the definition of Excess Cash Flow, plus (ii) up to $12,500,000
of Revolving Loans at any time outstanding as provided in Section 5.05(b), plus
(iii) $15,000,000 to effect Designated Acquisitions.
6.19. Year 2000. The Company and its Subsidiaries will take all
action necessary to assure that their computer-based systems are able to
effectively process data, including dates on or after January 1, 2000. At the
request of the Administrative Agent or any Bank, the Borrowers shall provide the
Administrative Agent or such Bank, as the case may be, with assurance reasonably
acceptable to the Administrative Agent or such Bank, as the case may be, of the
year 2000 capability of the Company and its Subsidiaries.
6.20. Certain Post-Closing Matters. (a) Notwithstanding the
provisions of Section 4.01(u) hereof, the Company shall and shall cause its
applicable Subsidiaries to use all commercially reasonable efforts to enable the
applicable Canadian Credit Party to deliver the documents required under Section
4.01(u) with respect to the Real Property located in Edmonton, Canada within 90
days of the date hereof and if such documents cannot be delivered within such 90
day period, the Company shall discuss alternative actions that may be taken with
the Administrative Agent and take such actions as may be agreed.
(b) The Company shall and shall cause its applicable Subsidiaries to
take all actions reasonably necessary to obtain within 120 days of the date
hereof from the trustee or other holder of the industrial revenue bonds relating
to the property of Birmingham Crane & Hoist, Inc. in Birmingham, Alabama any
waiver or consent necessary to permit Birmingham Crane & Hoist, Inc. to
guarantee and pledge its assets to secure the Obliga-
<PAGE>
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tions pursuant to the applicable Security Documents; provided, that in the event
that such trustee or holder does not deliver such waiver or consent within such
120 day period, the Company and its applicable Subsidiaries shall deliver the
guarantee and pledge contemplated above.
(c) The Company shall, and shall cause its South African Subsidiary
to, use all commercially reasonable efforts to obtain the necessary governmental
or regulatory authority required to enable the South African Subsidiary to
execute a Subsidiary Guarantee.
SECTION 7. Negative Covenants. The Company and the Borrowers,
jointly and severally, hereby covenant and agree that as of the Closing Date and
thereafter for so long as this Agreement is in effect and until the Commitments
have terminated and the Loans together with interest and fees are paid in full
and all other Obligations incurred hereunder, to the extent due and payable, are
paid in full:
7.01. Conduct of Business. The Company will not, and will not permit
any of its Subsidiaries to, engage in any business other than the business
conducted by the Company and its Subsidiaries prior to the Closing Date, the MHE
Business and any businesses or activities similar or reasonably related thereto.
Holdings will not engage in any business other than holding the capital stock of
its Subsidiaries; provided that Holdings may hold the capital stock of
Subsidiaries which may engage in other businesses so long as (i) management of
the Company and its Subsidiaries continues to devote substantially all of its
time to the affairs of the Company and its Subsidiaries, (ii) no resources of
the Company and its Subsidiaries are utilized in any such business, except for
Dividends permitted by Section 7.08 and (iii) Holdings may not provide credit
support for any such Subsidiary except for a limited guarantee to the extent of
the value of the shares of such Subsidiary and supported solely by a pledge of
the shares of such Subsidiary.
7.02. Amendments or Waivers of Certain Documents. After the Closing
Date, no Credit Party or its respective Subsidiaries will amend or otherwise
change the terms of the Transaction Documents in a manner adverse to the Banks
without the prior written consent of the Required Banks.
7.03. Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly create, incur, assume or permit or
suffer to exist any Lien upon or with respect to any item constituting
Collateral, whether
<PAGE>
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now owned or hereafter acquired, or sell any such Collateral subject to an
understanding or agreement, contingent or otherwise, to repurchase such
Collateral or assign any right to receive income, or file or permit the filing
of any financing statement under the UCC (other than notice filings in respect
of true leases) or any other similar notice of Lien under any similar recording
or notice statute, except for the Lien of the Security Document relating
thereto, Prior Liens applicable thereto and other Liens expressly permitted by
such Security Document. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of the Company or any Subsidiary which does
not constitute Collateral whether now owned or hereafter acquired, or sell any
Collateral, property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets or assign any
right to receive income, or file or permit the filing of any financing statement
under the UCC (other than notice filings in respect of true leases) or any other
similar notice of Lien under any similar recording or notice statute, except the
following, which are herein collectively referred to as "Permitted
Encumbrances":
(a) Liens for taxes, assessments or governmental charges or claims
not yet delinquent or Liens for taxes, assessments or governmental charges
or claims being contested in good faith and by appropriate proceedings for
which adequate reserves, as may be required by GAAP, have been
established;
(b) Liens in respect of property or assets of the Company and its
Subsidiaries imposed by law (i) which were incurred in the ordinary course
of business, such as carriers', warehousemen's, supplier's, materialman's,
repairman's and mechanics' Liens and other similar Liens arising in the
ordinary course of business, and (x) which do not in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Company and
its Subsidiaries, taken as a whole, or (y) which are being contested in
good faith by appropriate proceedings, which proceedings have the effect
of preventing the forfeiture or sale of the property or asset subject to
such Lien or (ii) which do not relate to material liabilities of the
Company or any of its Subsidiaries and do not in the aggregate materially
detract from the value of the property and assets of the Company and its
Subsidiaries taken as a whole;
<PAGE>
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(c) Liens in connection with any attachment or judgment (including
judgment or appeal bonds) not in excess of $5,000,000 in the aggregate for
the Company and its Subsidiaries (exclusive of any amount adequately
covered by insurance as to which the insurance company has acknowledged
coverage) unless the judgment it secures shall, within 60 days after the
entry thereof, not have been discharged or execution thereof not stayed
pending appeal, or shall not have been discharged within 30 days after the
expiration of any such stay;
(d) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the
ordinary course of business in connection therewith, or to secure the
performance of tenders, statutory or regulatory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds, warranty requirements and other similar obligations
incurred in the ordinary course of business (exclusive of obligations in
respect of the payment for borrowed money or the equivalent);
(e) Subject to the provisions of Section 7.20 and, with respect to
any Mortgaged Real Property, to the provisions of any applicable Mortgage,
Leases with respect to the assets or properties of the Company or its
Subsidiaries entered into in the ordinary course of the Company's or such
Subsidiary's business and subordinate in all respects to the Liens granted
and evidenced by the Security Documents;
(f) Easements, rights of way, zoning restrictions, other
restrictions, minor defects or irregularities in title or equivalent
rights and restrictions under the laws of foreign jurisdictions not
interfering in any material respect with the business of the Company or
its Subsidiaries, in each case incurred in the ordinary course of business
and which do not materially impair for its intended purposes the use or
value of the Real Property to which it relates;
(g) Liens (whether incurred in connection with such acquisition or
existing prior to and acquired in connection with such acquisition) upon
real or tangible personal property acquired by the Company or its
Subsidiaries or
<PAGE>
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Persons that became Subsidiaries of the Company after the Closing Date;
provided that (i) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, the cost of
the item of property subject thereto, (ii) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of the fair value
(plus reasonable costs and expenses) (as determined in good faith by the
board of directors or members of the appropriate entity) of the respective
property at the time it was so acquired, (iii) such Lien does not extend
to or cover any other property other than such item of property and any
additions or accessions thereto permitted hereunder and proceeds thereof
and (iv) the incurrence of such Indebtedness secured by such Lien is
permitted by Section 7.04;
(h) Any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(i) Liens contemplated by the Intercreditor Agreement and other
Surety Arrangements subject to an Intercreditor Arrangement;
(j) Liens securing reimbursement obligations with respect to
Commercial Letters of Credit permitted hereunder which encumber documents
and other property relating to such letters of credit and products and
proceeds thereof;
(k) Liens securing Indebtedness permitted by Section 7.04(f) and
(g);
(l) Liens in favor of the trustee under the indenture governing the
Public Notes;
(m) In respect of the Canadian Borrowers or any Canadian Subsidiary,
reservations and exceptions contained in, or implied by statute in, the
original grant or disposition of real property from the Crown of Canada or
a Province thereof;
(n) Any rights of expropriation, access or use, or any other similar
rights conferred or reserved by or in any statute of Canada or any
province thereof;
<PAGE>
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(o) Existing Liens as set forth on Schedule 5.21(b); and
(p) Liens not otherwise permitted by the foregoing clauses (a)
through (o) as long as such Liens are not on the assets constituting
Collateral on the Closing Date and the sum of the principal amount of
Indebtedness secured by such Liens does not exceed, in the aggregate at
any one time outstanding, $12,500,000.
The Company and the Borrowers shall use their commercially
reasonable best efforts to obtain the waiver of any Lien referred to in clause
(b)(i) above on or in respect of any Equipment or Inventory.
7.04. Indebtedness. The Company will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to the Credit Documents; provided
that the aggregate principal amount of Indebtedness incurred pursuant to
this Agreement shall in no event exceed the Total Commitments subject to
the provisions of Section 3.05;
(b) Indebtedness of the Company and the Subsidiaries represented by
the Public Notes;
(c) Surety Obligations and Surety Arrangements;
(d) Existing Debt and any refinancing thereof; provided that any
such refinancing of Existing Debt shall be on terms which, both taken as a
whole and specifically as such terms relate to the identity of the
obligors (provided the Company may refinance Indebtedness of a
Wholly-Owned Subsidiary), repayments of principal, covenants, events of
default and security in property of the debtor, are in each event no more
favorable to the creditor than the correlative terms of the Existing Debt;
(e) (x) $5,000,000 of Indebtedness in the aggregate principal amount
outstanding at any time for the Company and its Subsidiaries incurred to
finance the cost of the acquisition of real or tangible personal property
(including Capital Leases) and (y) $10,000,000 of Indebtedness in the
aggregate principal amount outstanding at any one time to finance the cost
of the acquisition of computer hardware and software and related tangible
per-
<PAGE>
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sonal property (including Capital Leases) in connection with the Company's
(or its Subsidiaries') management information systems; provided in each
case of (x) and (y), that at the time of incurrence such Indebtedness
shall not exceed 100% of the fair value of such property (plus reasonable
costs and expenses); and provided, further, that such Indebtedness is not
secured by any Lien other than a Lien referred to in clause (g) of Section
7.03;
(f) Indebtedness of Foreign Subsidiaries incurred to provide working
capital for Designated Acquisitions in an amount not to exceed $15,000,000
aggregate principal amount at any one time outstanding until January 31,
2000 and $20,000,000 aggregate principal amount at any one time
outstanding thereafter;
(g) up to $11,000,000 aggregate principal amount of Indebtedness at
any one time outstanding of the Company's Subsidiaries, the jurisdiction
of incorporation, organization or formation of which is located in Mexico,
Singapore or South Africa; provided that the amount of Indebtedness in
each such country shall not exceed the following: (i) $2,000,000 aggregate
principal amount at any one time outstanding in Mexico; (ii) $4,000,000
aggregate principal amount at any one time outstanding in Singapore; or
(iii) $5,000,000 aggregate principal amount at any one time outstanding in
South Africa;
(h) Contingent Obligations permitted by Section 7.18;
(i) Indebtedness to sellers in connection with a Designated
Acquisition in an amount not to exceed $5,000,000 aggregate principal
amount at any time outstanding; provided that such Indebtedness is
unsecured and contains subordination and other terms satisfactory to the
Administrative Agent; and provided, further, that the Company is in pro
forma compliance with its covenants, after giving effect to the issuance
of such notes;
(j) Intercompany Advances; and
(k) other Indebtedness not exceeding $12,500,000 aggregate principal
amount for the Company and its Subsidiaries at any time outstanding.
7.05. Capital Expenditures. The Company will not, and will not
permit any of its Subsidiaries to, make Consoli-
<PAGE>
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dated Capital Expenditures for any purpose in excess of the amounts set forth
below for the fiscal year end set forth on the date listed below; provided that
Consolidated Capital Expenditures for the period ended October 31, 1998 shall be
for the period beginning on the Closing Date and ending on October 31, 1998:
Amount
Period in $ Millions
------ -------------
October 31, 1998...................... $7.5
October 31, 1999...................... 9.0
October 31, 2000...................... 9.0
October 31, 2001...................... 9.0
October 31, 2002...................... 9.0
October 31, 2003...................... 9.0
October 31, 2004...................... 9.0
In addition, the amount of Consolidated Capital Expenditures
permitted by this Section 7.05 for any fiscal year shall be increased by an
amount equal to 75% of the excess of (x) the permitted Consolidated Capital
Expenditures for the immediately preceding fiscal year (without giving effect to
this sentence) over (y) the amount of Consolidated Capital Expenditures actually
made in such immediately preceding fiscal year; provided that after the
consummation of any Designated Acquisition, the amount set forth in the table
above for any period ending after such Designated Acquisition shall be increased
by an amount equal to 20% of the Consolidated EBITDA of the acquired entity
included in the pro forma consolidated statement of income for the then current
twelve-month period delivered to the Administrative Agent pursuant to Section
4.03(b)(ii) and for years following the year of acquisition the greater of 20%
of projected Consolidated EBITDA for the Designated Acquisition (as set forth in
the data provided to the Banks pursuant to Section 6.01) and 20% of the actual
Consolidated EBITDA for the Designated Acquisition for the last fiscal year.
7.06. Advances, Investments and Loans. The Company will not, and
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to any
Person, except:
(a) investments in Cash and Cash Equivalents;
<PAGE>
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(b) receivables owing to them and advances (including deposits) to
customers and suppliers, in each case if created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance
with customary trade terms;
(c) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business or upon
foreclosure of any Lien in favor of the Company or its Subsidiaries;
(d) Intercompany Advances;
(e) the acceptance of a form of consideration other than Cash or
Cash Equivalents in connection with the sale or disposition of assets to
the extent provided in Section 7.17;
(f) guarantees by Subsidiary Guarantors of the Company's obligations
under the Public Notes;
(g) investments in Holdings permitted by Section 7.08 and
investments permitted by Section 7.09;
(h) Contingent Obligations permitted by Section 7.18;
(i) investments contemplated by the Transaction Documents;
(j) investments which the Company and its Subsidiaries are
contractually committed to make pursuant to contracts existing on the
Closing Date as set forth on Schedule 7.06(j), plus an amount not to
exceed $2,000,000 in the aggregate;
(k) investments held by a Person prior to its becoming a Subsidiary
of the Company; provided that such investment was not incurred in
contemplation of such acquisition;
(l) advances to officers and employees of the Company and its
Subsidiaries in the ordinary course of business not to exceed $500,000
outstanding at any time;
<PAGE>
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(m) additional loans, advances and/or investments of a nature not
contemplated by the foregoing clauses (a) through (l) and (n) through (p);
provided that all loans, advances and investments made pursuant to this
clause (m) shall not exceed $3,000,000 in the aggregate at any time
outstanding in any fiscal year and $15,000,000 in the aggregate at any
time outstanding during the term of this Agreement for the Company and its
Subsidiaries;
(n) prepaid expenses and workers' compensation, utility, lease and
similar deposits in the ordinary course of business;
(o) Designated Acquisitions; and
(p) loans or advances to officers and employees of the Company and
its Subsidiaries on or within 30 days after the Closing Date which amounts
are used to acquire Management Stock; provided such loans or advances are
repaid within one year of the Closing Date.
7.07. Prepayments of Indebtedness, etc. The Company will not, and
will not permit any of its Subsidiaries to: (a) after the issuance thereof,
amend or modify (or permit the amendment or modification of) any of the terms or
provisions, to the extent any such amendment or modification would be adverse to
the issuer thereof or to the interests of the Banks, of any of the Indebtedness
(or any agreement relating thereto) of the type described in Section 7.04(b),
(c), (d) (other than the Industrial Revenue Bonds of Birmingham Crane & Hoist,
Inc.) or (i); (b) make (or give any notice in respect of) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with any trustee with
respect thereto money or securities before such Indebtedness is due for the
purpose of paying such Indebtedness when due) or exchange of any such
Indebtedness, except that Indebtedness of the type described in Section 7.04(i)
may be prepaid with Acquisition Term Loans in accordance with Section 4.03 and
the Industrial Revenue Bonds of Birmingham Crane & Hoist, Inc. permitted under
Section 7.04(d); and/or (c) amend, modify or change any of its respective
Certificate of Incorporation or operating agreement, or any agreement entered
into by the Company or its Subsidiaries with respect to its equity securities,
or enter into any new agreement with respect to the equity securities of the
Company or any Subsidiary the result of which is reasonably likely to be adverse
to the interests of the Banks (in their capacity as such) hereunder.
<PAGE>
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7.08. Dividends, etc. The Company will not, and will not permit any
of its Subsidiaries to, declare or pay any dividends or return any capital to,
its shareholders or members or authorize or make any other distribution, payment
or delivery of property or cash to its shareholders or members as such, or
redeem, retire, purchase or otherwise acquire, directly or indirectly, for any
consideration, any of its equity interest now or hereafter outstanding (or any
warrants for or options or stock appreciation rights in respect of any of such
equity interests), or set aside any funds for any of the foregoing purposes, or
permit any of its Subsidiaries to purchase or otherwise acquire for
consideration any equity interest of the Company or any other Subsidiary, as the
case may be, now or hereafter outstanding (or any options or warrants or stock
appreciation rights issued by such Person with respect to its equity interest)
(all of the foregoing, "Dividends"), except that (i) any Subsidiary of a
Borrower may pay Dividends to its parent corporation (and pro rata to its other
shareholders if such Subsidiary is not wholly-owned) if such parent corporation
is (x) a Borrower or (y) a Subsidiary of a Borrower; (ii) the payment to
Holdings or any other Person in respect of which Holdings is a member of its
consolidated tax group, for so long as Holdings owns such amount of the capital
stock of the Company as will permit it or a member of the consolidated tax group
of Holdings to be entitled to file consolidated federal tax returns with the
Company, for income taxes pursuant to the Tax Allocation Agreement or for the
purpose of enabling Holdings or any such members to pay taxes other than income
taxes, to the extent actually owed and attributable to the operations of the
Company and its Subsidiaries or to Holdings' ownership thereof; (iii) payments
to Holdings, for so long as it owns no less than a majority of the outstanding
common stock of the Company, in amounts sufficient to pay the ordinary operating
and administrative expenses of Holdings (including all reasonable professional
fees and expenses), including in connection with its complying with its
reporting obligations (including filings with the SEC and any exchange on which
Holdings' securities are traded) and obligations to prepare and distribute
business records in the ordinary course of business and Holdings' costs and
expenses relating to taxes, other than those referred to in clause (ii) (which
taxes are attributable to the operations of the Company and its Subsidiaries or
to Holdings' ownership thereof); provided that the aggregate payments paid in
each fiscal year pursuant to this clause (iii) will not exceed 0.20% of the
consolidated net sales of the Company and its Subsidiaries for such fiscal year;
(iv) as long as no Default or Event of Default shall have occurred and be
continuing or would result therefrom, the Company may purchase, or may pay
Dividends
<PAGE>
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to Holdings to enable Holdings to purchase, Management Stock and Vested Options
from the members of management of Holdings and its Subsidiaries, in an amount
not to exceed $500,000 in any fiscal year and $2,500,000 in the aggregate;
provided that such payments may only be made in connection with purchases of
Management Stock and Vested Options upon the termination of employment, death or
disability of the person to whom such shares of Management Stock or Vested
Options were initially issued; (v) payments in respect of the Transaction; and
(vi) from and after the fifth anniversary of the Closing Date, the Company may
pay Dividends to Holdings in order to permit Holdings to pay cash dividends on
the Preferred Stock if the ratio of Indebtedness for borrowed money of the
Company and its Subsidiaries on the last day of the fiscal quarter immediately
preceding the date of calculation to Consolidated EBITDA of the Company for the
Test Period ending at the end of the fiscal quarter immediately preceding the
date of calculation, on a pro forma basis after giving effect to any Designated
Acquisitions made during such Test Period, is less than 3.5 to 1.0.
7.09. Transaction with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
transactions, whether or not in the ordinary course of business, with any holder
of 5% or more of the equity securities of the Company or with any Affiliate of
the Company other than on terms and conditions substantially as favorable to the
Company or any Subsidiary as would be obtainable by the Company or such
Subsidiary at the time in a comparable arm's-length transaction with a Person
other than a holder of 5% or more of the equity securities of the Company or an
Affiliate of the Company; provided that the foregoing restrictions shall not
apply to (i) transactions between or among any Borrower and its Subsidiaries
(provided that for purpose of this clause (i), the definition of Subsidiary
shall be deemed to require 66 2/3% instead of 50% ownership) and Intercompany
Advances; (ii) transactions with HarnCo and its Affiliates set forth in the
Transaction Documents; (iii) payments permitted by Section 7.08(ii), (iii), (iv)
and (v); (iv) the payment of fees to the Agents and their Affiliates for
financial services, such fees not to exceed Agents' usual and customary fees for
similar services; (v) payments to Chartwell (x) pursuant to the Chartwell
Financial Advisory Agreement on the Closing Date and (y) for management services
pursuant to the Chartwell Management Consulting Agreement not to exceed
$1,000,000 in any fiscal year, plus expenses; provided, in the case of (y), that
any such fees may accrue but shall not be paid by the Company at any time after
the occurrence and during the continuance of an Event of Default pursuant to
Section 8.01 until such Event of
<PAGE>
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Default is cured, whereupon such accrued and unpaid fees may be paid in addition
to other permitted fees; (vi) reasonable fees and compensation paid to and
indemnity provided on behalf of officers, directors or employees of the Company
or any Subsidiary of the Company as determined in good faith by the Company's
Board of Directors or senior management; (vii) loans or advances to employees
and officers of the Company or any of its Subsidiaries in the ordinary course of
business to provide for the payment of reasonable expenses incurred by such
persons in the performance of their responsibilities to Holdings or such
Subsidiary or in connection with any relocation, not to exceed $500,000 at any
time outstanding; and (viii) loans or advances to employees and officers of the
Company or its Subsidiaries on or within 30 days after the Closing Date the
proceeds of which are used to acquire Management Stock and which loans or
advances are repaid within one year of the Closing Date.
7.10. Total Interest Coverage Ratio. The ratio of (i) Consolidated
EBITDA to (ii) Consolidated Interest Expense for the Company and its
Subsidiaries set forth below for the Test Period ending on each date listed
below shall not be less than the ratio set forth opposite such date below:
Test Period Ratio
----------- -----
July 31, 1998 ............................... 1.35 to 1.0
October 31, 1998 ............................ 1.35 to 1.0
January 31, 1999 ............................ 1.35 to 1.0
April 30, 1999 .............................. 1.35 to 1.0
July 31, 1999 ............................... 1.35 to 1.0
October 31, 1999 ............................ 1.40 to 1.0
January 31, 2000 ............................ 1.40 to 1.0
April 30, 2000 .............................. 1.40 to 1.0
July 31, 2000 ............................... 1.40 to 1.0
October 31, 2000 ............................ 1.50 to 1.0
January 31, 2001 ............................ 1.50 to 1.0
April 30, 2001 .............................. 1.50 to 1.0
July 31, 2001 ............................... 1.50 to 1.0
October 31, 2001 ............................ 1.75 to 1.0
January 31, 2002 ............................ 1.75 to 1.0
April 30, 2002 .............................. 1.75 to 1.0
July 31, 2002 ............................... 1.75 to 1.0
October 31, 2002 ............................ 2.00 to 1.0
January 31, 2003 ............................ 2.00 to 1.0
April 30, 2003 .............................. 2.00 to 1.0
July 31, 2003 ............................... 2.00 to 1.0
October 31, 2003 ............................ 2.00 to 1.0
<PAGE>
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January 31, 2004 ............................ 2.00 to 1.0
April 30, 2004 .............................. 2.00 to 1.0
July 31, 2004 ............................... 2.00 to 1.0
October 31, 2004 ............................ 2.00 to 1.0
January 31, 2005 ............................ 2.00 to 1.0
7.11. Fixed Charge Coverage Ratio. The Company will not permit the
ratio of (i) Consolidated EBITDAC of the Company and its Subsidiaries minus
Consolidated Cash Taxes to (ii) the Consolidated Interest Expense of the Company
and its Subsidiaries plus the amount of scheduled mandatory payments on account
of principal of Indebtedness of the Company and its Subsidiaries (excluding
payments required to be made pursuant to Section 3.02(A)(f), (g), (h), (i), (j),
(k) and (l)) for the Test Period ending on each date listed below, to be less
than the ratio set forth opposite such date below:
Test Period Ratio
----------- -----
July 31, 1998 ............................... 1.05 to 1.0
October 31, 1998 ............................ 1.05 to 1.0
January 31, 1999 ............................ 1.05 to 1.0
April 30, 1999 .............................. 1.05 to 1.0
July 31, 1999 ............................... 1.05 to 1.0
October 31, 1999 ............................ 1.05 to 1.0
January 31, 2000 ............................ 1.10 to 1.0
April 30, 2000 .............................. 1.10 to 1.0
July 31, 2000 ............................... 1.10 to 1.0
October 31, 2000 ............................ 1.10 to 1.0
January 31, 2001 ............................ 1.10 to 1.0
April 30, 2001 .............................. 1.10 to 1.0
July 31, 2001 ............................... 1.10 to 1.0
October 31, 2001 ............................ 1.10 to 1.0
January 31, 2002 ............................ 1.10 to 1.0
April 30, 2002 .............................. 1.10 to 1.0
July 31, 2002 ............................... 1.10 to 1.0
October 31, 2002 ............................ 1.10 to 1.0
January 31, 2003 ............................ 1.10 to 1.0
April 30, 2003 .............................. 1.10 to 1.0
July 31, 2003 ............................... 1.10 to 1.0
October 31, 2003 ............................ 1.10 to 1.0
January 31, 2004 ............................ 1.10 to 1.0
April 30, 2004 .............................. 1.10 to 1.0
July 31, 2004 ............................... 1.10 to 1.0
October 31, 2004 ............................ 1.10 to 1.0
January 31, 2005 ............................ 1.10 to 1.0
<PAGE>
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7.12. (a) Total Leverage Ratio. The Company will not permit the
ratio of (i) Indebtedness for borrowed money of the Company and its Subsidiaries
on each date listed below to (ii) Consolidated EBITDA of the Company and its
Subsidiaries for the Test Period ending on each date listed below to be more
than the ratio set forth below:
Test Period Ratio
----------- -----
October 31, 1998 ............................ 6.75 to 1.0
January 31, 1999 ............................ 6.70 to 1.0
April 30, 1999 .............................. 6.65 to 1.0
July 31, 1999 ............................... 6.60 to 1.0
October 31, 1999 ............................ 6.50 to 1.0
January 31, 2000 ............................ 6.50 to 1.0
April 30, 2000 .............................. 6.30 to 1.0
July 31, 2000 ............................... 6.10 to 1.0
October 31, 2000 ............................ 5.75 to 1.0
January 31, 2001 ............................ 5.75 to 1.0
April 30, 2001 .............................. 5.50 to 1.0
July 31, 2001 ............................... 5.35 to 1.0
October 31, 2001 ............................ 5.00 to 1.0
January 31, 2002 ............................ 4.90 to 1.0
April 30, 2002 .............................. 4.75 to 1.0
July 31, 2002 ............................... 4.60 to 1.0
October 31, 2002 ............................ 4.40 to 1.0
January 31, 2003 ............................ 4.20 to 1.0
April 30, 2003 .............................. 4.00 to 1.0
July 31, 2003 ............................... 4.00 to 1.0
October 31, 2003 ............................ 4.00 to 1.0
January 31, 2004 ............................ 4.00 to 1.0
April 30, 2004 .............................. 4.00 to 1.0
July 31, 2004 ............................... 4.00 to 1.0
October 31, 2004 ............................ 4.00 to 1.0
January 31, 2005 ............................ 4.00 to 1.0
(b) Credit Agreement Leverage Ratio. The Company will not permit the
ratio of (i) Indebtedness for borrowed money under this Agreement of the Company
and its Subsidiaries on each date listed below to (ii) Consolidated EBITDA of
the Company and its Subsidiaries for the Test Period ending on each date listed
below to be more than the ratio set forth below:
Test Period Ratio
----------- -----
July 31, 1998 ............................... 2.50 to 1.0
October 31, 1998 ............................ 2.50 to 1.0
<PAGE>
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January 31, 1999 ............................ 2.50 to 1.0
April 30, 1999 .............................. 2.50 to 1.0
July 31, 1999 ............................... 2.50 to 1.0
October 31, 1999 ............................ 2.50 to 1.0
January 31, 2000 ............................ 2.50 to 1.0
April 30, 2000 .............................. 2.50 to 1.0
July 31, 2000 ............................... 2.50 to 1.0
October 31, 2000 ............................ 2.25 to 1.0
January 31, 2001 ............................ 2.25 to 1.0
April 30, 2001 .............................. 2.25 to 1.0
July 31, 2001 ............................... 2.25 to 1.0
October 31, 2001 ............................ 2.25 to 1.0
January 31, 2002 ............................ 2.25 to 1.0
April 30, 2002 .............................. 2.25 to 1.0
July 31, 2002 ............................... 2.25 to 1.0
October 31, 2002 ............................ 2.00 to 1.0
January 31, 2003 ............................ 2.00 to 1.0
April 30, 2003 .............................. 2.00 to 1.0
July 31, 2003 ............................... 2.00 to 1.0
October 31, 2003 ............................ 2.00 to 1.0
January 31, 2004 ............................ 2.00 to 1.0
April 30, 2004 .............................. 2.00 to 1.0
July 31, 2004 ............................... 2.00 to 1.0
October 31, 2004 ............................ 2.00 to 1.0
January 31, 2005 ............................ 2.00 to 1.0
7.13. Minimum Consolidated EBITDA. The Company will maintain a
Consolidated EBITDA of at least the amount set forth below for the Test Period
ending on each date listed below:
Minimum EBITDA
Test Period ($ Millions)
----------- -------------
October 31, 1998 ............................ 39.5
January 31, 1999 ............................ 39.5
April 30, 1999 .............................. 40.1
July 31, 1999 ............................... 40.1
October 31, 1999 ............................ 41.5
January 31, 2000 ............................ 41.5
April 30, 2000 .............................. 44.0
July 31, 2000 ............................... 44.0
October 31, 2000 ............................ 47.5
January 31, 2001 ............................ 47.5
April 30, 2001 .............................. 50.4
July 31, 2001 ............................... 50.4
October 31, 2001 ............................ 54.6
January 31, 2002 ............................ 54.6
<PAGE>
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Minimum EBITDA
Test Period ($ Millions)
----------- -------------
April 30, 2002 .............................. 57.2
July 31, 2002 ............................... 57.2
October 31, 2002 ............................ 61.0
January 31, 2003 ............................ 61.0
April 30, 2003 .............................. 61.0
July 31, 2003 ............................... 61.0
October 31, 2003............................. 61.0
January 31, 2004 ............................ 61.0
April 30, 2004 .............................. 61.0
July 31, 2004 ............................... 61.0
October 31, 2004 ............................ 61.0
January 31, 2005 ............................ 61.0
7.14. Holdings Equity Sales and Net Financing Proceeds. Holdings
shall (i) upon the sale of any of the equity of itself or of the Company (except
sales to Holdings, the Company or one of its Subsidiaries), contribute an amount
equal to 100% of the net proceeds thereof received by Holdings to the Company in
the form of Cash or Cash Equivalents and (ii) on the date of receipt by Holdings
of any Net Financing Proceeds, contribute an amount equal to 100% of such Net
Financing Proceeds to the Company in the form of Cash or Cash Equivalents;
provided that Holdings need not contribute to the Company (i) amounts received
for its equity in connection with the Transaction or with respect to the
refinancing of its Preferred Stock with the proceeds of the sale of new equity
securities consummated substantially concurrently with such refinancing, (ii)
amounts received in respect of Management Stock and Vested Options, (iii) unless
from an underwritten public offering, amounts received by Holdings from the sale
of its equity securities (x) in an amount of $5,000,000 in the aggregate and (y)
in contemplation of a particular acquisition transaction which are applied to
such transactions within 45 days of receipt thereof by Holdings.
7.15. Sale or Discount of Receivables. The Company will not, and
will not permit its Subsidiaries to, sell, with or without recourse, or discount
(other than in connection with trade discounts in the ordinary course of
business consistent with past practice) or otherwise sell for less than the face
value thereof, notes or accounts receivable, other than receivables that have
been written-off or are otherwise determined in good faith to be uncollectible;
provided that the Company and its Subsidiaries may sell or discount accounts
receivable in an aggregate face value of $3.0 million in any fiscal year.
<PAGE>
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7.16. Issuance of Subsidiary Stock. The Company will not, and will
not permit any of its Subsidiaries, directly or indirectly, to issue, sell,
assign, pledge or otherwise encumber or dispose of any shares of any
Subsidiaries' capital stock or other securities or equity interests (or
warrants, rights or options to acquire capital stock or convertible securities
or other equity securities) of such Subsidiary, other than (i) pursuant to the
Security Documents, (ii) as contemplated by the Transaction, (iii) transfers of
assets to the Company or to Subsidiary Guarantors permitted by this Agreement
(including as an Intercompany Advance), (iv) the issuance of directors'
qualifying shares, (v) sales of 100% of the capital stock of the Company's
Subsidiaries in accordance with Section 7.17 and (vi) sales of capital stock to
the Company or to one of its Subsidiaries to the extent permitted by Section
7.06.
7.17. Disposition of Assets. (a) The Company will not, and will not
permit any of its Subsidiaries to, make any Asset Sale, except that the Company
and its Subsidiaries may make Asset Sales so long as (i) such Asset Sales are
for at least the fair market value of such assets and (ii) the Company complies
with the mandatory prepayment and commitment reduction provisions of this
Agreement and, in the case of Collateral, so long as the conditions to the
release of Collateral described herein and in the applicable Security Documents
are met; provided that the Company need not comply with such mandatory
prepayment and commitment reduction provisions if the Company reinvests such
proceeds in substantially similar lines of business within 270 days of the
receipt of such proceeds; and provided, further, the Company need not comply
with such mandatory prepayment and commitment reduction provisions until the
aggregate amount of such Asset Sales is (A) $3.0 million or greater in any
fiscal year or (B) $15.0 million in the aggregate and then only in the amount of
such excess. For the purposes of clarification, the amount of proceeds received
and reinvested pursuant to the first proviso of this Section shall count towards
the amounts set forth in clauses (A) and (B) of this Section.
The consideration received by the Company or its Subsidiaries from
each Asset Sale permitted above shall be received in whole at the time of sale
and at least 85% of the consideration from each sale shall consist of Cash or
Cash Equivalents or Replacement Assets; provided that the amount of any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities,
liabilities subordinated in right of payment to the Loans or non-recourse
Indebtedness)
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that are assumed or forgiven by the transferee of any such assets will be deemed
to be Cash if the Company or such Subsidiary is released from any liability for
such liabilities. Any non-cash proceeds received from the sale of Collateral
shall be pledged to the Collateral Agent pursuant to and in accordance with the
applicable Security Documents and shall constitute Collateral.
(b) Upon compliance with the conditions in subsection (a) of this
Section 7.17, the Release Conditions and the Partial Release Conditions (each as
hereinafter defined), the Company shall be entitled to receive from the
Collateral Agent an instrument in form and substance reasonably satisfactory to
the Borrower (each, a "Release") releasing the Lien of the Mortgage with respect
to all or any portion of a Mortgaged Real Property (each, a "Released Real
Property"). The Company shall exercise its rights under this Section by
delivering to the Collateral Agent a notice (each, a "Release Notice"), which
shall refer to this Section, describe with particularity the proposed Released
Real Property and be accompanied by (i) four counterparts of the Release fully
executed and acknowledged by all necessary parties other than Collateral Agent,
(ii) executed counterparts of UCC or other applicable termination statements
necessary to terminate the Lien of the applicable Mortgage and (iii) an
Officers' Certificate certifying that no Default or Event of Default shall have
occurred and the parties executing any and all documents in connection with the
Release (other than the Collateral Agent) were duly authorized to do so
(collectively, the "Release Conditions"). In the event the proposed Released
Real Property consists of less than all of the Mortgaged Real Property subject
to a single Mortgage, the Partial Release Conditions must be satisfied in order
for the Company to receive the Release.
(c) The Collateral Agent's obligation to deliver a Release in
respect of less than all of the Mortgaged Real Property subject to a single
Mortgage shall be contingent upon the satisfaction of the conditions in
subsection (a) of this Section 7.17 and the Release Conditions as well as the
following conditions (collectively, the "Partial Release Conditions"):
(i) following the sale, transfer or other disposition of and release
of the Lien of the applicable Mortgage with respect to the proposed
Released Real Property, the remaining Mortgaged Real Property shall have
utility services and access to public roads, rail spurs and other
transportation structures sufficient and necessary for the
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continued use of such Mortgaged Real Property in the manner utilized prior
to the Release;
(ii) following the sale, transfer or other disposition of the
proposed Released Real Property, the remaining Mortgaged Real Property
shall comply in all respects with applicable laws, rules, regulations and
ordinances relating to environmental protection, zoning, land use,
configuration and building and workplace safety;
(iii) the Title Company shall have issued an endorsement to the Banks'
title insurance policy relating to the Mortgaged Real Property confirming
that after the proposed release, the Lien of the applicable Mortgage
continues unimpaired as a first priority Lien upon the remaining Mortgaged
Real Property subject only to Prior Liens; and
(iv) the Company shall cause to have been delivered to the Collateral
Agent an Officers' Certificate certifying that the conditions set forth in
subsections (i) through (iii) have been satisfied.
(d) The Collateral Agent shall execute, acknowledge (if applicable)
and deliver to the Company counterparts of the documents described in
subsections (b)(i) and (ii) within 10 Business Days after receipt by the
Collateral Agent of a Release Notice provided that the Release Conditions and
the Partial Release Conditions (if applicable) have been satisfied. The Company
shall (i) execute, deliver, obtain and record such instruments as the Collateral
Agent may require, including, without limitation, amendments to the Security
Documents or this Agreement and (ii) deliver to the Collateral Agent such
evidence of the satisfaction of the Release Conditions and the Partial Release
Conditions as the Collateral Agent may require. The Borrower shall reimburse the
Collateral Agent, Administrative Agent and the Banks upon demand for all costs
or expenses incurred in connection with any actions taken pursuant to this
Section 7.17.
7.18. Contingent Obligations. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create or become or
be liable with respect to any Contingent Obligation except:
(i) guarantees resulting from endorsement of negotiable instruments
for collection in the ordinary course of business;
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(ii) Interest Rate Agreements and Currency Protection Agreements;
(iii) Contingent Obligations arising under the Surety Obligations
and the Surety Arrangement;
(iv) Contingent Obligations arising as a direct consequence of the
Transaction or in connection with Designated Acquisitions;
(v) guarantees of the Company's obligations under the Public Notes
by its Subsidiaries;
(vi) contingent reimbursement obligations under letters of credit
(including Letters of Credit) permitted hereunder;
(vii) other Contingent Obligations not to exceed $500,000 in the
aggregate for the Company and its Subsidiaries outstanding at any one
time;
(viii) existing guarantees and letters of credit set forth on
Schedule 7.18(viii);
(ix) reserves for adjustment in respect of the sales price in
connection with any Asset Sale established in accordance with GAAP;
(x) guarantees by the Company of obligations of its Subsidiaries not
constituting Indebtedness; and
(xi) customary indemnification and liquidated damage obligations in
connection with sales of assets in the ordinary course of business.
7.19. Merger and Consolidations. No Credit Party will merge,
consolidate or amalgamate with or into any other entity; provided that (x) any
Borrower (other than the Company) may be merged, consolidated or amalgamated
with or into any other Borrower and (y) any Subsidiary (other than any Borrower)
of the Company may be merged, consolidated or amalgamated with or into (i) a
Borrower, if the Applicable Borrower is the continuing or surviving entity, (ii)
any other such Subsidiary, if the continuing or surviving entity is a
Wholly-Owned Subsidiary of a Borrower and, if such Credit Party is a Subsidiary
Guarantor, the continuing or surviving entity shall become a Subsidiary
Guarantor, or (iii) a Person that is not an Affiliate if
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the Subsidiary is not a Borrower and such merger or consolidation complies with
Section 7.17.
7.20. Sale and Lease-Backs. Unless constituting a permitted
disposition of assets under Section 7.17 hereof, the Company will not, and will
not permit its Subsidiaries to, directly or indirectly, become or thereafter
remain liable as lessee or as guarantor or other surety with respect to the
lessee's obligations under any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real or personal or mixed) whether now owned or
hereafter acquired (i) which the Company or its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than in
connection with the Transaction) or (ii) which the Company or its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by the Company or its Subsidiaries to
any Person in connection with such lease, if in the case of clause (i) or (ii)
above, such sale and such lease are part of the same transaction or a series of
related transactions or such sale and such lease occur within one year of each
other or are with the same other Person.
SECTION 8. Events of Default. Upon the occurrence and during the
continuance of any of the following specified events (each, an "Event of
Default"):
8.01. Payments. Any Borrower shall (i) default in the payment when
due of any principal of the Loans, (ii) default, and such default shall continue
for two or more Business Days, in the payment when due of any interest on the
Loans or under any other Credit Document or (iii) fail to pay any other amounts
owing hereunder for five days after receiving notice from the Administrative
Agent of such default; or
8.02. Representations, etc. Any representation, warranty or
statement made or deemed made by any Credit Party or its respective Subsidiaries
herein or in any other Credit Document or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made;
or
8.03. Covenants. Holdings or any Credit Party or its respective
Subsidiaries shall (a) default in the due performance or observance by it of any
term, covenant or agreement contained in Section 6.11, 6.12, 6.14, 6.15 or
Section 7 hereof or Section 1.1 of any Mortgage of Real Property in the United
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States or (b) default in the due performance or observance by it of any other
term, covenant or agreement contained in this Agreement or any Security Document
(other than those referred to in Section 8.01, 8.02 or 8.03(a)) and such default
shall continue unremedied for a period of at least thirty days after the date of
such default; or
8.04. Default Under Other Agreements. (a) Any Credit Party or its
respective Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than Obligations) having a principal amount in excess of
$5,000,000 in the aggregate for all Credit Parties and their Subsidiaries,
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created or (ii) default in the observance or
performance of any agreement or condition relating to any such Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its stated
maturity; or (b) any such Indebtedness of any Credit Party or any of its
respective Subsidiaries shall be declared to be due and payable, or required to
be prepaid other than by a regularly scheduled required prepayment (excluding
offers to acquire the Public Notes pursuant to the disposition of assets
covenant applicable thereto; provided that no other Event of Default under the
Public Notes has occurred and is continuing and such offer does not constitute a
default under Section 8.03 hereof), prior to the stated maturity thereof; or
8.05. Bankruptcy, etc. Holdings or any Credit Party or its
respective Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against Holdings or any Credit Party or any of its respective
Subsidiaries and the petition is not controverted within 10 days, or is not
dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of Holdings or any Credit Party or any of its
respective Subsidiaries; or Holdings or any Credit Party or any of its
respective Subsidiaries commences any other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction
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whether now or hereafter in effect, including without limitation, the Bankruptcy
and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act
(Canada), relating to Holdings or any Credit Party or any of its respective
Subsidiaries; or there is commenced against Holdings or any Credit Party or any
of its respective Subsidiaries any such proceeding which remains undismissed for
a period of 60 days; or a receiver, receiver and manager, administrator,
liquidator, trustee or other person or officer with like powers shall be
appointed, either by private appointment or by order of a court of competent
jurisdiction, with respect to, or an encumbrancer shall take possession of,
assets of Holdings or any Credit Party or any of its Subsidiaries; or any person
presents a petition for the winding-up or the administration of Holdings or any
Credit Party or any of its Subsidiaries and such petition remains undismissed
for a period of 60 days; or Holdings or any Credit Party or any of its
respective Subsidiaries is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or
Holdings or any Credit Party or any of its respective Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; or
Holdings or any Credit Party or any of its respective Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by Holdings or any Credit Party or any of its respective Subsidiaries for
the purpose of discussing or effecting any of the foregoing; or
8.06. ERISA. An ERISA Event or noncompliance with respect to Foreign
Plans shall have occurred that, in the opinion of the Required Banks, when taken
together with all other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Credit Parties in an aggregate amount
exceeding $1,000,000; or
8.07. Security Documents. Any Security Document shall cease to be
in full force and effect, or shall cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby, in favor of the
Collateral Agent, superior to and prior to the rights of all third Persons other
than holders of Prior Liens and subject to no other Liens other than Liens
expressly permitted by the applicable Security Document; or
8.08. Guarantees. Any Guarantee (except with respect to any
Guarantor individually or together with other Guarantors which do not have total
assets of $2,500,000 or
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more) or any provisions thereof shall cease to be in full force or effect in all
material respects (except in accordance with its terms or as permitted under
this Agreement), or the Guarantor thereunder or Person acting by or on behalf of
such Guarantor shall deny or disaffirm such Guarantor's obligations under such
Guarantee or the Guarantor shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any Guarantee; or
8.09. Judgments. One or more judgments or decrees shall be entered
against any Credit Party or any of its respective Subsidiaries involving a
liability of $2,000,000 or more in the case of any one such judgment or decree
and $5,000,000 or more in the aggregate for all such judgments and decrees for
all Credit Parties and their respective Subsidiaries (in either case in excess
of the amount covered by insurance as to which the insurance company has
acknowledged coverage) and (i) any such judgments or decrees shall not have been
vacated, discharged, bonded or enforcement thereof stayed pending appeal within
30 days from the entry thereof or (ii) any enforcement proceeding therefor shall
have been commenced; or
8.10. Ownership. (i) Chartwell, together with any other Person
controlled by or under common control with Chartwell, shall cease to
beneficially own (as defined in Rule 13d-3 or any successor rule or regulation
promulgated under the Securities Exchange Act of 1934) (x) at least 30% (on a
fully diluted basis) of the issued and outstanding Voting Stock of Holdings or
(y) a higher percentage of such Voting Stock of Holdings than any other Person;
or (ii) individuals who constituted the board of directors of Holdings on the
Closing Date (together with any new directors whose proposal for election by
Holdings was approved by a vote of 51% of the directors of Holdings then still
in office who either were directors on the Closing Date or whose election or
nomination for election was previously so approved) shall cease for any reason
to constitute a majority of the members of the board of directors of Holdings
still in office; or (iii) Holdings shall cease to own, directly or indirectly,
100% of the issued and outstanding shares of capital stock of the Company (each,
a "Change in Control").
Then, and in any such event, and at any time thereafter, if any
Event of Default shall then be continuing, the Administrative Agent shall, upon
the written request of the Required Banks, by written notice to the Borrowers,
take any or all of the following actions, without prejudice to the rights
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of the Administrative Agent or any Bank to enforce its claims against the
Borrowers, except as otherwise specifically provided for in this Agreement
(provided that, if an Event of Default specified in Section 8.05 shall occur,
with respect to Holdings or the Company or any of its Significant Subsidiaries,
the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitments terminated, whereupon the Commitment of each Bank shall forthwith
terminate immediately and any accrued and unpaid Commitment Commission shall
forthwith become due and payable without any other notice of any kind; (ii)
declare the principal of and accrued interest in respect of all Loans and all
Obligations owing hereunder and thereunder to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by each Credit Party; and/or
(iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce),
any or all of the remedies created pursuant to the Security Documents. If an
Event of Default is cured or waived in accordance with the terms of the
Agreement, it ceases (and, if waived, pursuant to the terms, and to the extent,
of such waiver).
SECTION 9. Definitions. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"A Term Loan" has the meaning provided in Section 1.01(a).
"A Term Loan Commitment" means, with respect to each Bank, the
amount set forth below such Bank's name on the signature pages hereto directly
across from the entry entitled "A Term Loan Commitment," as the same may be
reduced from time to time pursuant to Sections 2.02, 3.02 and/or 8.
"A Term Loan Facility" means the Loan Facility evidenced by the
Total A Term Loan Commitment.
"A Term Note" has the meaning provided in Section 1.05(a).
"A Term Portion" means, at any time, the portion of the Loan
Facility evidenced by the Total A Term Loan Commitment.
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"Acceptance" means a bill of exchange drawn by a Canadian Borrower
and accepted by a Bank having a Canadian Swingline Loan Commitment and payable
in Canada.
"Acceptance Discount Proceeds" means with respect to any Acceptance,
an amount (rounded to the nearest full cent) calculated on the applicable date
of borrowing which is equal to the face amount of such Acceptance divided by the
sum of one plus the product of (i) the BA Discount Rate applicable to such
Acceptance multiplied by (ii) a fraction, the numerator of which is the term of
such Acceptance and the denominator of which is 365.
"Account" means all of the "accounts" (as that term is defined in
Section 9-106 of the Uniform Commercial Code as in effect in the State of New
York) of the Company and its Subsidiaries whether or not such Account has been
earned by performance, whether now existing or existing in the future,
including, without limitation, all (i) accounts receivable, including, without
limitation, all accounts created by or arising from all of the Company's and its
Subsidiaries' sales of goods or rendering of services or licensing or subleasing
of any of the Company's and its Subsidiaries' Intellectual Property and
including accounts for goods shipped or goods subject to a progress, percentage
of completion or similar accounting or payment method, which accounts are
unbilled; provided the invoice for such goods is sent within 15 days of the date
the goods were shipped; (ii) unpaid seller's rights (including rescission,
replevin, reclamation and stopping in transit) relating to the foregoing or
arising therefrom; (iii) rights to any goods represented by any of the
foregoing, including returned or repossessed goods; (iv) reserves and credit
balances held by the Company and its Subsidiaries with respect to any such
accounts receivable or any account debtor; (v) guarantees or collateral for any
of the foregoing; and (vi) insurance policies or rights relating to any of the
foregoing.
"Acquisition Portion" means, at any time, the portion of the Loan
Facility evidenced by the Total Acquisition Term Loan Commitment.
"Acquisition Term Loan" has the meaning provided in Section 1.01(b).
"Acquisition Term Loan Closing Date" has the meaning provided in
Section 1.01(b).
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"Acquisition Term Loan Commitment" means, with respect to each Bank,
the amount set forth below such Bank's name on the signature pages hereto beside
the column entitled "Acquisition Term Loan Commitment", as same may be reduced
from time to time pursuant to Sections 2.01, 2.02, 3.02 and/or 8.
"Acquisition Term Loan Commitment Termination Date" means (i) the
earlier of the date on which the Acquisition Term Loan Commitments are reduced
to zero and (ii) the last Business Day of March 2001.
"Acquisition Term Note" has the meaning provided in Section
1.05(a)(ii).
"Additional Collateral" has the meaning provided in Section 6.14.
"Administrative Agent's Office" or "Agent's Office" means (i) the
office of the Administrative Agent located at 425 Lexington Avenue, New York,
New York 10017, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto or (ii) with respect to
U.K. Swingline Loans, such office as the U.K. Swingline Bank shall from time to
time designate in writing, as such to the other parties hereto.
"Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors,
managers and executive officers of such Person), controlled by, or under direct
or indirect common control with, such Person. A Person shall be deemed to
control a corporation or a limited liability company for the purposes of this
definition if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors or managers of such corporation or limited liability company or
(ii) to direct or cause the direction of the management and policies of such
corporation or limited liability company, whether through the ownership of
voting securities, by contract or otherwise. For purposes of this Agreement,
CIBC and Indosuez and their Affiliates shall not be deemed Affiliates of
Holdings and its Affiliates.
"Agent" or "Agents" has the meaning provided in the first paragraph
of this Agreement and shall include any successor or successors thereto
appointed in accordance herewith.
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"Agreement" means this Credit Agreement, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"Applicable Borrower" means, with respect to any Loan, either U.S.
Borrower, the Canadian Borrower or the U.K. Borrower, as applicable, which is
the Borrower to whom such Loan was, or is to be, made.
"Applicable Currency" means, as to any particular payment or
Loan, U.S. Dollars, Canadian Dollars or Pounds Sterling.
"Approved Fund" means, with respect to any Bank that is a fund that
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by the same investment advisor as such Bank or by an Affiliate of
such investment advisor.
"Asset Sale" means the sale, transfer or other disposition, to the
extent consummated after the Closing Date, by the Company or any of its
Subsidiaries of any asset of the Company or its Subsidiaries to any Person
(other than (i) transactions included in the definition of Net Financing
Proceeds, (ii) the Exempt Sale-Leaseback Transaction, (iii) any sale, transfer
or other disposition of assets the gross proceeds of which (exclusive of
indemnities) do not exceed $100,000, (iv) sales, transfers or other dispositions
of inventory in the ordinary course of business, (v) sales of accounts
receivable permitted by Section 7.15, (vi) any sales, leases, conveyances,
transfers or other dispositions of property or equipment that has become worn
out, obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any of its Subsidiaries, as the case may be, (vii)
the incurrence of any Permitted Encumbrances and Prior Liens, (viii) transfers
of cash and sales of Cash Equivalents, (ix) Intercompany Advances and (x)
Dividends permitted by Section 7.08).
"Authorizations" has the meaning provided in Section 5.22(a).
"Authorized Officer" means any senior officer of a Borrower
designated as such in writing to the Administrative Agent by such Borrower, to
the extent acceptable to the Administrative Agent.
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"B Term Loan" has the meaning provided in Section 1.01(a).
"B Term Loan Commitment" means, with respect to each Bank, the
amount set forth below such Bank's name on the signature pages hereto directly
across from the entry entitled "B Term Loan Commitment," as the same may be
reduced from time to time pursuant to Sections 2.02, 3.02 and/or 8.
"B Term Loan Facility" means the Loan Facility evidenced by the
Total B Term Loan Commitment.
"B Term Note" has the meaning provided in Section 1.05(a).
"B Term Portion" means, at any time, the portion of the Loan
Facility evidenced by the Total B Term Loan Commitment.
"BA Discount Rate" means the BA Schedule I Discount Rate or the BA
Schedule II Discount Rate, as the case may be.
"BA Equivalent Note" means a non-interest-bearing promissory note of
each Canadian Borrower in favor of a Non-Acceptance Bank in the principal amount
of a loan made by such Bank pursuant to Section 1.10 of Schedule 1.16 hereof,
having the same maturity date as the Acceptances issued contemporaneously
therewith, stating that it is given pursuant to, and is subject to, the terms of
this Agreement and otherwise being in form and substance satisfactory to the
Non-Acceptance Bank acting reasonably.
"BA Schedule I Discount Rate" means, with respect to an issue of
Acceptances with the same maturity date to be accepted by a Schedule I Bank, the
CDOR for bankers' acceptances having a comparable face value and identical
maturity date to the face value and maturity date of such issue of Acceptances.
"BA Schedule II Discount Rate" means, with respect to an issue of
Acceptances with the same maturity date to be accepted by a Schedule II Bank,
the lesser of:
(i) the annual rate determined by the Administrative Agent as being
the arithmetic average (rounded upwards to the nearest multiple of 0.01%)
of the discount rates of the Schedule II Reference Banks determined in
accordance with their normal practices at or about 10:00 a.m. on the date
of issue and acceptance of such Acceptances, for
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bankers' acceptances having a comparable face value and an identical
maturity date to the face value and maturity date of such Acceptances; and
(ii) the CDOR at or about 10:00 a.m. on the date of issue and
acceptance of such Acceptances for bankers' acceptances having a
comparable face value and an identical maturity date to the face value and
maturity date of such Acceptances plus 0.10% per annum.
"Bank" has the meaning provided in the first paragraph of this
Agreement and in Section 11.04.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) or the failure of a Bank to make available its portion of any
Borrowing (including any Mandatory Borrowing) or to fund its portion of any
unreimbursed payment under Section 1.13(e) or (ii) a Bank having notified in
writing any Borrower and/or the Administrative Agent that such Bank does not
intend to comply with its obligations under Section 1.01 or 1.13.
"Bankruptcy Code" has the meaning provided in Section 8.05.
"Base Rate" means the higher of (x) 1/2% per annum in excess of the
Federal Funds Rate and (y) the rate which the Administrative Agent announces
from time to time as its prime lending rate, as in effect from time to time. The
rate the Administrative Agent announces as its prime lending rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. The Administrative Agent may make commercial loans or other
loans at rates of interest at, above or below the rate it announces as its prime
lending rate.
"Base Rate Loan" means each Loan bearing interest at the rate
provided in Section 1.08(a). Base Rate Loans may only be made in U.S. Dollars.
"Borrowers" means the Canadian Borrowers, the U.K. Borrower and the
U.S. Borrowers.
"Borrowing" means the incurrence pursuant to a Notice of Borrowing
and to the Loan Facility of one Type of Loan by a Borrower from all of the Banks
on a pro rata basis on a given date (or resulting from conversions on a given
date), having in
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the case of Reserve Adjusted Eurodollar Loans the same Interest Periods.
"Borrowing Amount" means, in the case of an Acceptance, a minimum
aggregate amount of Cdn.$1,000,000 plus any whole multiple of Cdn.$100,000.
"Borrowing Base" means an amount equal to the sum of (i) 85% of the
Eligible Accounts Receivable; provided that the rate shall be 50% for the
additional $10,000,000 of Eligible Accounts Receivable specified in clause (e)
of the definition thereof, and (ii) 50% of the Eligible Inventory.
"Borrowing Base Certificate" has the meaning assigned to that term
in Section 6.01.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in London, England or New York, New York (and in
the case of disbursements and payments in Canadian Dollars, in Toronto, Canada)
and (i) with respect to disbursements and payments in U.S. Dollars relating to
Reserve Adjusted Eurodollar Loans, a day on which dealings are carried on in the
applicable offshore U.S. Dollar interbank market, and (ii) with respect to
disbursements and payments in and calculations pertaining to Pounds Sterling, a
day on which commercial banks are open for foreign exchange business in London,
England, and on which dealings in Pounds Sterling are carried on in the
applicable foreign exchange interbank market in which disbursement of or payment
in Pounds Sterling will be made or received hereunder.
"Canadian Borrower" means each of Mondel ULC, an unlimited liability
company organized under the laws of Nova Scotia, and Kaverit Steel and Crane
ULC, an unlimited liability company organized under the laws of Nova Scotia, and
in each case its respective successors.
"Canadian Dollars" and "Cdn. $" each mean lawful money of Canada.
"Canadian Federal Funds Rate" means the overnight rate (expressed as
an annual rate) established by the Administrative Agent based on its customary
practice.
"Canadian Pledge Agreement" means each Securities Pledge Agreement
executed by the Canadian Subsidiaries of the Company substantially in the form
of Exhibit H-1 hereto, except for such changes as shall have been approved by
the Agents, as
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the same may after its execution be amended, supplemented or otherwise modified
from time to time in accordance with its terms and the terms hereof.
"Canadian Security Agreements" means each Security Agreement
executed by the Canadian Subsidiaries of the Company substantially in the form
of Exhibit G-2 hereto, except for such changes as shall have been approved by
the Agents, as the same may after its execution be amended, supplemented or
otherwise modified from time to time in accordance with its terms and the terms
hereof.
"Canadian Subsidiary" means any Subsidiary of the Company organized
under the laws of Canada or any Province thereof.
"Canadian Subsidiary Guarantee" means each guarantee executed by the
Canadian Subsidiaries of the Company substantially in the form of Exhibit E-3
hereto, except for such changes as shall have been approved by the Agents, as
the same may after its execution be amended, supplemented or otherwise modified
from time to time in accordance with its terms and the terms hereof.
"Canadian Swingline Bank" means each Bank with a Canadian Swingline
Loan Commitment.
"Canadian Swingline Loan" means any Swingline Loan made by the
Canadian Swingline Bank to a Canadian Borrower.
"Canadian Swingline Loan Commitment" means, with respect to each
Bank, the amount set forth below such Bank's name on the signature pages hereto
directly across from the entry entitled "Canadian Swingline Loan Commitment," as
such amount may be reduced from time to time pursuant to Sections 2.01, 2.02,
3.02 and/or 8.
"Canadian Swingline Note" has the meaning provided in Section
1.05(a).
"Capital Lease" of any Person means any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in conformity
with GAAP, is, or is required to be, accounted for as a capital lease on the
balance sheet of that Person, together with any renewals of such leases (or
entry into new leases) on substantially similar terms.
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"Capitalized Lease Obligations" of any Person means all obligations
under Capital Leases of such Person or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means (i) marketable direct obligations issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than one year from the date of acquisition, (ii) marketable direct
obligations issued by any State of the United States of America, any foreign
country recognized by the United States of America, or any local government or
other political subdivision thereof rated (at the time of acquisition of such
security) at least AA by Standard & Poor's Ratings Group ("S&P") or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's") having
maturities of not more than one year from the date of acquisition, (iii) time
deposit accounts, deposit accounts, certificates of deposit and bankers'
acceptances of (x) any Bank, (y) any domestic commercial bank of recognized
standing having capital and surplus in excess of $250,000,000 or (z) any bank
organized under the laws of any jurisdiction recognized by the United States of
America and in which the Borrowers or their Subsidiaries actively conduct
business whose short-term commercial paper rating (at the time of acquisition of
such security) by S&P is at least A-1 or the equivalent thereof or by Moody's is
at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in
each case with maturities of not more than six months from the date of
acquisition, (iv) commercial paper and variable or fixed rate notes issued by
any Bank or Approved Bank or by the parent company of any Bank or Approved Bank
and commercial paper and variable rate notes issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating (at
the time of acquisition of such security) of at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or
guaranteed by any industrial company with a long-term unsecured debt rating (at
the time of acquisition of such security) of at least AA or the equivalent
thereof by S&P or the equivalent thereof by Moody's and in each case maturing
within one year after the date of acquisition, (v) repurchase agreements with
any Bank or any primary dealer maturing within 30 days from the date of
acquisition that are fully collateralized by investment instruments that would
oth-
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erwise be Cash Equivalents; provided that the terms of such repurchase
agreements comply with the guidelines set forth in the Federal Financial
Institutions Examination Council Supervisory Policy -- Repurchase Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985, (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above, and (vii) foreign bank
deposits and cash equivalents in jurisdictions where the Company or its
Subsidiaries are then actively conducting business; provided that (a) all such
deposits are required to be made in the ordinary course of business, (b) such
deposits do not exceed $1,000,000 in the aggregate and (c) the funds so
deposited do not remain in such bank for more than ten days.
"CDOR" means, for any day and relative to Acceptances (or BA
Equivalent Notes) having any specified term, the average of the annual rates
(calculated on the basis of a year of 365 days) for Canadian Dollar bankers'
acceptances, having such specified term (or a term as closely as possible
comparable to such specified term) of the Schedule I chartered banks of Canada
that appears on the Reuters Screen CDOR Page as at 10:00 a.m. on such day (or,
if such day is not a Business Day, as at 10:00 a.m. on the immediately preceding
Business Day); provided that if such rate does not appear on the Reuters Screen
CDOR page at such time on such date, the rate for such date will be the discount
rate quoted by the Administrative Agent, having such specified term (or a term
as closely as possible comparable to such specified term) for bankers'
acceptances at such time and on such date.
"CERCLA" has the meaning provided in Section 5.22(d).
"Change in Control" has the meaning provided in Section 8.10.
"Chartwell" means Chartwell Investments Inc. and its Affiliates.
"Chartwell Financial Advisory Agreement" means the Financial
Advisory Fee Letter dated March 30, 1998 between the Company and Chartwell, as
in effect on the Closing Date.
"Chartwell Management Consulting Agreement" means the Management
Consulting Agreement dated March 30, 1998 between the Company and Chartwell, as
in effect on the Closing Date.
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"CIBC" has the meaning provided in the first paragraph of this
Agreement.
"Closing Date" means March 30, 1998.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means all of the Pledged Collateral, Pledged Securities
and Mortgaged Real Property.
"Collateral Agent" means CIBC in its capacity as collateral agent
for the Banks.
"Commercial Letter of Credit" means any letter of credit or similar
instrument issued for the account of the Applicable Borrower for the purpose of
providing the primary payment mechanism in connection with the purchase of any
materials, goods or services by a Borrower or any of its Subsidiaries in the
ordinary course of business of the Company or its Subsidiaries.
"Commitment" means, with respect to each Bank, such Bank's Term Loan
Commitment, Acquisition Term Loan Commitment, Swingline Loan Commitment and
Revolving Loan Commitment.
"Commitment Commission" has the meaning provided in Section 2.03.
"Company" means Morris Material Handling, Inc., a Delaware
corporation.
"Compliance Certificate" means a certificate issued pursuant to
Section 6.01(d) signed by a chief financial officer, controller, chief
accounting officer or other Authorized Officer of the Company.
"Computation Date" means any date on which the Administrative Agent
or the U.K. Swingline Bank, as the case may be, determines the Dollar Equivalent
amount of any Pounds Sterling Loans or Canadian Dollar Loans pursuant to Section
1.14 or Section 3.05(b).
"Consolidated Amortization Expense" for any Person means, for any
period, the consolidated amortization expense of such Person for such period,
determined on a consolidated basis for such Person and its Subsidiaries in
conformity with GAAP.
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"Consolidated Capital Expenditures" of any Person means, for any
period, the amount required to be included in capital assets on the consolidated
balance sheet of such Person in conformity with GAAP, but excluding expenditures
made in connection with the replacement, substitution or restoration of assets
(i) to the extent financed from insurance proceeds paid on account of the loss
of or damage to the assets being replaced or restored, (ii) with awards of
compensation arising from the taking by eminent domain or condemnation of the
assets being replaced, (iii) with regard to equipment that is purchased
simultaneously with the trade-in of existing equipment, fixed assets or
improvements, the credit granted by the seller of such equipment for the
trade-in of such equipment, fixed assets or improvements or (iv) assets
purchased with Net Cash Proceeds in accordance with Section 7.17 or with
proceeds from sales covered by clause (iii) of the definition of Asset Sale;
provided that Consolidated Capital Expenditures shall (other than with respect
to Designated Acquisitions) in any event include the purchase price paid in
connection with the acquisition of any other Person (including through the
purchase of all of the capital stock or other ownership interests of such Person
or through merger or consolidation).
"Consolidated Cash Taxes" of any Person means, for any period, the
amount of cash taxes actually paid in such period by such Person or the
consolidated tax group of which such Person is a member based on the income of
such Person or group.
"Consolidated Depreciation Expense" for any Person means, for any
period, the consolidated depreciation expense of such Person for such period,
determined on a consolidated basis for such Person and its consolidated
Subsidiaries in conformity with GAAP.
"Consolidated EBITDA" means, for any Person, for any period, an
amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus
(ii) the provision for taxes for such period based on income or profits to the
extent such income or profits were included in computing Consolidated Net Income
(minus any provision for taxes utilized in computing net loss under clause (i)
hereof to the extent such provision reduced the net loss), plus (iii)
Consolidated Interest Expense for such period, plus (iv) Consolidated
Depreciation Expense for such period to the extent reducing Consolidated Net
Income, plus (v) Consolidated Amortization Expense for such period to the extent
reducing consolidated net income, plus (vi) without duplication of clause (v),
amortization of original issue discount to the extent it arises from the
issuance of capital
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stock of the Company, plus (vii) any charge related to any premium or penalty
paid in connection with redeeming or retiring any Indebtedness prior to its
stated maturity to the extent reducing Consolidated Net Income, plus (viii) any
other non-cash items reducing Consolidated Net Income for such period, minus (b)
all non-cash items increasing Consolidated Net Income for such period, minus (c)
all cash payments during such period relating to non-cash charges that were
added back in determining Consolidated EBITDA in any prior period (provided that
payment of such cash amounts did not reduce Consolidated Net Income), all for
such Person and its Subsidiaries determined in accordance with GAAP. For
purposes of computations made pursuant to Sections 7.10-7.13, Consolidated
EBITDA for a given Test Period (x) shall mean Consolidated EBITDA for such Test
Period and (y) shall also include the EBITDA (with appropriate adjustments set
forth in financials delivered pursuant to Section 4.03(b)(ii)) derived from and
pro forma for any Designated Acquisition consummated during such Test Period and
which is consolidated with the Company and its Subsidiaries as of the last day
of such Test Period, for the portion of such Test Period before the business was
so acquired.
"Consolidated EBITDAC" for any Person means, for any period,
Consolidated EBITDA minus Consolidated Capital Expenditures of such Person and
its Consolidated Subsidiaries determined in conformity with GAAP.
"Consolidated Interest Expense" means, with respect to any Person,
for any period, without duplication, (i) the aggregate amount of interest
charges (excluding fees and expenses incurred in connection with the
Transaction), whether expensed or capitalized, incurred or accrued by such
Person and its Subsidiaries, determined on a consolidated basis in conformity
with GAAP for such period, plus (ii) to the extent not included in clause (i)
above, an amount equal to the sum of: (A) imputed interest included in
Capitalized Lease Obligations, (B) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (C) the net costs associated with Interest Rate Agreements, Currency
Protection Agreements and other hedging obligations, (D) the interest portion of
any deferred payment obligations, (E) [intentionally omitted], (F) all
capitalized interest and all accrued interest, (G) all interest incurred or paid
under any guarantee of Indebtedness (including a guarantee of principal,
interest or any combination thereof) of any Person, and (H) all dividends or
distributions on preferred capital stock if payable to a Person other than the
Company or a Subsidiary (other than dividends paid or payable in shares of
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capital stock of the Company) declared and payable in cash, minus (iii) to the
extent included in clause (i) or (ii) above, amortization or write-off of
deferred financing costs (and original issue discount to the extent it arises
from the issuance of capital stock of the Company) during such period and,
without duplication, any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness of the Company or its
Subsidiaries prior to the stated maturity thereof.
"Consolidated Net Income" means with respect to any Person, for any
period, the aggregate of the net income (loss) of such Person and its
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that (a) the net income (loss) of any Person that
is not a Subsidiary, (b) the net income of any Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions (other than pursuant to this
Agreement, the Public Notes, the indenture related to the Public Notes or any
other Indebtedness of any Subsidiary of the Company containing, in the good
faith judgment of the Board of Directors of the Company, substantially the same
or less restrictive limitations on the payment of dividends or the making of
other distributions than those contained in this Agreement, the Public Notes or
the indenture related to the Public Notes) shall be excluded to the extent of
such restriction or limitation (regardless of any waiver thereof), (c)(i) the
net income (loss) of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition and (ii) any net after-tax
gain (but not loss) resulting from an Asset Sale by the Person in question or
any of its Subsidiaries other than in the ordinary course of business shall be
excluded, (d) non-cash gains and losses due solely to fluctuations in currency
values shall be excluded, (e) in the case of a successor to the referent Person
by consolidation or merger or as a transferee of the referent Person's assets,
any earnings (or losses) of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded, and (f) all items
classified as extraordinary, unusual or nonrecurring, including all items
relating to the Transaction and the preclosing events relating thereto shall be
excluded (including the fees and expenses incurred at or prior to the closing of
the Transaction and write-offs or other costs associated or arising in
connection with the Transaction).
"Consolidated Tangible Assets" of any Person means the consolidated
tangible assets of such Person and its Sub-
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sidiaries determined on a consolidated basis in accordance with GAAP.
"Contingent Obligations" means, as to any Person, without
duplication, any obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations ("primary obligations")
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business and amounts that are included in Section 7.18. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the maximum
amount that such Person may be obligated to expend pursuant to the terms of such
Contingent Obligation or, if such Contingent Obligation is not so limited, the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Credit Documents" means (i) this Agreement, (ii) each Note, (iii)
each Guarantee and (iv) each Security Document.
"Credit Extension" means the making of any Loan, the issuance of
Acceptances or the issuance of any Letter of Credit hereunder.
"Credit Party" means at all times the Borrowers and each Subsidiary
thereof that pledges any stock, grants any Lien or issues any guarantee pursuant
to any Credit Document.
"Currency Protection Agreement" shall mean any foreign exchange
contract, currency swap agreement, or other fi-
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nancial agreements or arrangements designed to protect any Borrower against
fluctuations in currency values.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"Designated Acquisition" means such acquisition as shall be effected
by the U.S. Borrowers in compliance with Section 4.03 and Section 6.18; provided
that the Designated Acquisition entity engages in the MHE Business, and
businesses or activities similar or reasonably related thereto.
"Destruction" has the meaning assigned to that term in each
Mortgage.
"Dividends" has the meaning provided in Section 7.08.
"Documents" means each Credit Document and each Transaction
Document.
"Dollar Equivalent" means, at any time, (a) as to any amount
denominated in U.S. Dollars, the amount thereof at such time, and (b) as to any
amount denominated in Canadian Dollars or Pounds Sterling, the equivalent amount
in U.S. Dollars as determined by the Administrative Agent at such time on the
basis of the Spot Rate for the purchase of U.S. Dollars with such Canadian
Dollars or Pounds Sterling on the most recent Computation Date provided for in
Section 1.14(a) or such other date as is specified herein; provided that the
U.K. Swingline Bank shall determine the Spot Rate with respect to any Borrowings
of U.K. Swingline Loans.
"Dollar Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment. Notwithstanding anything to the contrary contained
above, if the Dollar Percentage of any Bank is to be determined after the Total
Revolving Loan Commitment has been terminated,
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then the Dollar Percentages of the Banks shall be determined immediately prior
(and without giving effect) to such termination.
"Dollars" or "$" means United States Dollars.
"Effective Date" has the meaning provided in Section 11.10.
"Effective Time" has the meaning provided in Section 11.10.
"Eligible Accounts Receivable" means, as at any applicable date of
determination, the aggregate face amount of the Accounts of the Credit Parties
included in clause (i) of the definition of Account hereunder (excluding any
Accounts set forth in clauses (ii) through (vi) of such definition), without
duplication, in each case less (without duplication) the aggregate amount of all
reserves, limits and deductions with respect to such Accounts set forth below
and less the aggregate amount of all returns, discounts, claims, rebates,
offsets, credits, charges (including warehouseman's charges) and allowances of
any nature with respect to such Accounts (whether issued, owing, granted or
outstanding). Unless otherwise approved in writing by the Administrative Agent
in its sole discretion, no individual Account shall be deemed to be an Eligible
Account Receivable if:
(a) a Credit Party does not have legal and valid title to the
Account; or
(b) the Account is not the valid, binding and legally enforceable
obligation of the account debtor subject, as to enforceability, only to
(i) applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws at the time in effect affecting the enforceability of
creditors' rights generally and (ii) judicial discretion in connection
with the remedy of specific performance and other equitable remedies; or
(c) the Account arises out of a sale made by a Credit Party to an
Affiliate of such Credit Party other than sales to Harnco or Joint
Ventures in the ordinary course of business; or
(d) the Account or any portion thereof is unpaid more than
90 days after the original invoice date; or
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(e) such Account, when aggregated with all other Accounts of the
same account debtor (or any Affiliate thereof), exceeds the greater of $10
million or ten percent in face value of all Accounts of the Credit Parties
then outstanding, to the extent of such excess, unless such excess is
supported by a letter of credit satisfactory to the Administrative Agent
(as to form, substance and issuer); provided that up to an additional
$10,000,000 of Accounts, which would otherwise be ineligible under this
clause (e), shall be Eligible Accounts Receivable at the reduced advance
rate set forth in the definition of Borrowing Base; or
(f) (i) the account debtor for such Account is also a creditor of a
Credit Party, to the extent of the amount owed by such Credit Party to the
account debtor and the account debtor has not entered into an agreement
with respect to the waiver of the rights of setoff, (ii) the Account is
subject to any claim on the part of the account debtor disputing liability
under such Account in whole or in part, to the extent of the amount of
such dispute or (iii) the Account otherwise is or is reasonably likely to
become subject to any right of setoff or any counterclaim, claim or
defense by the account debtor, to the extent of the amount of such setoff
or counterclaim, claim or defense; or
(g) the account debtor for such Account has commenced a voluntary
case or proceeding under applicable bankruptcy or insolvency laws, as now
constituted or hereafter amended, or made an assignment for the benefit of
creditors or if a decree or order for relief has been entered by a court
having jurisdiction in the premises in respect of the account debtor in an
involuntary case or proceeding under applicable bankruptcy or insolvency
laws, as now constituted or hereafter amended, or if any other petition or
other application for relief under applicable bankruptcy or insolvency
laws has been filed by or against the account debtor, or if the account
debtor has failed, suspended business, ceased to be solvent, or consented
to or suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its assets or
affairs; or
(h) the Administrative Agent does not have a valid and perfected
first priority security interest in such Account except with respect to
Accounts securing Surety Arrangements subject to an Intercreditor
Agreement, the face
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amount of which do not exceed the lesser of $5,000,000 and 10% of the
total face amount of all Eligible Accounts Receivable; or
(i) the sale to the account debtor for such Account is on a
consignment, sale on approval, guaranteed sale or sale-and-return basis or
pursuant to any written agreement requiring repurchase or return; or
(j) such Account is from an account debtor (or any Affiliate
thereof) and fifty percent (50%) or more, in face amount, of other
Accounts from such account debtor are due or unpaid for more than 90 days
after the original invoice date; or
(k) fifty percent (50%) or more, in face amount, of other Accounts
from the same account debtor for such Account are not deemed Eligible
Accounts Receivable hereunder, other than pursuant to clause (a), (e), (h)
or (i) hereunder; or
(l) such Account is an Account a security interest in which would be
subject to the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. ss. 3727 et seq.) or the Financial Administration Act (Canada) or
foreign equivalent, unless the Credit Party has assigned the Account to
the Agent in compliance with the provisions of such Act; or
(m) the Administrative Agent determines in good faith that (i)
collection of the account is insecure or (ii) such Account may not be paid
by reason of the account debtor's financial inability to pay; provided,
however, that any Account referred to in this clause (m) shall not become
ineligible until the Administrative Agent shall have given the Credit
Party three Business Days' advance notice of such determination; or
(n) except with respect to Accounts generated from projects on which
a progress, percentage of completion or similar accounting or payment
method is used, the goods giving rise to such Account have not been
shipped or the services giving rise to such Account have not been
performed by a Credit Party or the Account otherwise does not represent a
final sale; or
(o) such Account does not comply in all material respects with all
applicable legal requirements, including,
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where applicable, the Federal Consumer Credit Protection Act, the Federal
Truth in Lending Act and Regulation Z of the Board of Governors of the
Federal Reserve System, in each case as amended.
In addition to the foregoing, Eligible Accounts Receivable includes
such Accounts as a Credit Party requests and that the Administrative Agent
approves in advance, in writing and in its sole discretion (or if the aggregate
face amount to be approved exceeds $1,000,000 at any one time, the approval of
the Required Banks has been obtained in writing).
"Eligible Inventory" means (A) the gross amount of Inventory of the
Credit Parties, valued at the lower of cost (on a FIFO basis) or market, which
(i) is owned solely by a Credit Party and with respect to which such Credit
Party has good, valid and marketable (or indefeasible) title; (ii) is stored on
property leased by a Credit Party or that is either (a) owned or leased by a
Credit Party or (b) owned or leased by a warehouseman that has contracted with a
Credit Party to store Inventory on such warehouseman's property (provided that
with respect to Inventory stored on property located in the United States or
Canada leased by a Credit Party or owned or leased by a warehouseman, such
Credit Party has delivered to the Administrative Agent an agreement of the type
described in Section 6.11 hereof satisfactory to the Administrative Agent
executed by such lessor or warehouseman); (iii) is subject to a valid,
enforceable and first priority Lien in favor of the Administrative Agent except
with respect to Inventory securing Surety Arrangements subject to an
Intercreditor Agreement, the value (at the lower of cost (on a FIFO basis) or
market) of which does not exceed the lesser of $5,000,000 or 10% of the total
value of all Eligible Inventory; and (iv) is not obsolete or slow moving in
relation to customary industry practice, and which otherwise conforms to the
requirements for eligibility contained herein; less (B) the amount of any goods
returned or rejected by the Credit Parties' customers and goods in transit to
third parties (other than to the Credit Parties' agents or warehousemen that
comply with clause (A)(ii)(b) above which are not resaleable); less (C) the
amount of any reserves. In addition to the foregoing, Eligible Inventory shall
include such items of the Credit Parties' Inventory as the Company shall request
and that the Administrative Agent approves in advance, in writing and in its
sole discretion (or if the aggregate amount to be approved exceeds $500,000 at
any one time, the approval of the Required Banks has been obtained).
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"Employee Benefit Plan" shall mean an employee benefit plan (as
defined in Section 3(3) of ERISA) that is maintained or contributed to by any
ERISA Entity or with respect to which a Credit Party could incur liability.
"Environmental Laws" means the common law and all federal, state,
provincial, local and foreign laws or regulations, codes, orders, decrees,
judgments or injunctions issued, promulgated, approved or entered thereunder,
now or hereafter in effect, relating to pollution or protection of public or
employee health and safety or the environment, including, without limitation,
laws relating to (i) emissions, discharges, releases or threatened releases of
Hazardous Materials, into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(ii) the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of Hazardous Materials, and (iii)
underground and aboveground storage tanks, and related piping, and emissions,
discharges, releases or threatened releases therefrom.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Entity" shall mean any member of an ERISA Group.
"ERISA Event" shall mean (a) any "reportable event," as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Pension Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Pension Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived, the failure to make by its due date a required
installment under Section 412(m) of the Code with respect to any Pension Plan or
the failure to make any required contribution to a Multiemployer Plan; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Pension Plan; (d) the incurrence by any ERISA Entity of any liability under
Title IV of ERISA with respect to the termination of any Pension Plan; (e) the
receipt by any ERISA Entity from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Pension Plan or to appoint a trustee
to administer any Pension Plan, or the occurrence of any event or condition
which could reasonably be expected to constitute grounds under ERISA for the
termination of or the appointment of a trustee to adminis-
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ter, any Pension Plan; (f) the incurrence by any ERISA Entity of any liability
with respect to the withdrawal or partial withdrawal from any Pension Plan or
Multiemployer Plan; (g) the receipt by an ERISA Entity of any notice, or the
receipt by any Multiemployer Plan from any ERISA Entity of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; (h) the failure to make any payment or
contribution to any Pension Plan or the making of any amendment to any Pension
Plan which could result in the imposition of a lien or the posting of a bond or
other security; or (i) the occurrence of a nonexempt prohibited transaction
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) which
could result in liability to a Credit Party.
"ERISA Group" shall mean each Credit Party and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with a Credit Party, are
treated as a single employer under Section 414 of the Code.
"Eurodollar Rate" means the rate per annum that appears on page 3750
of the Dow Jones Telerate Screen or any successor page for Dollar deposits with
maturities comparable to the Interest Period applicable to the Reserve Adjusted
Eurodollar Loans subject to the respective Borrowing commencing two Business
Days thereafter as of 11:00 a.m. (London time) on the date which is two Business
Days prior to the commencement of the respective Interest Period; provided that,
to the extent that an interest rate is not ascertainable pursuant to the
foregoing provisions of this definition, the rate to be used for purposes of
this definition shall be the interest rate per annum determined by the
Administrative Agent to be the rate per annum at which deposits in Dollars are
offered for such relevant Interest Period to major banks in the London interbank
market in London, England by the Administrative Agent at approximately 11:00
A.M. (London time) on the date which is two Business Days prior to the beginning
of such Interest Period, divided (and rounded, if necessary, upward to the
nearest whole multiple of 1/16 of 1%).
"Event of Default" has the meaning provided in Section 8.
"Excess Cash Flow" means, for any period, the amount by which
Consolidated EBITDAC of the Company and its Subsidiaries exceeds the sum of (a)
cash payments of Consolidated Inter-
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est Expense of the Company and its Subsidiaries for such period, plus (b)
principal payments made on the Indebtedness of the Company and its Subsidiaries
in such period (excluding repayments of Revolving Loans not made as a result of
a reduction in the Total Commitment), plus (c) Consolidated Cash Taxes paid in
such period, plus (d) voluntary prepayments on the Term Loans and Acquisition
Term Loans and voluntary prepayments on Revolving Loans resulting in a permanent
commitment reduction made in such period (other than any prepayment required to
be made pursuant to Section 3.02(A)(a)or(b)), plus (e) for the period from
November 1, 1998 through October 31, 2001, 100%, and for periods thereafter, a
percentage equal to 100% minus the applicable percentage to be paid to the Banks
pursuant to Section 3.02(A)(g), of the funds used on or prior to the date
payments are due under Section 3.02(A)(g), for the applicable period to make
Designated Acquisitions (other than to the extent Acquisition Term Loans or the
$12,500,000 Revolving Loan basket is used).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Sale and Lease-Back Transaction" means the sale for less
than $1,000,000 of approximately five acres of undeveloped real property at the
Oak Creek, Wisconsin facility and the leasing back of such real property and a
building to be constructed thereon.
"Existing Debt" means the Indebtedness of the Credit Parties set
forth on Schedule 5.21(a).
"Federal Funds Rate" means on any one day the weighted average of
the rate on overnight Federal funds Transaction with members of the Federal
Reserve System only arranged by Federal funds brokers as published as of such
day by the Federal Reserve Bank of New York, or if not so published, the rate
then used by first class banks in extending overnight loans to other first class
banks.
"Final A Term Loan Maturity Date" means the last Business Day of
March 2003.
"Final Acquisition Term Loan Maturity Date" means the last Business
Day of March 2005.
"Final B Term Loan Maturity Date" means the last Business Day of
March 2005.
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"Financing Proceeds" for any Person means the cash (other than Net
Cash Proceeds) received by such Person and/or any of its Subsidiaries, directly
or indirectly, from any financing transaction of whatever kind or nature,
including without limitation from any incurrence of Indebtedness, any mortgage
or pledge of an asset or interest therein (including a transaction which is the
substantial equivalent of a mortgage or pledge but excluding an Asset Sale),
from the sale of tax benefits, or from a lease to a third party and a pledge of
the lease payments due thereunder to secure Indebtedness. Proceeds from the
issuance and sale of the Public Notes and equity securities of Holdings in
connection with the Transaction (and refinancings of such equity securities with
the proceeds of a substantially concurrent sale of equity securities of
Holdings), from the Exempt Sale and Lease-Back Transaction, from the sale of
director's qualifying shares of any Subsidiary, from the sales of equity of the
Company's Subsidiaries and from transactions covered by Section 7.14 where
Holdings is permitted to keep the proceeds shall not be Financing Proceeds.
"Foreign Plan" shall mean any employee benefit plan, program,
policy, arrangement or agreement maintained or contributed to by, or entered
into with, a Credit Party with respect to employees employed outside the United
States.
"Foreign Subsidiary" of any specified Person means any Subsidiary
the jurisdiction of incorporation, organization or formation of which is outside
of the United States, Canada, the United Kingdom and South Africa.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, it being understood and agreed
that determinations in accordance with GAAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 11.07(a).
"Government Acts" shall have the meaning provided in Section
1.13(i).
"Governmental Authority" shall mean any federal, state, provincial,
local, foreign or other governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission, or other similar dispute-resolving panel or body.
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"Guarantees" means and includes, once executed and delivered, the
Holdings Guarantee, the Canadian Subsidiary Guarantees, the U.K. Subsidiary
Guarantee and the Subsidiary Guarantee, and any subsidiary guarantee delivered
pursuant to Section 6.17.
"Guarantors" for purposes of this Agreement means Holdings, each
Subsidiary of the Company delivering a Guarantee on the Closing Date and any
subsidiary that delivers a guarantee pursuant to Section 6.16, in each case
other than any Non-Guarantor Subsidiary of the Company.
"Hazardous Materials" means any pollutant, contaminant, chemical or
industrial, toxic or hazardous substance, constituent or waste, or any other
constituent, compound, waste, substance or material, including without
limitation, petroleum including crude oil or any fraction thereof, or any
petroleum product, subject to regulation under any Environmental Law.
"Hercules" means Hercules S.A. de C.V., a corporation under the laws
of the Republic of Mexico.
"Holdings Guarantee" means the guarantee executed by Holdings
substantially in the form of Exhibit E-1 hereto, except for such changes as
shall have been approved by the Agents, as the same may after its execution be
amended, supplemented or otherwise modified from time to time in accordance with
its terms and the terms hereof.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all unreimbursed drafts drawn thereunder, (iv) all Indebtedness of
a second Person secured by any Lien on any property owned by such first Person,
whether or not such Indebtedness has been assumed by such first Person, (v) all
Capitalized Lease Obligations of such Person, (vi) all obligations of such
Person to pay a specified purchase price for goods or services whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vii) all net
obligations of such Person under Interest Rate Agreements or Currency Protection
Agreements and (viii) all net Contingent Obligations of such Person; provided
that Indebtedness shall not include trade payables, liabilities arising from
advance payments or customer
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deposits for goods and services sold by the Company and its Subsidiaries in the
ordinary course of business, accrued expenses and liabilities, accrued
dividends, stock redemption payments, royalty payments, accrued retirees or
employees benefits, deferred taxes and accrued income taxes, in each case
arising in the ordinary course of business. For purposes of clause (iv) above
(where the relevant Indebtedness has not been assumed by such first Person), the
amount of Indebtedness is equal to the lesser of the amount of Indebtedness
secured or the fair market value of the property subject to the Lien.
"Indosuez" has the meaning provided in the first paragraph of this
Agreement.
"Initial Bank" means a Bank that was an original signatory to this
Agreement.
"Initial Loans" means the initial Loans made under this Agreement on
the Closing Date.
"Intellectual Property" has the meaning provided in Section 5.16.
"Intercompany Advances" means the incurrence of Indebtedness, the
purchase or acquisition of stock, obligations or securities of, or any other
interest in, or capital contributions between the Company and its respective
Subsidiaries (including the de minimis initial investment by which a Person
becomes a Subsidiary) or between Subsidiaries of the Company; provided that the
aggregate amount of Intercompany Advances made to a Foreign Subsidiary of the
Company which is a Non-Guarantor Subsidiary shall not exceed an amount at any
time outstanding equal to the amount of Intercompany Advances outstanding on the
Closing Date plus $15,000,000; and provided further that (i) trade receivables
arising in the ordinary course of business between the Company and its
Subsidiaries or between Subsidiaries or (ii) investments made in connection with
Designated Acquisitions, shall not be subject to the limitations set forth in
the preceding proviso.
"Intercreditor Agreement" means the Intercreditor Agreement among
Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance
Company and Reliance National Indemnity Company, as sureties, and Canadian
Imperial Bank of Commerce, as Collateral Agent, as the same may be amended,
modified, renewed, replaced or restated from time to time with the consent of
the Collateral Agent and any such other intercreditor agreement entered into
with the Collateral Agent.
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"Interest Margin" shall mean, in respect of (i) Base Rate Loans that
are (a) A Term Loans, 0.75%, (b) B Term Loans, 1.25%, (c) Acquisition Term
Loans, 1.25% and (d) Revolving Loans, 0.75%; and (ii) Reserve Adjusted
Eurodollar Loans that are (a) A Term Loans, 2.25%, (b) B Term Loans, 2.75%, (c)
Acquisition Term Loans, 2.75% and (d) Revolving Loans, 2.25%. The Interest
Margin in respect of Swingline Loans shall be that margin agreed among the
Applicable Borrower, the applicable Swingline Bank and the Administrative Agent.
"Interest Period" means, with respect to any Reserve Adjusted
Eurodollar Loan, the interest period applicable thereto, as determined pursuant
to Section 1.09.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
futures contract, interest rate option contract or other similar agreement or
arrangement to which the Borrower is a party, designed to protect the Borrower
or any of its Subsidiaries against fluctuations in interest rates.
"Interest Rate Determination Date" means each date for calculating
the Eurodollar Rate for purposes of determining the interest rate in respect of
an Interest Period. The Interest Rate Determination Date shall be the second
Business Day prior to the first day of the related Interest Period for a Reserve
Adjusted Eurodollar Loan.
"Inventory" means all of the inventory of the Company and its
Subsidiaries (on a consolidated basis) including without limitation: (i) all raw
materials, work in process, parts, components, assemblies, supplies and
materials used or consumed in the business of the Company and its Subsidiaries;
(ii) all goods, wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be furnished under contracts of service; and
(iii) all goods returned or repossessed by the Company or any of its
Subsidiaries.
"Issuing Bank" means the Bank that agrees to issue a Letter of
Credit, determined as provided in Section 1.13(c).
"Joint Venture" of any specified Person means any corporation,
partnership, joint venture, limited liability company, association or other
business entity, whether now existing or hereafter organized or acquired, and
(a) which is engaged in a similar line of business as the Company at the date of
determination and (b)(i) in the case of a corporation, of
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which not more than 50% of the total voting power of the Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by the Company or any
Subsidiary, or (ii) in the case of a partnership, joint venture, limited
liability company, association or other business entity, with respect to which
the Company or any Subsidiary has not more than 50% of the ownership and voting
power relating to the policies, management and affairs thereof.
"Lease" means any lease, sublease, franchise agreement, license,
occupancy or concession agreement.
"Letter of Credit" or "Letters of Credit" means (i) Standby Letter
or Letters of Credit and (ii) Commercial Letter or Letters of Credit, in each
case, issued or to be issued by Issuing Banks for the account of the Applicable
Borrower pursuant to Section 1.13.
"Letter of Credit Participation" has the meaning assigned to
that term in Section 1.13(a).
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount that is or at any time thereafter may
become available under all Letters of Credit then outstanding; provided that (y)
there shall be excluded from this clause (i) undrawn Letters of Credit providing
credit support for bonds issued pursuant to the Surety Arrangement or other
Surety Obligations in an aggregate amount not to exceed $15 million and (z) this
proviso shall not increase the Revolving Loan Commitment of any Bank or the
Total Revolving Loan Commitment, plus (ii) the aggregate amount of all drawings
under Letters of Credit honored by all Issuing Banks and not theretofore
reimbursed by the Applicable Borrower.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, claim, hypothecation, assignment for security, statutory deemed trust,
diligence or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Loan" means each and every Term Loan, Acquisition Term Loan,
Revolving Loan or Swingline Loan.
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"Loan Facility" means the credit facility evidenced by the Total
Term Loan Commitment, the Total Acquisition Term Loan Commitment and the Total
Revolving Loan Commitment.
"Management Stock" means common stock or equivalent interests of
Holdings or any parent entity of Holdings held by members of the board of
directors and management and employees of Holdings and the Company and its
Subsidiaries.
"Mandatory Borrowing" has the meaning set forth in Section 1.01(e).
"Material Adverse Effect" means (i) any materially adverse effect
(both before (excluding the effects of the Transaction) and after giving effect
to the Transaction and the financing thereof and the other transactions
contemplated hereby and by the other Documents) with respect to the operations,
business, properties, assets, nature of assets, liabilities (contingent or
otherwise), financial condition or prospects of the Company and its
Subsidiaries, taken as a whole, (ii) any fact or circumstance (whether or not
the result thereof would be covered by insurance) as to which singly or in the
aggregate there is a reasonable likelihood of (w) a materially adverse change
described in clause (i) with respect to the Company and its Subsidiaries, taken
as a whole, (x) the inability of any Credit Party to perform in any material
respect its Obligations hereunder or under any of the other Documents or the
inability of the Banks to enforce in any material respect their rights purported
to be granted hereunder or under any of the other Documents or the Obligations
(including realizing on the Collateral), or (y) a materially adverse effect on
the ability to effect (including hindering or unduly delaying) the Transaction
and the other transactions contemplated hereby and by the Credit Documents on
the terms contemplated hereby and thereby or (iii) any fact or circumstance
relating to any Credit Party as to which singly or in the aggregate there is a
reasonable likelihood of any significant liability on the part of the Banks or
the Administrative Agent.
"Maximum Swingline Amount" shall mean (x) with respect to U.S.
Swingline Loans, the Total U.S. Swingline Loan Commitment; (y) with respect to
Canadian Swingline Loans, the Total Canadian Swingline Loan Commitment and (z)
with respect to U.K. Swingline Loans, the Total U.K. Swingline Loan Commitment.
"Mexican Pledge Agreement" means the Stock Pledge Agreement executed
and delivered by the Company and PHMH Hold-
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ing Company substantially in the form of Exhibit H-2 hereto, except for such
changes as shall have been approved by the Agents, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with its
terms and the terms hereof.
"MHE Business" means (i) the original equipment business for
industrial cranes, hoists, winches, and other related types of industrial
"through-the-air" material handling equipment, (ii) aftermarket products, parts
and services for the products described in clause (i), including inspection,
repair, modernization and maintenance, and (iii) other service activities
conducted at or through distribution service center locations.
"MHE U.K." means Morris Material Handling, Ltd., a company organized
under the laws of England and Wales and a wholly-owned subsidiary of the
Company.
"Minimum Borrowing Amount" means $100,000.
"MLA Cost" means the cost imputed to a Bank making a Loan in Pounds
Sterling of compliance with the Mandatory Liquid Assets requirements of the Bank
of England during the Interest Period of that Loan determined in accordance with
Schedule 1.08(b).
"Mortgage" means a term loan and revolving credit mortgage or deed
of trust, assignment of rents, security agreement and fixture filing, debenture
creating and evidencing a Lien, legal charge or other document creating and
evidencing a Lien on each Mortgaged Real Property, which shall be substantially
in the form of Exhibit D hereto (or such other form for foreign jurisdictions,
as the Administrative Agent may approve), in each such case containing such
schedules and including such additional provisions and other deviations from
such Exhibit as shall be necessary to conform such document to applicable or
local law or as shall be customary under local law and made and which shall be
dated the date of delivery thereof and made by the owner of the Mortgaged Real
Property described therein for the benefit of the Collateral Agent, as
mortgagee, assignee and secured party, as the same may at any time be amended or
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"Mortgaged Real Property" means each Real Property designated on
Schedule 4.01(u)(i) and all other Mortgaged Property under each Mortgage.
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"Multiemployer Plan" shall mean a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA (i) to which any ERISA Entity is then
making or accruing an obligation to make contributions (ii) to which any ERISA
Entity has within the preceding five plan years made contributions, including
for these purposes any Person which ceased to be an ERISA Entity during such
five year period, or (iii) with respect to which a Credit Party could incur
liability.
"Net Award" has the meaning assigned to that term in each Mortgage.
"Net Cash Proceeds" means the aggregate cash payments received by
the Company and/or any of its Subsidiaries, as the case may be, from any Asset
Sale (other than amounts due to minority shareholders of a Subsidiary of the
Company), net of all commissions, brokerage fees and other reasonably incurred
direct expenses of sale; provided that (i) with respect to taxes, expenses shall
only include taxes to the extent that taxes are payable in cash in the current
year or in the next succeeding year with respect to the current year as a result
of such Asset Sale; (ii) Net Cash Proceeds shall not include any amounts or
items included in the definition of Financing Proceeds or Net Financing Proceeds
(including in any proviso appearing therein or exclusion therefrom); and (iii)
Net Cash Proceeds shall not include appropriate amounts to be provided by the
Company or a Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by the Company or a Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale,
provided, however, that at such time as such amounts are no longer reserved or
such reserve is no longer necessary (but in no event longer than 18 months from
the receipt of such proceeds), any remaining amounts shall become Net Cash
Proceeds to be allocated in accordance with Section 3.02(A)(f).
"Net Financing Proceeds" means Financing Proceeds, net of all
commissions, brokerage fees and other reasonably incurred direct expenses of the
transaction and net of taxes (including income taxes) paid or payable in cash as
a result thereof in the current year or in the next succeeding year with respect
to the current year as a result of the transaction generating Net Financing
Proceeds.
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"Net Proceeds" has the meaning assigned to that term in each
Mortgage.
"Non-Acceptance Bank" means a Bank having a Canadian Swingline Loan
Commitment that is not a Canadian chartered bank.
"Non-Guarantor Subsidiary" means (a) any Foreign Subsidiaries of the
Company for so long as the issuance of a guarantee by such Foreign Subsidiary
would (i) result in a material increase in the aggregate amount of income tax in
respect of such Foreign Subsidiary or (ii) be illegal under the laws of the
jurisdiction in which such Foreign Subsidiary is organized, provided that, in
either case, the Company shall have delivered to the Administrative Agent an
Officers' Certificate and an opinion of counsel so stating on the date of such
acquisition or creation, (b) any Subsidiary of the Company existing on the
Closing Date and any other newly acquired or created Foreign Subsidiary after
the Closing Date which is not a One Percent Subsidiary, but only for so long as
it is not a One Percent Subsidiary, provided that the Company shall have
delivered to the Administrative Agent an Officers' Certificate to such effect on
the Closing Date, with respect to existing One Percent Subsidiaries, and on the
date of such acquisition or creation for newly acquired or created One Percent
Subsidiaries and (c) Hercules and its Subsidiaries, at such time as the Board of
Directors of the Company shall determine; provided that (i) all Intercompany
Advances to Hercules or its Subsidiaries made by the Company or any of its
Subsidiaries, in excess of amounts outstanding as of the Closing Date, shall be
deemed made as of such date of determination and (ii) the Company shall have
delivered to the Administrative Agent an Officers' Certificate to such effect on
the date of such determination. Notwithstanding the foregoing, no Subsidiary
shall be permitted to be a Non-Guarantor Subsidiary if any of its Subsidiaries
are Guarantors.
"Notes" means any Revolving Note, Swingline Note, Acquisition
Term Note, Term Note or BA Equivalent Note.
"Notice of Borrowing" has the meaning provided in Section 1.03.
"Notice of Continuance/Conversion" has the meaning provided in
Section 1.06.
"Obligations" means all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Agents or any Bank pursuant to
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the terms of this Agreement or any other Credit Document or secured by any of
the Security Documents.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer), Chief Executive Officer, Chief Operating Officer or its
President or one of its Vice Presidents and by its Chief Financial Officer or
its Treasurer or any Assistant Treasurer and, as to any entity that is not a
corporation, Persons holding comparable positions; provided that every Officers'
Certificate with respect to compliance with a condition precedent to the making
of any Loan hereunder shall include, on behalf of the Borrower, (i) a statement
that the officers making or giving such Officers' Certificate have read such
condition and any definitions or other provisions contained in this Agreement
relating thereto, (ii) a statement that, in the opinion of the signers, they
have made or have caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not
such condition has been complied with, and (iii) a statement as to whether, in
the opinion of the signers, such condition has been complied with.
"Officers' Solvency Certificate" means the Officers' Solvency
Certificate in the form set forth as Exhibit N hereto.
"One Percent Subsidiary" means, at any date of determination, any
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company accounted for more than 1.0% of the consolidated revenues of
the Company and the Subsidiaries or (ii) as of the end of such fiscal year owned
more than 1.0% of the Consolidated Tangible Assets of the Company and its
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and its Subsidiaries for such year prepared in conformity with GAAP. For
purposes of this definition, any Subsidiary which, when aggregated with all
other Subsidiaries that are not otherwise One Percent Subsidiaries, would
constitute a One Percent Subsidiary shall be deemed to a be a One Percent
Subsidiary.
"Operating Lease" of any Person, shall mean any lease (including,
without limitation, leases which may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) by such Person as Lessee which is
not a Capital Lease.
"Overnight Rate" means for any day, the rate of interest per annum
at which overnight deposits in the Applicable
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Currency, in an amount approximately equal to the amount with respect to which
such rate is being determined, would be offered for such day by the
Administrative Agent's London Branch to major banks in the London or other
applicable offshore interbank market. The Overnight Rate for any day which is
not a Business Day shall be the Overnight Rate for the preceding Business Day.
"PBGC" shall mean the United States Pension Benefit Guaranty
Corporation or any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code or Section 302 of
ERISA and is maintained or contributed to by an ERISA or with respect to which a
Credit Party could incur liability.
"Permitted Encumbrances" has the meaning provided in Section 7.03.
"Person" means any individual, partnership, limited liability
company, joint venture, firm, corporation, association, trust, fund or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Pledge Agreements" means and includes the Canadian Pledge
Agreement, the U.K. Pledge Agreement, the Mexican Pledge Agreement and any
securities pledge agreements delivered pursuant to Section 6.14 or 6.15.
"Pledged Collateral" means all the Pledged Collateral as defined in
the Security Agreements.
"Pledged Securities" means all Pledged Securities under the U.S.
Security Agreement, the U.K. Security Agreement and the Canadian Pledge
Agreement.
"Portion" means the Term Portion, the Acquisition Term Portion or
the Revolving Portion.
"Pounds Sterling" means the lawful money of the United Kingdom.
"Preferred Stock" means the preferred stock comprising part of the
Preferred Units.
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"Preferred Units" means the Series A Preferred Units, the Series B
Preferred Units and the Series C Preferred Units.
"Prime Rate" means, on any day and with respect to all Prime Rate
Loans, the greater of:
(a) the variable rate of interest expressed as a percentage per annum
(calculated on the basis of a year of 365 days) which CIBC
establishes as the reference rate of interest in order to determine
interest rates it will charge on that day for demand loans in
Canadian Dollars to its Canadian customers and which it refers to as
its "prime lending rate" or "prime rate"; and
(b) 0.75% above CDOR for 30 day bankers' acceptance;
Changes in the rate of interest on that portion of any Loans
maintained as Prime Rate Loans will take effect simultaneously with each change
in the Prime Rate. The Administrative Agent shall give notice to each Canadian
Borrower and each Bank of the Prime Rate from time to time quoted by CIBC and
such notice shall be conclusive and binding for all purposes absent error.
"Prime Rate Loan" means a Canadian Swingline Loan that bears
interest based on the Prime Rate.
"Prior Liens" means Liens which, to the extent permitted by the
provisions of any Security Document, are or may be superior to the Lien of such
Security Document.
"Projected Financial Statements" has the meaning provided in Section
5.11(c).
"Public Notes" means the 9 1/2% Senior Notes due 2008 of the Company
in an aggregate principal amount of $200,000,000, which term shall include
unsecured guarantees by Subsidiaries of the Company and obligations owing under
the indenture governing such notes.
"Real Property" means all right, title and interest of any Credit
Party or its respective Subsidiaries (including, without limitation, any
leasehold estate) in and to a parcel of real property acquired by any Credit
Party together with, in each case, all improvements and appurtenant fixtures and
equipment, easements and other property and rights incidental to the ownership,
lease or operation thereof.
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"Recapitalization" has the meaning set forth in the WHEREAS clauses
hereto.
"Recapitalization Agreement" has the meaning set forth in the
preamble hereto.
"Reference Banks" means CIBC and Indosuez.
"Register" has the meaning provided in Section 11.04(b)(A) of this
Agreement.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Regulation G" means Regulation G of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Replacement Assets" means (x) properties or assets (other than Cash
or Cash Equivalents or any capital stock or other security) that will be used in
a business of the Company and its Subsidiaries conducted on the date of
determination or in a business similar or reasonably related thereto or (y)
capital stock of any Person engaged in a business of the type referred to in
clause (x) that will become on the date of acquisition thereof a Guarantor as a
result of such acquisition.
"Required Banks" shall mean at any time one or more Banks holding at
least 51% of the Total Commitments held by
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Banks (or, if the Total Commitments shall have been terminated, Banks holding at
least 51% of the outstanding Loans); provided that for the purposes of Section
4, the requirement that any document, agreement, certificate or other writing is
to be satisfactory to the Required Banks shall be satisfied if (x) such
document, agreement, certificate or other writing was delivered in its final
form to the Banks prior to the Effective Date (or if amended or modified
thereafter, the Administrative Agent has reasonably determined such amendment or
modification not to be material), (y) such document, agreement, certificate or
other writing is satisfactory to the Administrative Agent and (z) Banks holding
more than 33-1/3% of the Total Commitments held by Banks have not objected in
writing to such document, agreement, certificate or other writing to the Agent
prior to the Closing Date.
"Required Revolving Banks" means at any time Banks holding at least
51% of the Total Revolving Loan Commitments held by Banks (or, if the Total
Revolving Loan Commitments shall have been terminated, Banks holding at least
51% of the outstanding Revolving Loans).
"Reserve Adjusted Eurodollar Loan" means each Loan bearing interest
based on the Eurodollar Rate or, with respect to Pounds Sterling Loans, the
Sterling Eurodollar Rate as provided in Section 1.08(b).
"Restoration" has the meaning assigned to that term in each
Mortgage.
"Revolving Facility Banks" means any Bank which has a Revolving Loan
Commitment.
"Revolving Loan Commitment" means, with respect to each Bank, the
amount set forth below such Bank's name on the signature pages hereto directly
across from the entry entitled "Revolving Loan Commitment," as such amount may
be reduced from time to time pursuant to Sections 2.01, 2.02, 3.02 and/or 8.
"Revolving Loan Commitment Termination Date" means the
Business Day immediately preceding the Revolving Maturity Date.
"Revolving Loans" has the meaning provided in Section 1.01(c).
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"Revolving Maturity Date" means the last Business day of March, 2003
or such earlier date on which all Revolving Loan Commitments have been
terminated.
"Revolving Note" has the meaning provided in Section 1.05(a).
"Revolving Portion" means, at any time, the Portion of the Loan
Facility evidenced by the Total Revolving Loan Commitments.
"Schedule I Bank" means, at any time, a Bank having a Canadian
Swingline Loan Commitment that is listed in Schedule I to the Bank Act (Canada)
at such time.
"Schedule II Bank" means, at any time, a Bank having a Canadian
Swingline Loan Commitment that is listed in Schedule II to the Bank Act (Canada)
at such time.
"Schedule II Reference Banks" means, if there is only one Schedule
II Bank, such Schedule II Bank and if there is more than one Schedule II Bank, a
reference group of up to three Schedule II Banks, the composition of which shall
be acceptable to the Administrative Agent and the Canadian Borrowers, all acting
reasonably.
"Scheduled A Term Loans Principal Payments" means, with respect to
the principal payments on the A Term Loans on the last Business Day of each
month set forth below, the U.S. dollar amount set forth opposite thereto:
Scheduled A Term Loan
Date Principal Payment
---- ---------------------
June 1998 $250,000
September 1998 250,000
December 1998 250,000
March 1999 250,000
June 1999 625,000
September 1999 625,000
December 1999 625,000
March 2000 625,000
June 2000 1,000,000
September 2000 1,000,000
December 2000 1,000,000
March 2001 1,000,000
June 2001 1,375,000
September 2001 1,375,000
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Scheduled A Term Loan
Date Principal Payment
---- ---------------------
December 2001 1,375,000
March 2002 1,375,000
June 2002 1,750,000
September 2002 1,750,000
December 2002 1,750,000
March 2003 1,750,000
"Scheduled Acquisition Term Loan Principal Payments" means, with
respect to the principal payments on the Acquisition Term Loan to be made on the
last Business Day of each calendar quarter specified in the table below, in each
case, for each such date, in the Dollar amount which is the product of (x) the
total outstanding principal amount of the Acquisition Term Loan as of the close
of business on the Acquisition Term Loan Commitment Termination Date (after
giving effect to any Borrowings of the Acquisition Term Loan on such date) and
(y) the percentage for the applicable assumed outstanding principal amount
specified opposite such date in such table:
Percentage to Obtain
Acquisition Term Loan
Period Principal Payment
------ ----------------------
Commencing with the calendar
quarter ending three months
following the Acquisition
Term Loan Termination Date
to and including March 31,
2003 0.25%
and with respect to the principal payments on the Acquisition Term
Loan to be made on the last Business Day of each calendar quarter specified in
the table below, in each case, for each such date, in the Dollar amount which is
the product of (x) the total outstanding principal amount of the Acquisition
Term Loan as of the close of business on April 1, 2003 and (y) the percentage
for the applicable assumed outstanding principal amount specified opposite such
date in such table:
Percentage to Obtain
Acquisition Term Loan
Period Principal Payment
------ ----------------------
Commencing June 30,
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2003 to and including
March 31, 2005 12.5%
"Scheduled B Term Loans Principal Payments" means with respect to
the principal payments on the B Term Loans on the last Business Day of each
month set forth below, the U.S. Dollar amount set forth opposite thereto:
Total B Term Loans
Date Principal Payments
---- ------------------
June 1998 $ 87,500
September 1998 87,500
December 1998 87,500
March 1999 87,500
June 1999 87,500
September 1999 87,500
December 1999 87,500
March 2000 87,500
June 2000 87,500
September 2000 87,500
December 2000 87,500
March 2001 87,500
June 2001 87,500
September 2001 87,500
December 2001 87,500
March 2002 87,500
June 2002 87,500
September 2002 87,500
December 2002 87,500
March 2003 87,500
June 2003 4,156,250
September 2003 4,156,250
December 2003 4,156,250
March 2004 4,156,250
June 2004 4,156,250
September 2004 4,156,250
December 2004 4,156,250
March 2005 4,156,250
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreements" means and includes the U.S. Security
Agreement, the U.K. Security Agreements, the Canadian
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Security Agreements and any other security agreements delivered pursuant to
Section 6.14 or 6.15.
"Security Documents" means each of the Security Agreements, the
Mortgages, the Pledge Agreements, the Intercreditor Agreement and any other
documents utilized to grant a security interest as Collateral for the
Obligations in respect of any property or assets of whatever kind or nature.
"Series A Preferred Units" means the units consisting of the 12%
Series A Exchangeable Preferred Stock and Common Stock of Holdings.
"Series B Preferred Units" means the units consisting of the Series
B Junior Exchangeable Preferred Stock and Common Stock of Holdings.
"Series C Preferred Units" means the units consisting of the Series
C Junior Voting Exchangeable Voting Preferred Stock and Common Stock of
Holdings.
"Significant Subsidiary" has the meaning set forth in Rule 1-02 of
Regulation S-X under the Securities Act and Exchange Act.
"South African Subsidiary" means Morris Mechanical Handling (Pty)
Limited.
"Spot Rate" means with respect to any Applicable Currency, at any
date of determination thereof, the spot rate of exchange with respect to U.S.
Dollars for such date in London that appears on the display page applicable to
such Applicable Currency on the Telerate System Incorporated Service (or such
other page as may replace such page on such service for the purpose of
displaying the spot rate of exchange in London); provided, however, that if
there shall at any time no longer exist such a page or a relevant spot rate is
not shown on such service, the spot rate of exchange shall be determined by
reference to another similar rate publishing service selected by the
Administrative Agent and if no such similar rate publishing service is available
by reference to the published rate of the Administrative Agent in effect at such
date for similar commercial Transaction.
"Standby Letter of Credit" means any letter of credit other than a
Commercial Letter of Credit.
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"State, Local and Foreign Real Property Disclosure Requirements"
means any state or local laws requiring notification of the buyer of real
property, or notification, registration, or filing to or with any state or local
agency, prior to the sale of any real property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, disposal, or handling of Hazardous Materials on, at,
under, or near the real property to be sold or the establishment for which
control is to be transferred.
"Sterling Eurodollar Rate" means (i) the rate per annum that appears
on page 3750 of the Dow Jones Telerate Screen (or any successor page) for Pounds
Sterling deposits with maturities comparable to the Interest Period applicable
to the U.K. Swingline Loans subject to the respective Borrowing as of 11:00 A.M.
(London time) on the date of Borrowing or, (ii) if such a rate does not appear
on page 3750 of the Dow Jones Telerate Screen (or any successor page), the
offered quotation to first-class banks in the London interbank Eurodollar market
by the U.K. Swingline Bank for Pounds Sterling deposits of amounts in
immediately available funds comparable to the outstanding principal amount of
the U.K. Swingline Loan of the U.K. Swingline Bank with maturities comparable to
the Interest Period applicable to such U.K. Swingline Loan as of 11:00 A.M.
(London time) on the date of Borrowing.
"Subsidiary" of any Person means and includes (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(excluding stock of any class or classes of such corporation that might have
voting power solely by reason of the happening of any contingency) is at the
time owned by such Person directly or indirectly through Subsidiaries and (ii)
any partnership, limited liability company, unlimited liability company,
association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries has more than a 50% equity interest at the time.
"Subsidiary Guarantee" means each subsidiary guarantee executed by
the U.S. subsidiaries of the Company, Hercules and, at the time and to the
extent provided in Section 6.20, the South African Subsidiary, substantially in
the form of Exhibit E-2 hereto, except for such changes as shall have been
approved by the Agents, as the same may after its execution be amended,
supplemented or otherwise modified from time to time in accordance with its
terms and the terms hereof.
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"Subsidiary Guarantor" means each Subsidiary of the Company which
delivers a Guarantee.
"Surety Arrangement" means one or more surety arrangements
providing, inter alia, for the issuance of Surety Obligations, between the
Company or its Subsidiaries and one or more providers, provided to the Company
or its Subsidiaries including, in each case, any related notes, guarantees,
collateral documents (including the Intercreditor Agreement), instruments and
agreements executed in connection therewith.
"Surety Obligations" means any bonds, including bid bonds, advance
bonds, or performance bonds, letters of credit, warranties, and similar
arrangements between the Company or its Subsidiaries and one or more surety
providers, for the benefit of the Company's or its Subsidiaries' suppliers,
vendors, insurers, or customers including, in each case, any related notes,
guarantees, collateral documents (including the Intercreditor Agreement),
instruments and agreements executed in connection therewith.
"Survey" means a survey of any Mortgaged Real Property (and all
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the sate where such Mortgaged Real Property is located, (ii)
dated (or redated) not earlier than six months prior to the date of delivery
thereof unless there shall have occurred within six months prior to such date of
delivery any exterior construction on the site of such Mortgaged Real Property,
in which event such survey shall be dated (or redated) after the completion of
such construction or if such construction shall not have been completed as of
such date of delivery, not earlier than 20 days prior to such date of delivery,
(iii) certified by the surveyor (in a manner reasonably acceptable to the
Agents) to the Agents and the Title Company and (iv) complying in all respects
with the minimum detail requirements of the American Land Title Association as
such requirements are in effect on the date of preparation of such survey.
"Swingline Bank" means any U.S. Swingline Bank, U.K. Swingline
Bank or Canadian Swingline Bank.
"Swingline Expiry Date" means, with respect to each of the U.S.
Swingline Loans and the Canadian Swingline Loans, the date five Business Days
prior to the Revolving Maturity Date and, with respect to the U.K. Swingline
Loans, 364 days after the Closing Date; provided that the U.K. Swingline Bank
shall give the U.K. Borrower notice 90 days in advance of the
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then current Swingline Expiry Date of whether the U.K. Swingline Bank will enter
into a new agreement, substantially in the form of Annex III, with respect to
new U.K. Swingline Loans on the same terms and conditions as this Agreement for
a further period of 364 days (or such longer or shorter period as the U.K.
Borrower and the U.K. Swingline Bank may agree) but not to expire later than the
date five Business Days prior to the Revolving Maturity Date.
"Swingline Loan Commitment" means, with respect to each Bank, such
Bank's Canadian Swingline Loan Commitment, U.K. Swingline Loan Commitment or
U.S. Swingline Loan Commitment.
"Swingline Loans" has the meaning set forth in Section 1.01(d).
"Swingline Notes" means the U.S. Swingline Notes, the U.K. Swingline
Notes and the U.S. Swingline Notes.
"Taking" has the meaning assigned to that term in each Mortgage.
"Tax Allocation Agreement" means the Tax Sharing Agreement among MHE
Investments, Holdings and certain of Holdings' Subsidiaries dated March 30,
1998, as in effect on the Closing Date.
"Taxes" has the meaning provided in Section 3.04.
"Term Loans" has the meaning provided in Section 1.01(a).
"Term Note" means an A Term Note or B Term Note.
"Term Portion" means, at any time, the portion of the Loan Facility
evidenced by the Total Term Loan Commitment.
"Test Period" means the four consecutive complete fiscal quarters of
the Company or its predecessors then last ended.
"Title Company" means First American Title Insurance Company or such
other title insurance or abstract company as shall be designated by the Agent.
"Total A Term Loan Commitment" means the sum of the A Term Loan
Commitments of each of the Banks.
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"Total Acquisition Term Loan Commitment" means the sum of the
Acquisition Term Loan Commitments of each of the Banks.
"Total B Term Loan Commitment" means the sum of the B Term Loan
Commitments of each of the Banks.
"Total Canadian Swingline Loan Commitment" means the sum of the
Canadian Swingline Loan Commitments of each Bank.
"Total Commitment" means the sum of the Total Term Loan Commitments,
the Total Acquisition Term Loan Commitment and the Total Revolving Loan
Commitments.
"Total Revolving Loan Commitment" means the sum of the Revolving
Loan Commitments of each of the Banks.
"Total Term Loan Commitment" means the sum of the A Term Loan
Commitments and B Term Loan Commitments of each of the Banks.
"Total U.K. Swingline Loan Commitment" means the sum of the U.K.
Swingline Loan Commitments of each Bank.
"Total U.S. Swingline Loan Commitment" means the sum of the U.S.
Swingline Loan Commitments of each of the Banks.
"Transaction" means the transactions contemplated by the Transaction
Documents.
"Transaction Documents" means the Recapitalization Agreement, the
documents related to the issuance and sale of the Public Notes, the documents
related to the issuance and sale of the Preferred Units and all exhibits
thereto.
"Type" means (i) a Base Rate Loan or Reserve Adjusted Eurodollar
Loan with respect to Loans which are Loans denominated in Dollars, (ii) a U.K.
Base Rate Loan or Reserve Adjusted Eurodollar Loan with respect to Loans which
are denominated in Pounds Sterling and (iii) a Prime Rate Loan or Acceptance
with respect to Loans which are denominated in Canadian Dollars.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
"U.K. Base Rate" means the rate which the U.K. Swingline Bank
announces from time to time as its prime lending
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rate, as in effect from time to time. The rate the U.K. Swingline Bank announces
as its prime lending rate is a reference rate and does not necessarily represent
the lowest or best rate actually charged to any customer. The U.K. Swingline
Bank may make commercial loans or other loans at rates of interest at, above or
below the rate it announces as its prime lending rate.
"U.K. Base Rate Loan" means each U.K. Swingline Loan bearing
interest at the rate provided in Section 1.08(a). U.K. Base Rate Loans may only
be made in Pounds Sterling.
"U.K. Borrower" means Morris Material Handling, Ltd., a company
organized under the laws of England and Wales, and its successors.
"U.K. Pledge Agreement" means each Deed of Pledge executed and
delivered by each applicable UK Subsidiary that is a Guarantor substantially in
the form of Exhibit H-3 hereto, except for such changes as shall have been
approved by the Agents, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms and the terms hereof.
"U.K. Security Agreement" means each Security Document and Guarantee
or Instrument of Charge and Guarantee executed and delivered by each applicable
UK Subsidiary that is a Guarantor substantially in the form of Exhibit G-1 or
Exhibit G-3 hereto, except for such changes as shall have been approved by the
Agents, as the same may be amended, supplemented or otherwise modified from time
to time in accordance with its terms and the terms hereof.
"U.K. Subsidiary Guarantees" means the guarantees contained in each
U.K. Security Agreement.
"U.K. Swingline Bank" means any Bank with a U.K. Swingline Loan
Commitment.
"U.K. Swingline Loan" means any Swingline Loan by a U.K. Swingline
Bank to a U.K. Borrower.
"U.K. Swingline Loan Commitment" means, with respect to each Bank,
the amount set forth below such Bank's name on the signature pages hereto
directly across from the entry entitled "U.K. Swingline Loan Commitment," as
such amount may be reduced from time to time pursuant to Sections 2.01, 2.02,
3.02 and/or 8.
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"U.K. Swingline Note" has the meaning provided in Section 1.05(a).
"Unutilized Commitment" for any Bank at any time means, on and after
the Closing Date, the unutilized Revolving Loan Commitment of such Bank, after
taking into effect the Letter of Credit Usage, plus, for purposes of Section
2.03 only, an amount not covered by Letter of Credit Usage representing the
amount of undrawn Letters of Credit excluded by the proviso in the definition
thereof, and the unutilized Acquisition Term Loan Commitment of such Bank.
"U.S. Borrowers" means the Company and Material Handling.
"U.S. Dollar" or "U.S. $" each mean lawful money of the United
States.
"U.S. Security Agreement" means the Security Agreement executed and
delivered by Holdings, the U.S. Borrowers and each U.S. Subsidiary substantially
in the form of Exhibit F-1 hereto, except for such changes as shall have been
approved by the Agents, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms and the terms hereof.
"U.S. Swingline Bank" means any Bank with a U.S. Swingline Loan
Commitment.
"U.S. Swingline Loan" means any Swingline Loan by a U.S. Swingline
Bank to any U.S. Borrower.
"U.S. Swingline Loan Commitment" means, with respect to each Bank,
the amount set forth below such Bank's name on the signature pages hereto
directly across from the entry entitled "U.S. Swingline Loan Commitment," as
such amount may be reduced from time to time pursuant to Sections 2.01, 2.02,
3.02 and/or 8.
"U.S. Swingline Note" has the meaning provided in Section 1.05(a).
"Vested Options" means exercisable options to purchase common stock
or equivalent interests of Holdings or any parent entity of Holdings granted to
any member of the board of directors or management or employee of Holdings
pursuant to a stock option plan or any similar plan approved by its Board of
Directors.
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"Voting Stock" of any Person means the capital stock or equivalent
interests of such person which ordinarily has voting power for the election of
directors (or persons performing similar functions) of such Person, whether at
all times or only so long as no senior class of securities has such voting power
by reason of any contingency.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares, are owned
directly or indirectly by such Person.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part 1 of Subtitle E of Title IV of ERISA.
"Written" or "in writing" means any form of written communication or
a communication by means of telex, telecopier device, telegraph or cable.
SECTION 10. The Agents.
10.01. Appointment. Each Bank hereby irrevocably designates and
appoints CIBC as Administrative Agent (such term to include the Administrative
Agent acting as Collateral Agent or in any other representative capacity under
any other Credit Document), Indosuez as Syndication Agent and BankBoston, N.A.
as Documentation Agent, of such Bank to act as specified herein and in the other
Credit Documents and each such Bank hereby irrevocably authorizes the Agents to
take such action on its behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Agents by the terms of this Agreement and the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. The Agents agree to act as such upon the express conditions
contained in this Section 10. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agents shall not have any duties or
responsibilities, except those expressly set forth herein or in the other Credit
Documents, or any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Agents. The
provisions of this Section 10 are solely for the benefit of the Agents and the
Banks, and no Credit Party shall have any rights as a third party beneficiary of
any of
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the provisions hereof. In performing its functions and duties under this
Agreement, the Agents shall act solely as agent of the Banks and do not assume
and shall not be deemed to have assumed any obligation or relationship of agency
or trust with or for any Credit Party. The Borrowers, jointly and severally,
hereby agree to pay the Administrative Agent an annual agency fee as previously
agreed with the Administrative Agent.
10.02. Delegation of Duties. The Agents may execute any of their
respective duties under this Agreement or any other Credit Document by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any agents or attorneys- in-fact selected by
it with reasonable care except to the extent otherwise required by Section
10.03.
10.03. Exculpatory Provisions. None of the Agents nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties by the Company, any Subsidiary of the Company or
any of their respective officers contained in this Agreement, any other Document
or in any certificate, report, statement or other document referred to or
provided for in, or received by such Agent under or in connection with, this
Agreement or any other Document or for any failure of the Company or any
Subsidiary of the Company or any of their respective officers to perform its
obligations hereunder or thereunder. No Agent shall be under any obligation to
any Bank to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement, or to inspect
the properties, books or records of the Company or any Subsidiary of the
Company. No Agent shall be responsible to any Bank for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Credit Document or for any representations, warranties,
recitals or statements made herein or therein or made in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by such Agent to the Banks or by or on behalf of any Borrower
to such Agent or any Bank or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or
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agreements contained herein or therein or as to the use of the proceeds of the
Loans or of the existence or possible existence of any Default or Event of
Default.
10.04. Reliance by the Agents. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Credit Parties), independent accountants and
other experts selected by such Agent. Each Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Credit
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. Each
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Credit Documents in accordance with a
request of the Required Banks (or to the extent specifically provided in Section
11.12, all the Banks), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks.
10.05. Notice of Default. No Agent shall be deemed to have knowledge
of the occurrence of any Default or Event of Default unless it has received
notice in writing from a Bank or Holdings or any Credit Party referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give prompt notice
thereof to the Banks. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Banks; provided that, unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks (except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent of
the Required Banks as required hereunder).
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10.06. Non-Reliance on Agents and Other Banks. Each Bank expressly
acknowledges that neither of the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of Holdings or any Subsidiary of
Holdings, shall be deemed to constitute any representation or warranty by such
Agent to any Bank. Each Bank represents to each Agent that it has, independently
and without reliance upon such Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, assets, operations, property, financial
and other conditions, prospects and creditworthiness of Holdings and its
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement and the other agreements contemplated hereby. Each Bank also
represents that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement, and to make
such investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of Holdings and its Subsidiaries. Except for notices, reports
and other documents expressly required to be furnished to the Banks by the
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Bank with any credit or other information concerning the
business, operations, assets, property, financial and other conditions,
prospects or creditworthiness of Holdings or any of its Subsidiaries which may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates. None of the Agents nor any
Bank shall be deemed to be a fiduciary or have any fiduciary duty to any other
Bank, Holdings or Credit Party.
10.07. Indemnification. The Banks agree to indemnify each Agent in
its capacity as such or in any other representative capacity under any other
Credit Document ratably according to their aggregate Commitments, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against such Agent in its capacity as such in any way relating to or
arising out of this Agreement or any other Credit Docu-
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ment, or any documents contemplated by or referred to herein or the Transaction
contemplated hereby or any action taken or omitted to be taken by such Agent
under or in connection with any of the foregoing, but only to the extent that
any of the foregoing is not paid by Holdings or any of its Subsidiaries;
provided that no Bank shall be liable to any Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent resulting from
such Agent's gross negligence or willful misconduct. If any indemnity furnished
to any Agent for any purpose shall, in the opinion of such Agent, be
insufficient or become impaired, such Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished. The agreements in this Section 10.07 shall
survive the payment of all Obligations.
10.08. The Agents in Its Individual Capacity. The Agents and their
respective Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with Holdings, its Subsidiaries and other
Affiliates of Holdings as though such Agent were not an Agent hereunder. With
respect to the Loans made by it and all Obligations owing to it, each Agent
shall have the same rights and powers under this Agreement as any Bank and may
exercise the same as though it were not an Agent, and the terms "Bank" and
"Banks" shall include each Agent in its individual capacity.
10.09. Successor Administrative Agent. Upon the acceptance of any
appointment as Administrative Agent and Collateral Agent hereunder by a
successor Agent, the term "Administrative Agent" shall include such successor
administrative agent effective upon its appointment, and the resigning
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement. After the retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 10 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement.
10.10. Resignation by Administrative Agent. (a) The Administrative
Agent may resign from the performance of all its functions and duties hereunder
at any time by giving 15 Business Days' prior written notice to the Borrowers
and the Banks. Such resignation shall take effect upon the acceptance
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by a successor Administrative Agent of appointment pursuant to subsections
(b)and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation of the Administrative Agent,
the Required Banks shall appoint a successor Administrative Agent acceptable to
the Company and which shall be an incorporated bank or trust company or other
qualified financial institution with operations in the United States and Canada
and total assets of at least $1 billion.
(c) If a successor Administrative Agent shall not have been so
appointed within said 15 Business Day period, the resigning Administrative Agent
with the consent of the Company shall then appoint a successor Administrative
Agent (which shall be an incorporated bank or trust company or other qualified
financial institution with operations in the United States and Canada and total
assets of at least $1 billion) who shall serve as Administrative Agent until
such time, if any, as the Required Banks appoint a successor Administrative
Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to subsection (b) or (c) by the 20th Business Day after the date such notice of
resignation was given by the resigning Administrative Agent, such Administrative
Agent's resignation shall become effective and the Required Banks shall
thereafter perform all the duties of Administrative Agent hereunder until such
time, if any, as the Required Banks with the consent of Borrower appoint a
successor Administrative Agent as provided above.
10.11. Syndication Agent and Documentation Agent. Notwithstanding
anything to the contrary in this Agreement, the Syndication Agent and
Documentation Agent, in such capacities, shall have no obligations, duties or
responsibilities, and shall incur no liabilities, under this Agreement or any
other Document.
SECTION 11. Miscellaneous.
11.01. Payment of Expenses, etc. The Borrowers agree to: (i) whether
or not the Transaction herein contemplated are consummated, pay all
out-of-pocket costs and expenses (x) of the Agents in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of Cahill
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Gordon & Reindel and local counsel to the Banks) with prior notice to the
Borrowers of the engagement of any counsel and (y) of each of the Banks in
connection with the enforcement of the Credit Documents (including in connection
with any "work-out" or other restructuring of the Borrowers' Obligations or in
connection with any bankruptcy, reorganization or similar proceeding with
respect to any Credit Party or its Subsidiaries) and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for each of the Banks) with prior notice to
the Borrowers of the engagement of any counsel and the reasonable fees and
expenses of any appraisers or any consultants or other advisors engaged with
prior notice to the Borrowers of any such engagement with respect to
environmental or other matters; (ii) pay all out-of-pocket costs and expenses
(including reasonable attorneys' fees) of the Agents or in connection with the
assignment or attempted assignment to any other Person of all or any portion of
the Agents' interest under this Agreement pursuant to Section 11.04 incurred
prior to 120 days following the Closing Date; (iii) pay and hold each of the
Banks harmless from and against any and all present and future stamp and other
similar taxes with respect to the foregoing matters and save each of the Banks
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to such Bank)
to pay such taxes; and (iv) indemnify each Bank, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
arising under Environmental Laws) incurred by any of them as a result of, or
arising out of, or in any way related to the entering into and/or performance of
any Document or the use of the proceeds of any Loans hereunder or the
Transaction or the consummation of any other transaction contemplated in any
Credit Document, including, without limitation, the documented reasonable fees
and disbursements of counsel incurred by any of them (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.02. Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such no-
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tice being hereby expressly waived, to set off and to appropriate and apply any
and all deposits (general or special) and any other Indebtedness at any time
held or owing by such Bank (including, without limitation, by branches and
agencies of such Bank wherever located) to or for the credit or the account of
any Credit Party against and on account of the Obligations and liabilities of
such Credit Party to such Bank under this Agreement or under any of the other
Credit Documents, including, without limitation, all interests in Obligations of
such Credit Party purchased by such Bank pursuant to Section 11.06(b), and all
other claims of any nature or description arising out of or connected with this
Agreement or any other Credit Document, irrespective of whether or not such Bank
shall have made any demand hereunder and although said Obligations, liabilities
or claims, or any of them, shall be contingent or unmatured.
11.03. Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(which may include telecopier communication) and couriered for delivery of the
next Business Day, and shall be sent, if to Holdings or any Credit Party, to:
Morris Material Handling, Inc.
315 West Forest Hill Avenue
Oak Creek, Wisconsin 53154
Telecopy No. 414-764-8596
Attention: Vice President - Finance
with copies to:
Morris Material Handling, Inc.
315 West Forest Hill Avenue
Oak Creek, Wisconsin 53154
Telecopy No. 414-764-8594
Attention: General Counsel
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Telecopy No. 202-887-4288
Attention: Russell W. Parks, Jr.
if to any Bank, at its address specified for such Bank on Annex II
hereto; or, at such other address as shall be
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designated by any party in a written notice to the other parties hereto. All
such notices and communications shall, when telecopied or sent by overnight
courier, be effective when sent by telecopier or delivered to the overnight
courier, as the case may be, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.
11.04. Benefit of Agreement. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto, all
future holders of the Notes, and their respective successors and assigns;
provided that no Credit Party may assign or transfer any of its interests
hereunder without the prior written consent of all of the Banks in their sole
discretion; and provided, further, that the rights of each Bank to transfer,
assign or grant participations in its rights and/or obligations hereunder shall
be limited as set forth below in this Section 11.04; provided that nothing in
this Section 11.04 shall prevent or prohibit any Bank, without the consent of
the Administrative Agent or the Company, from (i) pledging its Loans hereunder
to a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank or, with respect to any bank that is a fund that invests in
bank loans, pledging all or any portion of its interests, rights and obligations
under this Agreement (including all or a portion of the Loans owing to it) to
any trustee or any other representative of holders of obligations owed or
securities issued by such fund as security for such obligations or securities,
and (ii) subject to Section 11.04(b)(B), granting participations in or
assignments of all or a portion of such Bank's Loans, Notes and/or Commitments
hereunder (y) to its parent company and/or to any Affiliate of such Bank that is
at least 50% owned by such Bank or its parent company or to an Approved Fund of
any Bank (z) to an entity managed by a Person referred to in Section
11.04(a)(ii)(y).
(b) Each Bank shall have the right to transfer, assign or grant
participations in all or any part of its remaining Loans, Notes and/or
Commitments hereunder on the basis set forth below in this clause (b). Each Bank
may furnish any information concerning the Borrower in the possession of such
Bank from time to time to assignees and participants (including prospective
assignees and participants).
(A) Assignments. Each Bank, with the written consent of the
Administrative Agent and the Company, which consent shall not be
unreasonably withheld or delayed, which shall be evidenced on the notice
in the form of Ex-
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hibit I-1 hereto, may assign pursuant to an Assignment and Assumption
Agreement substantially in the form of Exhibit I-2 hereto all or a portion
of its Loans, Notes and/or Commitments hereunder pursuant to this clause
(b)(A) to (x) one or more Banks or (y) one or more commercial banks, funds
or other financial or lending institutions; provided that any such
assignment pursuant to this clause (y) shall be in an amount equal to at
least $5,000,000 or such Bank's remaining Loans, Notes or Commitments. Any
assignment pursuant to this clause (b)(A) will become effective no later
than five Business Days after the Agent's receipt of (i) a written notice
in the form of Exhibit I-1 hereto from the assigning Bank and the assignee
Bank and (ii) a processing and recordation fee of $3,500 from the
assigning Bank in connection with the Agent's recording of such sale,
assignment, transfer or negotiation; provided that such fee shall only be
payable if the assignment is between a Bank and a party that is not a
Bank, a Bank's parent or its Affiliate prior to the assignment. The
Borrowers shall issue new Notes to the assignee in conformity with Section
1.05 and the assignor shall return the old Notes to the Borrowers. Upon
the effectiveness of any assignment in accordance with this clause (b)(A),
the assignee will become a "Bank" for all purposes of this Agreement and
the other Credit Documents and, to the extent of such assignment, the
assigning Bank shall be relieved of its obligations hereunder with respect
to the Loans, Notes or Commitments being assigned. The Administrative
Agent shall maintain at its address specified in Annex II hereto a copy of
each Assignment Agreement delivered to and accepted by it and a register
in which it shall record the names and addresses of the Banks and the
Commitment of, and principal amount of the Loans owing to, each Bank from
time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent demonstrable error, and
the Borrower, the Administrative Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by the Borrower, the Administrative Agent or any Bank at any reasonable
time and from time to time upon reasonable prior notice.
(B) Participations. Each Bank may transfer, grant or assign
participations in all or any part of such Bank's Loans, Notes and/or
Commitments hereunder pursuant to this clause (b)(B) to any Person;
provided that (i) such Bank
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shall remain a "Bank" for all purposes of this Agreement and the
transferee of such participation shall not constitute a Bank hereunder and
(ii) no participant under any such participation shall have rights to
approve any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (x) extend
the scheduled final maturity date of any of the Loans, Notes or
Commitments in which such participant is participating or (y) reduce the
principal amount, interest rate or fees applicable to any of the Loans,
Notes or Commitments in which such participant is participating or
postpone the payment of any interest or fees or (z) release all or
substantially all of the Collateral (except as expressly permitted by the
Credit Documents). In the case of any such participation, the participant
shall not have any rights under this Agreement or any of the other Credit
Documents (the participant's rights against the granting Bank in respect
of such participation to be those set forth in the agreement with such
Bank creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such
participation; provided that such participant shall be considered to be a
"Bank" for purposes of Sections 11.02 and 11.06(b).
(C) Canadian Borrower. Notwithstanding anything else contained in
this Agreement including Section 3.04, neither Canadian Borrower will be
responsible for withholding tax resulting from interest payments on the
Canadian Swingline Loan made by it to a Bank that is a non-resident of
Canada.
11.05. No Waiver; Remedies Cumulative. No failure or delay on the
part of the Administrative Agent or any Bank in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Credit Party and the Administrative Agent or any Bank shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power, or privilege hereunder or under any other Credit Document preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Agents or any Bank would otherwise have. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver
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of the rights of the Agents or the Banks to any other or further action in any
circumstances without notice or demand.
11.06. Payments Pro Rata. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of Holdings or any
Credit Party in respect of any Obligations of Holdings or such Credit Party, it
shall distribute such payment to the Banks pro rata based upon their respective
shares, if any, of the Obligations with respect to which such payment was
received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, of a sum which with respect to any related sum or sums that are
received by other Banks is proportionately greater as measured (immediately
prior to receipt of all related amounts) relative to the total of such
Obligations then owed and due to such Bank to the total of such Obligations then
owed and due to all of the Banks, then such Bank receiving such excess amount
shall promptly purchase for cash without recourse or warranty from the other
Banks an interest in the Obligations of the respective Credit Party to such
Banks in such amount as shall result in a proportional participation by all of
the Banks in such excess amount pro rata in accordance with their respective
shares of the Obligations with respect to which such amount was received;
provided that if all or any portion of such excess amount is thereafter
recovered from such Bank, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
11.07. Calculations; Computations. (a) The financial statements to
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Borrower to the Banks); provided that, except as otherwise specifically
provided herein, all computations determining compliance with Section 7 and all
definitions used herein for any purpose shall utilize accounting principles and
policies in effect at the Closing Date.
(b) All computations of interest and fees hereunder shall be made on
the actual number of days elapsed over a year of 365 days; provided, however,
that all computations of inter-
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est on Reserve Adjusted Eurodollar Loans that are Dollar Loans, Letter of Credit
commissions and Commitment Commission shall be made on the actual number of days
elapsed over a year of 360 days.
11.08. Governing Law; Submission to Jurisdiction; Venue. (a) This
Agreement and the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with and be governed by the laws of the
State of New York applicable to contracts made and to be performed wholly
therein. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, Holdings and each Borrower hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each
Credit Party and its respective Subsidiaries further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Lexis Document Services, Inc., 150 East 58th Street, 25th
Floor, New York, New York 10155, its agent for service of process, such service
to become effective 30 days after such mailing. Holdings and each Borrower and
its respective Subsidiaries hereby irrevocably appoints Lexis Document Services,
Inc., 150 East 58th Street, 25th Floor, New York, New York 10155, to serve as
its agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of the Administrative Agent or any Bank to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Holdings or any Credit Party or its
respective Subsidiaries in any other jurisdiction.
(b) Holdings and each Borrower hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
11.09. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed
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and delivered shall be an original, but all of which shall together constitute
one and the same instrument. A set of counterparts executed by all the parties
hereto shall be lodged with the Borrowers and the Administrative Agent.
11.10. Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") and at the time (the "Effective Time") on which
Holdings, the Borrowers and each of the Banks shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Administrative Agent at the Administrative Agent's Office or, in the case of the
Banks, shall have given to the Administrative Agent telephonic (confirmed in
writing), written, telex or telecopy notice (actually received) at such office
that the same has been signed and mailed to it. The Administrative Agent will
give Holdings, the Borrowers and each Bank prompt written notice of the
occurrence of the Effective Date.
11.11. Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
11.12. Amendment or Waiver. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated (other than pursuant to the terms hereof) unless such
change, waiver, discharge or termination is in writing signed by the Required
Banks; provided that no such change, waiver, discharge or termination shall,
without the consent of each affected Bank and the Agent, (i) extend the
scheduled final maturity date of any Loan, or any portion thereof, or reduce the
rate or extend the time of payment of interest thereon or fees or reduce the
principal amount thereof, or increase the Commitments of any Bank or the Total
Commitments, in each case over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default shall not constitute
a change in the terms of any Commitment of any Bank), (ii) release all or
substantially all of the Collateral or Guarantees (except as expressly permitted
by the Credit Documents), (iii) amend, modify or waive any provision of Section
1.10, 1.11, 3.04, 8.01, 8.05, 10.07, 11.01, 11.02, 11.04, 11.06, 11.07(b) or
11.12, (iv) reduce any percentage specified in, or otherwise modify, the
definition of Required Banks, (v) modify the definition of Scheduled A Term
Loans Principal Payments, Scheduled B Term Loans Principal Payments or Scheduled
Acquisition Term Loan Principal Payments (or otherwise modify the date upon
which any scheduled amortization payment is due) or (vi) consent to the
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assignment or transfer by any Credit Party of any of its rights and obligations
under this Agreement. No provision of Section 10 may be amended without the
consent of the Administrative Agent and no provision of Section 10.11 may be
amended without the written consent of the Syndication Agent and the
Documentation Agent. No provision relating to the U.K. Swingline Loan or the
Canadian Swingline Loan may be amended without the written consent of Banks
holding at least 51% of the U.K. Swingline Loan Commitments or Canadian
Swingline Commitments, respectively (or, if U.K. Swingline Loan Commitments or
Canadian Swingline Loan Commitments have been terminated, Banks holding at least
51% of the outstanding U.K. Swingline Loans or Canadian Swingline Loans,
respectively).
11.13. Survival. All indemnities set forth herein including, without
limitation, in Section 1.11, 1.13, 3.04, 10.07, 11.01 or 11.17 shall survive the
execution and delivery of this Agreement and the making of the Loans, the
repayment of the Obligations and the termination of the Total Commitments.
11.14. Domicile of Loans. Each Bank may transfer and carry its Loans
at, to or for the account of any branch office, Subsidiary or Affiliate of such
Bank.
11.15. Waiver of Jury Trial. Each of the parties to this Agreement
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement, the Credit
Documents or the Transaction contemplated hereby or thereby.
11.16. Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
11.17. Currency Indemnity. If, for the purposes of obtaining
judgment in any court in any jurisdiction with respect to this Agreement or any
other Credit Document, it becomes necessary to convert into the currency of such
jurisdiction (the "Judgment Currency") any amount due under this Agreement or
under any other Credit Document in any currency other than the Judgment Currency
(the "Currency Due"), then conversion shall be made at the rate of exchange
prevailing on the Business Day before the day on which judgment is given. For
this purpose "rate of exchange" means the rate at which the Ad-
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ministrative Agent is able, on the relevant date, to purchase the Currency Due
with the Judgement Currency in accordance with its normal practice at its Main
Branch in Toronto, Ontario. In the event that there is a change in the rate of
exchange prevailing between the Business Day before the day on which the
judgment is given and the date of payment of the amount due, the Applicable
Borrower will, on the date of payment, pay such additional amounts, if any, as
may be necessary to ensure that the amount paid on such date is the amount in
the Judgment Currency which when converted at the rate of exchange prevailing on
the date of payment is the amount then due under this Agreement or such other
Credit Document in the Currency Due. If the amount of the Currency Due which the
Administrative Agent is so able to purchase is less than the amount of the
Currency Due originally due to it, the Applicable Borrower shall indemnify and
save the Banks harmless from and against loss or damage arising as a result of
such deficiency. This indemnity shall constitute an obligation separate and
independent from the other obligations contained in this Agreement and the other
Credit Documents, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by the Banks from time to
time and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under this Agreement or
any other Credit Document or under any judgment or order.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the date first written above.
MMH HOLDINGS, INC.
By: /s/ Michael Erwin
------------------------------
Name: Michael Erwin
Title: President
MORRIS MATERIAL HANDLING, INC.
By: /s/ Michael Erwin
------------------------------
Name: Michael Erwin
Title: President
MATERIAL HANDLING, LLC
By: /s/ David Smith
------------------------------
Name: David Smith
Title: Vice President
MORRIS MATERIAL HANDLING LTD.
By: /s/ Martin Ditkof
------------------------------
Name: Martin Ditkof
Title: Director
MONDEL ULC
By: /s/ Martin Ditkof
------------------------------
Name: Martin Ditkof
Title: Secretary
KAVERIT STEEL AND CRANE ULC
By: /s/ Martin Ditkof
------------------------------
Name: Martin Ditkof
Title: Secretary
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
CREDIT AGRICOLE INDOSUEZ,
as Syndication Agent and
as a Bank
By: /s/ Kenneth J. Kencel
------------------------------
Name: Kenneth J. Kencel
Title: First Vice President
By: /s/ [Illegible]
------------------------------
Name:
Title:
A Term Loan Commitment: $1,833,333.33
B Term Loan Commitment: $4,000,000.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,666,.67
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
CANADIAN IMPERIAL BANK OF
COMMERCE, as Administrative
Agent and Collateral Agent
and as a Bank
By: /s/ Timothy E. Doyle
------------------------------
Name: Timothy E. Doyle
Title: Managing Director
CIBC Oppenheimer Corp., As Agent
A Term Loan Commitment: $0
B Term Loan Commitment: $0
Acquisition Term Loan Commitment: $0
Revolving Loan Commitment: $0
Canadian Swingline Commitment: $5,000,000.00
U.K. Swingline Commitment: $0
U.S. Swingline Commitment: $0
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
CIBC Inc., as a Bank
By: /s/ Timothy E. Doyle
------------------------------
Name: Timothy E. Doyle
Title: Managing Director
CIBC Oppenheimer Corp., As Agent
A Term Loan Commitment: $2,500,000.00
B Term Loan Commitment: $19,000,000.00
Acquisition Term Loan Commitment: $3,750,000.00
Revolving Loan Commitment: $8,750,000.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
BANKBOSTON, N.A.
as Documentation Agent and
as a Bank
By: /s/ Gregory R. D. Clark
------------------------------
Name: Gregory R. D. Clark
Title: Managing Director
By: /s/ Gregory R. D. Clark
------------------------------
Name: Gregory R. D. Clark
Title: Managing Director
A Term Loan Commitment: $2,000,000.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $3,000,000.00
Revolving Loan Commitment: $7,000,000.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
ABN-AMRO BANK N.V., as a Bank
By: /s/ Joann L. Holman
------------------------------
Name: Joann L. Holman
Title: Vice President
By: /s/ Thomas F. Comfort
------------------------------
Name: Thomas F. Comfort
Title: Vice President
A Term Loan Commitment: $1,500,000.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,250,000.00
Revolving Loan Commitment: $5,250,000.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $15,000,000.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
CREDITANSTALT CORPORATE FINANCE Inc.,
as a Bank
By: /s/ Jack R. Bertges
------------------------------
Name: Jack R. Bertges
Title: Senior Vice President
By: /s/ Patrick J. Rounds
------------------------------
Name: Patrick J. Rounds
Title: Vice President
A Term Loan Commitment: $1,833,333.34
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,666.66
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc., as
Collateral Manager
By: /s/ Michael D. Hatley
------------------------------
Name: Michael D. Hatley
Title: Vice President & Portfolio
Manager
A Term Loan Commitment: $0.00
B Term Loan Commitment: $5,000,000.00
Acquisition Term Loan Commitment: $0.00
Revolving Loan Commitment: $0.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By: /s/ Suzanne Ergastolo
------------------------------
Name: Suzanne Ergastolo
Title: Underwriter
A Term Loan Commitment: $1,500,000.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,250,000.00
Revolving Loan Commitment: $5,250,000.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $10,000,000.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
FIRST UNION NATIONAL BANK, as a Bank
By: /s/ Jorge Gonzalez
------------------------------
Name: Jorge Gonzalez
Title: Senior Vice President
A Term Loan Commitment: $1,833,333.34
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,666.66
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
FLEET NATIONAL BANK, as a Bank
By: /s/ James T. Andersen
------------------------------
Name: James T. Andersen
Title: Managing Director
A Term Loan Commitment: $1,833,333.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,667.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
SANWA BUSINESS CREDIT CORPORATION, as a Bank
By: /s/ John J. McKenna
------------------------------
Name: John J. McKenna
Title: First Vice President
A Term Loan Commitment: $1,500,000.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,250,000.00
Revolving Loan Commitment: $5,250,000.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
CRESCENT/MACH I PARTNERS, L.P.
by: TCW Asset Management
Company, Its Investment Manager
By: /s/ Justin L. Driscoll
------------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
A Term Loan Commitment: $0.00
B Term Loan Commitment: $7,000,000.00
Acquisition Term Loan Commitment: $0.00
Revolving Loan Commitment: $0.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
RIGGS BANK N.A., as a Bank
By: /s/ Ana G. Tejblum
------------------------------
Name: Ana G. Tejblum
Title: Vice President
A Term Loan Commitment: $1,833,333.00
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,667.00
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Credit Agreement among Morris Material Handling, Inc., MMH Holdings,
Inc., Material Handling, LLC, Morris Material Handling, Ltd., Mondel ULC,
Kaverit Steel and Crane ULC and Canadian Imperial Bank of Commerce, as
Administrative Agent, the other Agents listed herein, and the Banks listed
herein.
WELLS FARGO BANK, N.A., as a Bank
By: /s/ Dana D. Cagle
------------------------------
Name: Dana D. Cagle
Title: Vice President
A Term Loan Commitment: $1,833,333.33
B Term Loan Commitment: $0.00
Acquisition Term Loan Commitment: $2,750,000.00
Revolving Loan Commitment: $6,416,666.67
Canadian Swingline Commitment: $0.00
U.K. Swingline Commitment: $0.00
U.S. Swingline Commitment: $0.00
<PAGE>
Exhibit A-1 to
Credit Agreement
FORM OF A TERM NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING, INC., a Delaware
corporation, and MATERIAL HANDLING, LLC, a Delaware limited liability company
(each, a "U.S. Borrower"), hereby, jointly and severally, promise to pay to
the order of [BANK NAME] (the "Bank"), in lawful money of the United States
of America in immediately available funds, at the office of Canadian Imperial
Bank of Commerce, located at 425 Lexington Avenue, New York, New York 10017
or as otherwise designated pursuant to the Credit Agreement (as defined) on
the Final A Term Loan Maturity Date (as defined in the Credit Agreement), the
principal sum of [AMOUNT IN WORDS] U.S. DOLLARS ([$AMOUNT]) or, if less, the
unpaid principal amount of the A Term Loans (as defined in the Credit
Agreement) made by the Bank pursuant to the Credit Agreement.
Each U.S. Borrower also, jointly and severally, promises to pay
interest on the unpaid principal amount hereof in like money at said office
from the date hereof until paid at the rates and at the times provided in the
Credit Agreement.
This Note is one of the A Term Notes referred to in the Credit
Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING, INC.,
a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited liability
company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS MATERIAL HANDLING
LIMITED, a company incorporated under the laws of England and Wales, as a
U.K. Borrower, MONDEL ULC, an unlimited liability company organized under the
laws of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND CRANE ULC, an
unlimited liability company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks (as defined in the Credit Agreement) and the New
York branch of CREDIT AGRICOLE INDOSUEZ, as syndication agent for the Banks,
BANKBOSTON, N.A., as documentation agent for the Banks, and CANADIAN IMPERIAL
BANK OF COMMERCE, as administrative agent and as collateral agent for the
Banks (as amended or modified in accordance with its terms, the "Credit
Agreement"), and is entitled to the benefits thereof and shall be subject to
the provisions thereof. This Note is also entitled to the benefits of the
Guarantees (as de-
<PAGE>
-2-
fined in the Credit Agreement) and the Security Documents (as defined in the
Credit Agreement). As provided in the Credit Agreement, this Note is subject
to mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
Each U.S. Borrower hereby waives presentment, demand for payment,
protest, notice of dishonor, and any and all other notices or demands of any
kind in connection with the delivery, performance, default or enforcement of
this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of any U.S. Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
A TERM NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit A-2 to
Credit Agreement
FORM OF B TERM NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING, INC., a Delaware
corporation, and MATERIAL HANDLING, LLC, a Delaware limited liability company
(each, a "U.S. Borrower"), hereby, jointly and severally, promise to pay to
the order of [BANK NAME] (the "Bank"), in lawful money of the United States
of America in immediately available funds, at the office of Canadian Imperial
Bank of Commerce, located at 425 Lexington Avenue, New York, New York 10017
or as otherwise designated pursuant to the Credit Agreement (as defined) on
the Final B Term Loan Maturity Date (as defined in the Credit Agreement), the
principal sum of [AMOUNT IN WORDS] U.S. DOLLARS ([$AMOUNT]) or, if less, the
unpaid principal amount of the B Term Loans (as defined in the Credit
Agreement) made by the Bank pursuant to the Credit Agreement.
Each U.S. Borrower also, jointly and severally, promises to pay
interest on the unpaid principal amount hereof in like money at said office
from the date hereof until paid at the rates and at the times provided in the
Credit Agreement.
This Note is one of the B Term Notes referred to in the Credit
Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING, INC.,
a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited liability
company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS MATERIAL HANDLING
LIMITED, a company incorporated under the laws of England and Wales, as a
U.K. Borrower, MONDEL ULC, an unlimited liability company organized under the
laws of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND CRANE ULC, an
unlimited liability company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks (as defined in the Credit Agreement) and the New
York branch of CREDIT AGRICOLE INDOSUEZ, as syndication agent for the Banks,
BANKBOSTON, N.A., as documentation agent for the Banks, and CANADIAN IMPERIAL
BANK OF COMMERCE, as administrative agent and as collateral agent for the
Banks (as amended or modified in accordance with its terms, the "Credit
Agreement"), and is entitled to the benefits thereof and shall be subject to
the provisions thereof. This
<PAGE>
-2-
Note is also entitled to the benefits of the Guarantees (as defined in the
Credit Agreement) and the Security Documents (as defined in the Credit
Agreement). As provided in the Credit Agreement, this Note is subject to
mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
Each U.S. Borrower hereby waives presentment, demand for payment,
protest, notice of dishonor, and any and all other notices or demands of any
kind in connection with the delivery, performance, default or enforcement of
this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of any U.S. Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
B TERM NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit A-3 to
Credit Agreement
FORM OF ACQUISITION TERM NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING, INC., a Delaware
corporation, and MATERIAL HANDLING, LLC, a Delaware limited liability company
(each, a "U.S. Borrower"), hereby, jointly and severally, promise to pay to
the order of [BANK NAME] (the "Bank"), in lawful money of the United States
of America in immediately available funds, at the office of Canadian Imperial
Bank of Commerce, located at 425 Lexington Avenue, New York, New York 10017
or as otherwise designated pursuant to the Credit Agreement (as defined), on
the Final Acquisition Term Loan Maturity Date (as defined in the Credit
Agreement), the principal sum of [AMOUNT IN WORDS] U.S. DOLLARS ([$AMOUNT])
or, if less, the unpaid principal amount of the Acquisition Term Loans (as
defined in the Credit Agreement) made by the Bank pursuant to the Credit
Agreement.
Each U.S. Borrower also, jointly and severally, promises to pay
interest on the unpaid principal amount hereof in like money at said office
from the date hereof until paid at the rates and at the times provided in the
Credit Agreement.
This Note is one of the Acquisition Term Notes referred to in the
Credit Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING,
INC., a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited
liability company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS
MATERIAL HANDLING LIMITED, a company incorporated under the laws of England
and Wales, as a U.K. Borrower, MONDEL ULC, an unlimited liability company
organized under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT
STEEL AND CRANE ULC, an unlimited liability company organized under the laws
of Nova Scotia, as a Canadian Borrower, the Banks (as defined in the Credit
Agreement) and the New York branch of CREDIT AGRICOLE INDOSUEZ, as
syndication agent for the Banks, BANKBOSTON, N.A., as documentation agent for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent
and as collateral agent for the Banks (as amended or modified in accordance
with its terms, the "Credit Agreement"), and is entitled to the benefits
thereof and shall be subject to the provisions thereof. This Note is also
entitled to the benefits of the Guarantees (as defined in
<PAGE>
-2-
the Credit Agreement) and the Security Documents (as defined in the Credit
Agreement). As provided in the Credit Agreement, this Note is subject to
mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
Each U.S. Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such an endorsement or recordation or
any error in such an endorsement or recordation shall not affect the
obligations of any U.S. Borrower to make payments when due of any amounts
owing under the Credit Agreement or under this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
ACQUISITION TERM NOTE
<TABLE>
<CAPTION>
Principal Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Interest Paid Balance Notation
Date This Date This Date Rate This Date This Date Made By
- ---- --------- --------- -------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit B-1 to
Credit Agreement
FORM OF REVOLVING NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING, INC., a Delaware
corporation, and MATERIAL HANDLING, LLC, a Delaware limited liability company
(each, a "U.S. Borrower"), hereby, jointly and severally, promise to pay to
the order of [BANK NAME] (the "Bank"), in lawful money of the United States
of America in immediately available funds, at the office of Canadian Imperial
Bank of Commerce, located at 425 Lexington Avenue, New York, New York 10017
or as otherwise designated pursuant to the Credit Agreement (as defined), on
the Revolving Maturity Date (as defined in the Credit Agreement), the
principal sum of [AMOUNT IN WORDS] U.S DOLLARS ([$AMOUNT]) or, if less, the
unpaid principal amount of the Revolving Loans (as defined in the Credit
Agreement) made by the Bank pursuant to the Credit Agreement.
Each U.S. Borrower also, jointly and severally, promises to pay
interest on the unpaid principal amount hereof in like money at said office
from the date hereof until paid at the rates and at the times provided in the
Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING, INC.,
a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited liability
company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS MATERIAL HANDLING
LIMITED, a company incorporated under the laws of England and Wales, as a
U.K. Borrower, MONDEL ULC, an unlimited liability company organized under the
laws of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND CRANE ULC, an
unlimited liability company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks (as defined in the Credit Agreement) and the New
York branch of CREDIT AGRICOLE INDOSUEZ, as syndication agent for the Banks,
BANKBOSTON, N.A., as documentation agent for the Banks, and CANADIAN IMPERIAL
BANK OF COMMERCE, as administrative agent and as collateral agent for the
Banks (as amended or modified in accordance with its terms, the "Credit
Agreement"), and is entitled to the benefits thereof and shall be subject to
the provisions thereof. This Note is also entitled to the benefits of the
Guarantees (as defined in the Credit Agreement) and the Security Documents
(as defined in the Credit Agreement). As provided in the Credit
<PAGE>
-2-
Agreement, this Note is subject to mandatory and voluntary prepayment, in
whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
Each U.S. Borrower hereby waives presentment, demand for payment,
protest, notice of dishonor and any and all other notices or demands of any
kind in connection with the delivery, performance, default or enforcement of
this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of any U.S. Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
REVOLVING NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit B-2 to
Credit Agreement
FORM OF U.S. SWINGLINE NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING, INC., a Delaware
corporation, and MATERIAL HANDLING, LLC, a Delaware limited liability company
(each, a "U.S. Borrower"), hereby, jointly and severally, promise to pay to
the order of [BANK NAME] (the "Bank"), in lawful money of the United States
of America in immediately available funds, at the office of Canadian Imperial
Bank of Commerce, located at 425 Lexington Avenue, New York, New York 10017
or as otherwise designated pursuant to the Credit Agreement (as defined), on
the Swingline Expiry Date (as defined in the Credit Agreement), the principal
sum of [AMOUNT IN WORDS] U.S DOLLARS ([$AMOUNT]) or, if less, the unpaid
principal amount of the U.S. Swingline Loans (as defined in the Credit
Agreement) made by the Bank pursuant to the Credit Agreement.
Each U.S. Borrower also, jointly and severally, promises to pay
interest on the unpaid principal amount hereof in like money at said office
from the date hereof until paid at the rates and at the times provided in the
Credit Agreement.
This Note is one of the U.S. Swingline Notes referred to in the
Credit Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING,
INC., a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited
liability company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS
MATERIAL HANDLING LIMITED, a company incorporated under the laws of England
and Wales, as a U.K. Borrower, MONDEL ULC, an unlimited liability company
organized under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT
STEEL AND CRANE ULC, an unlimited liability company organized under the laws
of Nova Scotia, as a Canadian Borrower, the Banks (as defined in the Credit
Agreement) and the New York branch of CREDIT AGRICOLE INDOSUEZ, as
syndication agent for the Banks, BANKBOSTON, N.A., as documentation agent for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent
and as collateral agent for the Banks (as amended or modified in accordance
with its terms, the "Credit Agreement"), and is entitled to the benefits
thereof and shall be subject to the provisions thereof. This Note is also
entitled to the benefits of the Guarantees (as defined in the Credit
Agreement) and the Security Documents (as
<PAGE>
-2-
defined in the Credit Agreement). As provided in the Credit Agreement, this
Note is subject to mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
Each U.S. Borrower hereby waives presentment, demand for payment,
protest, notice of dishonor and any and all other notices or demands of any
kind in connection with the delivery, performance, default or enforcement of
this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of any U.S. Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
U.S. SWINGLINE NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit B-3 to
Credit Agreement
FORM OF U.K. SWINGLINE NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, MORRIS MATERIAL HANDLING LIMITED, a corporation
incorporated under the laws of England and Wales (the "U.K. Borrower"),
hereby promises to pay to the order of [BANK NAME] (the "Bank"), in Pounds
Sterling in immediately available funds, at the office of
[ ], located at [ ] or as
otherwise designated pursuant to the Credit Agreement (as defined), on the
Swingline Expiry Date (as defined in the Credit Agreement), the Dollar
Equivalent (as defined in the Credit Agreement) amount in Pounds Sterling of
the principal sum of [AMOUNT IN WORDS] U.S DOLLARS ([$AMOUNT]) or, if less,
the unpaid principal amount of the U.K. Swingline Loans (as defined in the
Credit Agreement) made by the Bank pursuant to the Credit Agreement.
The U.K. Borrower also promises to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof
until paid at the rates and at the times provided in the Credit Agreement.
This Note is one of the U.K. Swingline Notes referred to in the
Credit Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING,
INC., a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited
liability company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS
MATERIAL HANDLING LIMITED, a company incorporated under the laws of England
and Wales, as a U.K. Borrower, MONDEL ULC, an unlimited liability company
organized under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT
STEEL AND CRANE ULC, an unlimited liability company organized under the laws
of Nova Scotia, as a Canadian Borrower, the Banks (as defined in the Credit
Agreement) and the New York branch of CREDIT AGRICOLE INDOSUEZ, as
syndication agent for the Banks, BANKBOSTON, N.A., as documentation agent for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent
and as collateral agent for the Banks (as amended or modified in accordance
with its terms, the "Credit Agreement"), and is entitled to the benefits
thereof and shall be subject to the provisions thereof. This
<PAGE>
-2-
Note is also entitled to the benefits of the Guarantees (as defined in the
Credit Agreement) and the Security Documents (as defined in the Credit
Agreement). As provided in the Credit Agreement, this Note is subject to
mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
The U.K. Borrower hereby waives presentment, demand for payment,
protest, notice of dishonor and any and all other notices or demands of any
kind in connection with the delivery, performance, default or enforcement of
this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of the U.K. Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
MORRIS MATERIAL HANDLING LIMITED
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
U.K. SWINGLINE NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Type of Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit B-4 to
Credit Agreement
FORM OF CANADIAN SWINGLINE NOTE
U.S. [$AMOUNT] New York, New York
March 30, 1998
FOR VALUE RECEIVED, [ ], an unlimited liability company
organized under the laws of Nova Scotia (the "Canadian Borrower"), hereby
promises to pay to the order of [BANK NAME] (the "Bank"), in Canadian Dollars
in immediately available funds, at the office of Canadian Imperial Bank of
Commerce, located at 425 Lexington Avenue, New York, New York 10017 or as
otherwise designated pursuant to the Credit Agreement (as defined), on the
Swingline Expiry Date (as defined in the Credit Agreement), the Dollar
Equivalent (as defined in the Credit Agreement) amount in Canadian Dollars of
the principal sum of [AMOUNT IN WORDS] U.S DOLLARS ([$AMOUNT]) or, if less,
the unpaid principal amount of the Canadian Swingline Loans made as Prime
Rate Loans (as defined in the Credit Agreement) made by the Bank pursuant to
the Credit Agreement.
The Canadian Borrower also promises to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof
until paid at the rates and at the times provided in the Credit Agreement.
This Note is one of the Canadian Swingline Notes referred to in the
Credit Agreement, dated as of March 30, 1998, among MORRIS MATERIAL HANDLING,
INC., a Delaware corporation, MATERIAL HANDLING, LLC, a Delaware limited
liability company, MMH HOLDINGS, INC., a Delaware corporation, MORRIS
MATERIAL HANDLING LIMITED, a company incorporated under the laws of England
and Wales, as a U.K. Borrower, MONDEL ULC, an unlimited liability company
organized under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT
STEEL AND CRANE ULC, an unlimited liability company organized under the laws
of Nova Scotia, as a Canadian Borrower, the Banks (as defined in the Credit
Agreement) and the New York branch of CREDIT AGRICOLE INDOSUEZ, as
syndication agent for the Banks, BANKBOSTON, N.A., as documentation agent for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent
and as collateral agent for the Banks (as amended or modified in accordance
with its terms, the "Credit Agreement"; each capitalized term used herein and
not defined shall have the meaning assigned to it in the Credit Agreement),
and is entitled to the benefits thereof and shall
<PAGE>
-2-
be subject to the provisions thereof. This Note is also entitled to the
benefits of the Guarantees (as defined in the Credit Agreement) and the
Security Documents (as defined in the Credit Agreement). As provided in the
Credit Agreement, this Note is subject to mandatory and voluntary prepayment,
in whole or in part.
In case an Event of Default (as defined in the Credit Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement.
The Canadian Borrower hereby waives presentment, demand for
payment, protest, notice of dishonor and any and all other notices or demands
of any kind in connection with the delivery, performance, default or
enforcement of this Note.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by each holder hereof on the schedule
attached hereto and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise recorded by
each holder in the holder's internal records; PROVIDED, HOWEVER, that the
failure of any holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of the Canadian Borrower under this
Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
[ ]
By:
-----------------------------------
Name:
Title:
<PAGE>
TRANSACTIONS
ON
CANADIAN SWINGLINE NOTE
<TABLE>
<CAPTION>
Amount of Outstanding
Prime Rate Amount of Principal or Principal
Loan Made Loan Made Interest Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit C-1 to the
Credit Agreement
FORM OF OPINION OF
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P
Ladies and Gentlemen:
We have acted as general counsel to Morris Material Handling, Inc.,
a Delaware corporation (the "Company"), Material Handling, LLC, a Delaware
limited liability company ("Material Handling," and together with the
Company, the "U.S. Borrowers"), MMH Holdings, Inc., a Delaware corporation
("Holdings"), and the domestic subsidiary guarantors of the U.S. Borrowers
(the "Subsidiary Guarantors"; and together with the U.S. Borrowers and
Holdings, the "Loan Parties"), in connection with the execution and delivery
today of and the consummation of the transactions contemplated by (i) a
Credit Agreement, dated as of March [ ], 1998 (the "Credit Agreement")
(capitalized terms used herein and not defined shall have the meanings
assigned to them in the Credit Agreement) among the U.S. Borrowers, Holdings,
MHE U.K., MHE Canada, the lending institutions party thereto (collectively,
the "Banks"), Credit Agricole Indosuez, as Syndication Agent, Canadian
Imperial Bank of Commerce, as Administrative Agent for the Banks, and Bank
Boston N.A., as Documentation Agent, (ii) the U.S. Security Agreement, (iii)
the Holdings Guarantee and the U.S. Subsidiary Guarantee (the "Guarantees"),
(iv) financing statements on Form UCC-1 with respect to the collateral
pledged pursuant to the Security Agreement.
There has been furnished to us for review the final forms of (i)
the Credit Agreement, (ii) the U.S. Security Agreement, (iii) the Guarantees,
and (iv) the Financing Statements (collectively, the "Loan Documents"). We
have reviewed such instruments, documents and agreements as we have deemed
necessary or appropriate to enable us to render the opinions hereinafter set
forth.
1. Each Loan Party is a corporation or limited liability company
duly organized, validly existing and in good standing under the laws of its
state of organization and has the corporate or limited liability power to
conduct its business as now conducted and to own, or hold under lease, its
assets and to enter into each of the Loan Documents to which it is a party
and to perform its obligations thereunder and is duly qualified and is
authorized to do business as a foreign
<PAGE>
-2-
corporation or limited liability company and is in good standing under the
laws of each jurisdiction where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where the
failure to do so would not, individually or in the aggregate, have a Material
Adverse Effect.
2. Each Loan Party has the requisite corporate or other
organizational power and authority, and has taken all necessary corporate or
other organizational action to duly authorize the execution and delivery of
each of the Loan Documents to which it is a party, and the performance by it
of the transactions contemplated therein. Each of the Loan Documents has
been duly executed and delivered by each Loan Party which is a party thereto
and constitutes the legal, valid and binding obligation of each such Loan
Party, enforceable in accordance with its terms, except as may be limited by
(i) bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization
or other laws relating to creditors' rights generally, and (ii) general
principles of equity, whether considered in an action at law or in equity.
3. Neither the execution, delivery or performance by any Loan
Party of the Loan Documents to which it is a party, nor compliance with the
terms and provisions thereof, nor the consummation of the transactions
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule or regulation of any Federal or state governmental authority or
any order, writ, injunction or decree of any Federal or state governmental
authority of which we have knowledge, or (ii) conflicts or will conflict or
be inconsistent with, results or will result in any breach or violation of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or (other than pursuant to the Security Document) result in
the creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of any Loan Party pursuant to, the
terms of any indenture, mortgage, deed of trust, material agreement or other
material instrument to which any Loan Party is a party or by which it or any
of its property or assets is bound or to which it may be subject, in each
case of which we have knowledge, except, in each such case described in
clause (i) or (ii) of this paragraph, where such contravention, conflict,
inconsistency, breach, violation, default, creation, imposition or obligation
would not have a Materially Adverse Effect, or (iii) will violate any
provision of the certificate of incorporation of, operating agreement, or
by-laws of any Loan Party.
<PAGE>
-3-
4. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by,
any third party or any Federal or any state governmental authority (other
than those orders, consents, approvals, licenses, authorizations or
validations which, if not obtained or made, would not have a Materially
Adverse Effect or which have previously been obtained or made and except for
filings to perfect security interests granted pursuant to the Security
Document) is required to authorize or is required in connection with (i) the
execution, delivery and performance of any Loan Document or the transactions
contemplated therein or (ii) the legality, validity, binding effect or
enforceability of any Loan Document.
5. To the best of our knowledge, there does not exist any
judgment, order, injunction or other restraint issued or filed with respect
to the transactions contemplated by the Documents or the making of Loans or
the performance by any Loan Party of its obligations under the Loan Documents.
6. Assuming the Banks are "banks" as defined in Regulation U of
the Board of Governors of the Federal Reserve System, neither the making of
the Loans under the Credit Agreement, nor the use of the proceeds thereof
(provided such proceeds are used in the manner set forth in the Credit
Agreement), will violate or be inconsistent with the provisions of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
7. None of the Loan Parties is or will be, after giving effect to
the transactions contemplated under the Documents, (i) an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
8. Holding has no direct subsidiaries other than MMH. MMH has no
Subsidiaries other than as set forth on Schedule 5.15 to the Credit Agreement
(the "Subsidiaries"). All shares of capital stock or other equity interests
of each the U.S. Borrowers and each Subsidiary has been duly and validly
issued, are fully paid and non-assessable and, except as set forth on
Schedule 5.15 or Schedule 5.19 of the Credit Agreement, are owned by
Holdings, directly or indirectly, free and clear of all Liens. Except as set
forth on Schedule 5.19 to the Credit Agreement, there are not any existing
options, war-
<PAGE>
-4-
rants, calls, subscriptions, convertible or exchangeable securities, rights,
agreements, commitments or arrangements for any person to acquire any
percentage interest of the U.S. Borrowers or any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any such percentage interest.
9. The U.S. Security Documents (other than the Mortgage as to
which no opinion is expressed) create (or with respect to after acquired
Collateral, will create, as of the time any Loan Party acquires rights
therein) a valid and enforceable security interest in favor of the Collateral
Agent in that portion of the Collateral purported to be governed thereby
which is covered by Article 9 of the UCC.
10. Assuming that the Financing Statements relating to the Security
Agreement have been properly filed with the Office of the Secretary of State
of the States of ____________ and with the Recorder of _______________
County, the security interest, lien or pledge created by the U.S. Security
Agreement will be duly perfected in such states. The Financing Statements
adequately identify the Pledged Collateral described therein to provide
sufficient notice to third parties of the security interest referenced
therein.
11. The filing of the Financing Statements with the recorders and
in the offices described above are the only actions, recordings or filings
necessary to publish notice and protect the validity of and to establish of
record the rights of the parties under the Loan Documents in such states,
except (i) that continuation statements under the UCC are required to be
filed within ____ months prior to the expiration of ______ years from the
date of filing of the Financing Statements, and (ii) that a security interest
in or pledge of [specify collateral] cannot be perfected by filing Financing
Statements, but must be perfected by taking physical possession thereof.
12. After giving effect to the delivery to the Collateral Agent of
the certificates representing the Pledged Securities listed on Schedules I-A,
I-B and II to the U.S. Security Agreement, together with undated stock powers
duly endorsed in blank, and assuming the continued possession by the
Collateral Agent of such Securities Collateral (as defined in the U.S.
Security Agreement) in the State of New York, and that the Collateral Agent
is taking possession of such Securities Collateral in good faith and without
notice of any adverse claim with respect thereto within the meaning of the
UCC, the security interest created in favor of the Collateral Agent un-
<PAGE>
-5-
der the U.S. Security Agreement constitutes a valid and perfected security
interest in such Securities Collateral in favor of the Collateral Agent for
the benefit of the Secured Parties under the U.S. Security Agreement, subject
to no equal or prior security interests of any other creditor of Holdings or
the Company, as the case may be. No filings or recordings are required to
perfect (or maintain the perfection of) the security interest created under
the U.S. Security Agreement in the Securities Collateral.
13. Subject to appropriate continuation of perfection under the UCC
as set forth in paragraph 11 above, the priority of the security interest in,
lien on or pledge of the Pledged Collateral created by the U.S. Security
Agreement with respect to any Further Advance secured thereby made or deemed
to have been made after the date of execution and delivery of the U.S.
Security Agreement will be the same as the priority of the U.S. Security
Agreement applicable on the date of execution and delivery thereof and such
priority will not be affected by the rights in and to Pledged Collateral of
any third party whose interest in the Personal Property or Pledged Collateral
attached thereto after the date of such execution and delivery but prior to
the date of such Further Advance.
14. No taxes or other charges, including, without limitation,
intangible or documentary stamp taxes, mortgage or recording taxes, transfer
taxes or similar charges, are payable to the State of New York or __________
or to any jurisdiction therein on account of the execution and delivery of
the Loan Documents or the creation of the indebtedness evidenced or secured
by any of the Loan Documents or the filing of the Financing Statements,
except for nominal filing or recording fees.
15. Other than filings which may be required pursuant to applicable
state law, the filing of the U.S. Security Agreement in the United States
Patent and Trademark Office and in the United States Copyright Office are the
only actions, recordings or filings necessary to protect the validity of and
to establish of record the rights of the secured parties with respect to the
Intellectual Property Collateral (as defined in the U.S. Security Agreement)
thereunder in the United States of America.
16. A state or federal court in the states of ______________
applying the choice of law principles of the State will give effect to the
provisions in the U.S. Security Agreement which select the laws of the State
of New York as the governing law thereof and will apply such laws, rather
than the
<PAGE>
-6-
laws of such states, to the enforceability, construction and application
thereof.
The foregoing opinions may be relied on by each of you and by any of
your participants or assignees.
<PAGE>
Exhibit C-4 to
Credit Agreement
FORM OF OPINION OF LOCAL COUNSEL
March 30, 1998
Canadian Imperial Bank of Commerce,
as Administrative Agent
425 Lexington Avenue
New York, NY 10017
and
The Lenders listed in the
Credit Agreement Referenced Herein
Ladies and Gentlemen:
We have acted as special counsel in the State of ___________ (the
"State") to Morris Material Handling, Inc., ("Borrower") and
[list applicable guarantors], in connection with the execution and delivery
of and the consummation of the transactions contemplated by (i) the Credit
Agreement, dated as of the date hereof (the "Credit Agreement"; capitalized
terms used herein and not defined shall have the meanings assigned to them in
the Credit Agreement) among Borrower, [Subsidiary Guarantors], the lending
institutions from time to time party thereto (collectively, the "Lenders")
and Canadian Imperial Bank of Commerce, as Administrative Agent for the
Lenders (in such capacity, the "Administrative Agent"), (ii) the security
agreement, dated as of the date hereof (the "Security Agreement") made by
Borrower and [list applicable guarantors] in favor of the Administrative
Agent, (iii) the Term Loan and Revolving Credit Mortgage, Assignment of
Leases, Security Agreement and Fixture Filing, dated as of the date hereof
(the "Mortgage") made by [Borrower] in favor of the Administrative Agent and
(iv) UCC-1 financing statements (the "Financing Statements") relating to the
Mortgage and the Security Agreement.
<PAGE>
-2-
There has been furnished to us for review the final forms of (i)
the Credit Agreement, (ii) the Security Agreement, (iii) the Mortgage and
(iv) the Financing Statements (collectively, the "Credit Documents"). We
have reviewed such instruments, documents and agreements as we have deemed
necessary or appropriate to enable us to render the opinions hereinafter set
forth.
In rendering the opinions hereinafter set forth, we have assumed
that (a) there has occurred due execution and delivery of the Credit
Documents and all documentation in connection therewith, (b) each pledgor
named in the Security Agreement owns the Pledged Collateral (as defined in
each of the Security Agreement) described in the applicable Security
Agreement and (c) [the Borrower] owns the Mortgaged Property (as defined in
the Mortgage).
In addition, the opinions contained in Paragraphs 2 and 3 below are
qualified to the extent that enforceability of any of the Credit Documents
may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or
other laws relating to creditors' rights generally, and (ii) general
principles of equity, whether considered in an action at law or in equity.
Subject to the foregoing assumptions and qualifications, we are of
the opinion that:
1. Neither Administrative Agent nor any of the Lenders is
required (i) to be qualified to transact business, file any designation for
service of process, file any reports or pay any taxes in the State, or (ii)
to comply with any statutory or regulatory requirement applicable only to
financial institutions chartered or qualified to do business in the State, in
each case, solely by reason of the execution and delivery of any of the
Credit Documents or by reason of the participation in any of the transactions
under or contemplated by the Credit Documents, including, without limitation,
the extension of any credit contemplated thereby, the making and receipt of
payments pursuant thereto and the exercise of any remedy thereunder. If it
were determined that any such qualification and filing were required, the
validity of the Credit Documents would not be affected thereby, but if
Administrative Agent or the Lenders were not qualified, Administrative Agent,
or the Lenders in the event they institute remedies without Administrative
Agent, as the case may be, would be precluded from enforcing their respective
rights in the courts of the State until such time as they are qualified to
transact business in the State. However, the lack
<PAGE>
-3-
of qualification would not result in any waiver of rights or remedies pending
such qualification.
2. The Mortgage creates and constitutes (i) a valid lien on the
real property described therein (the "Real Property"), (ii) a valid security
interest in such of the Property (the "UCC Property") as is subject to the
provisions of Article 9 of the Uniform Commercial Code as in effect in the
State (the "UCC") and (iii) a valid common law lien on or pledge of such of
the Property as is not UCC Property or Real Property (such property, together
with the UCC Property, the "Personal Property"). The Mortgage is enforceable
against the grantor named therein in accordance with its terms. The Mortgage
is in proper form under applicable laws of the State to be accepted for
recording by the Recorder of _____________ County.
3. Assuming that the Security Agreement is governed by the laws
of the State for the purpose of rendering the opinion set forth in this
paragraph, the Security Agreement is in proper form under the applicable laws
of the State to (i) create and constitute a valid security interest in, lien
on or pledge of the applicable Pledged Collateral described therein and (ii)
be enforceable against the pledgors named therein in accordance with its
terms.
4. Assuming that the Financing Statements relating to (i) the
Mortgage has been properly filed with the Office of the Recorder of _________
County and (ii) the Security Agreements has been properly filed with the
Office of the Secretary of State of the State and with the Recorder of
_____________ County, the security interest, lien or pledge created by each
of the Mortgage and the Security Agreement (assuming that the Mortgage has
been duly recorded) will be duly perfected. The Financing Statements
adequately identify the Pledged Collateral described therein to provide
sufficient notice to third parties of the security interest referenced
therein.
5. The recording of the Mortgage and the filing of the Financing
Statements with the recorders and in the offices described above are the only
actions, recordings or filings necessary to publish notice and protect the
validity of and to establish of record the rights of the parties under the
Credit Documents, except (i) that continuation statements under the UCC are
required to be filed within ____ months prior to the expiration of ______
years from the date of filing of the Financing Statements, and (ii) that a
security interest in or pledge of [specify collateral] cannot be perfected by
filing Financing
<PAGE>
-4-
Statements, but must be perfected by taking physical possession thereof.
6. The priority of the lien on the Real Property created by the
Mortgage with respect to any extension of credit (each, a "Further Advance")
secured thereby made or deemed to have been made after the date of recording
of the Mortgage, will be the same as the priority of the Mortgage applicable
on such date of recording and such priority will not be affected by the
rights in and to the Real Property of any third party whose interest in the
Real Property attached thereto after the date of such recording but prior to
the date of such Further Advance.
7. Subject to appropriate continuation of perfection under the
UCC as set forth in paragraph 5 above, the priority of the security interest
in, lien on or pledge of the Personal Property and the Pledged Collateral
created by the Security Agreement with respect to any Further Advance secured
thereby made or deemed to have been made after the date of execution and
delivery of the Security Agreement will be the same as the priority of the
Security Agreement applicable on the date of execution and delivery thereof
and such priority will not be affected by the rights in and to the Personal
Property or Pledged Collateral of any third party whose interest in the
Personal Property or Pledged Collateral attached thereto after the date of
such execution and delivery but prior to the date of such Further Advance.
8. The execution, delivery, recordation and performance by
Administrative Agent, the Lenders and the Credit Parties of the Credit
Documents to which each is a party (i) will not violate any existing law,
governmental rule or regulation of the State and (ii) do not require any
license, permit, authorization, consent or other approval of, any exemption
by, or any registration, recording or filing with, any court, administrative
agency or other governmental authority of the State, except for the filing of
the Financing Statements as set forth in paragraph 3 above.
9. No taxes or other charges, including, without limitation,
intangible or documentary stamp taxes, mortgage or recording taxes, transfer
taxes or similar charges, are payable to the State or to any jurisdiction
therein on account of the execution and delivery of the Credit Documents or
the creation of the indebtedness evidenced or secured by any of the Credit
Documents or the filing of the Financing Statements, except for nominal
filing or recording fees.
<PAGE>
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10. Neither the Administrative Agent nor the Lenders shall be
liable for any loss, cost, expense or liability (including, without
limitation, clean-up, corrective action or response costs, penalties, fines
or other impositions of governmental agencies and judgments of private or
public litigants) in respect of any matter arising out of or relating to or
under any Environmental Laws of the State by reason of the execution and
delivery of or participation in any of the transactions under or contemplated
by any of the Credit Documents, including, without limitation, the extension
of any credit contemplated thereby, the making and receipt of payments
pursuant thereto and the exercise of any remedy under any of the Credit
Documents. The laws of the State do not provide for a statutory or
regulatory lien in favor of any governmental entity for liability under the
Environmental Laws of the State.
11. Under the laws of the State, there are no statutory or
regulatory requirements which will be imposed on the Administrative Agent or
the Lenders relating to the granting of a mortgage or security interest in
the Real Property that (i) require any notification or certification to the
State or any applicable political subdivision thereof of such mortgage or
security interest, or (ii) in the event of a discharge of any Hazardous
Materials, impose responsibility or liability on the part of the
Administrative Agent or any of the Lenders for the undertaking of remedial
measures to alleviate environmental contamination resulting from such
discharge.
12. The transfer of all or any portion of the Property in
connection with the exercise of any remedy under the Mortgage, including,
without limitation, by way of judicial foreclosure, will not restrict, affect
or impair the liability of any applicable guarantor or the Borrower with
respect to the indebtedness secured thereby or the mortgagee's rights or
remedies to the foreclosure or enforcement of any other security interest or
liens securing such indebtedness. The laws of the State do not require a
lienholder to elect to pursue its remedies either against mortgaged real
property or personal property where such lienholder holds security interests
and liens on both real and personal property of a debtor.
13. A state or federal court in the State applying the choice of
law principles of the State will give effect to the provisions in the
Security Agreement which select the laws of the State of New York as the
governing law thereof and will apply such laws, rather than the laws of the
State, to the enforceability, construction and application thereof.
<PAGE>
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We are admitted to practice in the State. We express no opinion as
to matters under or involving the laws of any jurisdiction other than the
laws of the United States and the State and its political subdivisions.
The foregoing opinions may be relied on by each of you, by any of
your successors and assigns and by any participant, assignee or successor to
the interest of any Lender under the Credit Documents.
Very truly yours,
<PAGE>
Exhibit E-1 to
Credit Agreement
FORM OF HOLDINGS GUARANTEE
GUARANTEE, dated as of March 30, 1998, ("Guarantee") by MMH
Holdings, Inc. (the "Guarantor"), in favor and for the benefit of CANADIAN
IMPERIAL BANK OF COMMERCE ("CIBC"), having an office at 425 Lexington Avenue,
New York, New York 10017, and in its capacity as collateral agent (in such
capacities and together with any successors in such capacity, the "Collateral
Agent") for the ratable benefit of the lending institutions (the "Banks")
from time to time party to the Credit Agreement (as hereinafter defined).
R E C I T A L S :
A. Pursuant to a certain Credit Agreement, dated as of March 30,
1998 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and
not defined shall have the meanings assigned to them in the Credit
Agreement), among MORRIS MATERIAL HANDLING, INC. ("MMH"), as a U.S. Borrower,
MATERIAL HANDLING, LLC, as a U.S. Borrower (together with MMH, the "U.S.
Borrowers"), MORRIS MATERIAL HANDLING LIMITED, as U.K. Borrower (the "U.K.
Borrower"), KAVERIT STEEL AND CRANE ULC and MONDEL ULC, as Canadian Borrowers
(the "Canadian Borrowers", and together with the U.S. Borrowers and the U.K.
Borrower, the "Borrowers"), the Guarantor, CREDIT AGRICOLE INDOSUEZ, as
Syndication Agent, BANKBOSTON, N.A., as Documentation Agent, the Banks and
CIBC, as Administrative Agent and Collateral Agent for the Banks (together
with the Syndication Agent and the Documentation Agent, the "Agents"), the
Banks have agreed (i) to make to or for the account of MMH certain Term Loans
up to an aggregate principal amount of $55,000,000, to make to or for the
account of the U.S. Borrowers certain Acquisition Term Loans up to an
aggregate principal amount of $30,000,000 and to make certain Revolving Loans
to the Borrowers up to an aggregate principal amount of $70,000,000 and (ii)
to make certain Swingline Loans and to issue certain Letters of Credit for
the account of the Borrowers.
B. It is contemplated that the Borrowers may enter into one or
more agreements with one or more of the Banks ("Interest Rate Agreements")
fixing the interest rates with respect to Loans under the Credit Agreement
(all obligations of the Borrowers now existing or hereafter arising under
such Interest Rate Agreements, collectively, the "Interest Rate Obligations").
<PAGE>
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C. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters
of Credit or Acceptances under the Credit Agreement or entering into the
Interest Rate Agreements that the Guarantor shall have executed and delivered
this Guarantee and that this Guarantee shall be in full force and effect.
D. This Guarantee is given by the Guarantor in favor of the
Collateral Agent for its benefit and the benefit of the Banks to guarantee
all of the Obligations of the Borrowers in accordance with the terms of the
Credit Agreement.
E. All of the Guarantor's obligations hereunder shall be secured
pursuant to the Security Documents to which the Guarantor is a party.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Guarantor hereby agrees as follows:
1. GUARANTEE. (a) To induce the Banks to execute and deliver
the Credit Agreement and to make the Loans and issue the Letters of Credit
upon the terms and conditions set forth in the Credit Agreement, and in
consideration thereof, the Guarantor hereby unconditionally and irrevocably
(i) guarantees to the Banks and their respective successors, endorsees,
transferees and assigns, the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) and at all
times thereafter of the Obligations of the Borrowers (including amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code); and (ii) agrees to pay any and all reasonable
expenses (including reasonable attorneys' fees and disbursements) which may
be paid or incurred by the Banks, the Agents or the Collateral Agent in
enforcing any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting
against, the Guarantor under this Guarantee (collectively, the "Guaranteed
Obligations").
(b) The Guarantor agrees that this Guarantee constitutes a
guarantee of payment when due and not of collection and waives any right to
require that any resort be had by the Collateral Agent, the Agents or any
Bank to any of the security held for payment of any of the Guaranteed
Obligations or to any balance of any deposit account or credit on the books
of the Agents, the Collateral Agent or any Bank in favor of any Borrower or
any other Person.
(c) No payment or payments made by the Guarantor or any other
Person or received or collected by the Banks (or the
<PAGE>
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Collateral Agent or Agents on behalf of the Banks) from the Guarantor or any
other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of
or in payment of the Guaranteed Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability or obligations of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made to the Banks (or the Collateral Agent or Agents on
behalf of the Banks) by the Guarantor or payments received or collected by
the Banks (or the Collateral Agent or Agents on behalf of the Banks) from the
Guarantor, remain liable for the Guaranteed Obligations until the Guaranteed
Obligations are paid in full in Cash or Cash Equivalents.
2. WAIVER BY GUARANTOR. The Guarantor hereby waives absolutely
and irrevocably any claim which it may have against any Borrower or any of
their respective Affiliates by reason of any payment to the Agents,
Collateral Agent or any Bank, or to any other Person pursuant to or in
respect of this Guarantee, including any claims by way of subrogation,
contribution, reimbursement, indemnity or otherwise, until the Guaranteed
Obligations are paid in full.
3. CONSENT BY GUARANTOR. The Guarantor hereby consents and
agrees that, without the necessity of any reservation of rights against the
Guarantor and without notice to or further assent by the Guarantor, any
demand for payment of any of the Guaranteed Obligations made by the Agents,
the Collateral Agent or any Bank may be rescinded by the Banks (or the Agents
or Collateral Agent on behalf of the Banks) and any of the Guaranteed
Obligations continued, and the Guaranteed Obligations, or the liability of
any other party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Banks (or
the Agents or the Collateral Agent on behalf of the Banks); and the Credit
Agreement or any other Credit Document, or other guarantee or documents in
connection therewith, or any of them, may be amended, modified, supplemented
or terminated, in whole or in part, as the Banks (or the Agents or Collateral
Agent on behalf of the Banks) may deem advisable from time to time (in
accordance with the terms thereof); and any Guarantee or right of offset or
any collateral may be sold, exchanged, waived, surrendered or released, all
without the necessity of any reservation of rights against the Guarantor and
without notice to or further assent by the Guarantor, which will remain bound
hereunder, notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
waiver, surrender or release. Neither the Banks nor the Agents or the
Collateral Agent shall have any obligation to protect, secure,
<PAGE>
-4-
perfect or insure any collateral or property at any time held as security for
the Guaranteed Obligations or this Guarantee. When making any demand
hereunder against the Guarantor, the Agents, the Collateral Agent or the
Banks may, but shall be under no obligation to, make a similar demand on any
other Credit Party or any such other guarantor, and any failure by the
Agents, the Collateral Agent or the Banks to make any such demand or to
collect any payments from such other Credit Party or any such other guarantor
or any release of such other Credit Party or any such other guarantor or of
the Guarantor's obligations or liabilities hereunder shall not impair or
affect the rights and remedies, express or implied, or as a matter of law, of
the Agents, the Collateral Agent or the Banks against the Guarantor
hereunder. For the purposes hereof "demand" shall include the commencement
and continuance of any legal proceedings.
4. WAIVERS; SUCCESSORS AND ASSIGNS. The Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Banks upon
this Guarantee or acceptance of this Guarantee, and the Guaranteed
Obligations shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Guarantee, and all dealings between the
Guarantor and any other Credit Party, on the one hand, and the Banks, on the
other hand, shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Guarantee. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or non-payment
to or upon any Credit Party or the Guarantor with respect to the Guaranteed
Obligations. This Guarantee shall be construed as a continuing, absolute and
unconditional Guarantee of payment without regard to the validity, regularity
or enforceability of the Credit Agreement, the other Credit Documents, any of
the Guaranteed Obligations or any guarantee therefor or right of offset with
respect thereto at any time or from time to time held by the Banks and
without regard to any defense (other than the defense of payment), set off or
counterclaim which may at any time be available to or be asserted by any
Credit Party against the Banks, or by any other circumstance whatsoever (with
or without notice to or knowledge of the Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Guaranteed Obligations, or of the Guarantor under this Guarantee, in
bankruptcy or in any other instance, and the obligations and liabilities of
the Guarantor hereunder shall not be conditioned or contingent upon the
pursuit by the Banks or any other Person at any time of any right or remedy
against any Credit Party or against any other Person which may be or become
liable or obligated in respect of all or any part of the Guaranteed
Obligations or against any collateral security or guarantee therefor or right
of offset with respect thereto. This Guarantee shall remain in full force
and effect and be binding in accordance with and to
<PAGE>
-5-
the extent of its terms upon the Guarantor and the successors and assigns
thereof, and shall inure to the benefit of the Banks, and their respective
successors, indorsees, transferees and assigns permitted under the Credit
Agreement (including each holder from time to time of Guaranteed Obligations)
until all of the Guaranteed Obligations and the obligations of the Guarantor
under this Guarantee shall have been satisfied by payment in full in Cash or
Cash Equivalents, notwithstanding that from time to time during the term of
the Credit Agreement any Credit Party may be released from all of its
Guaranteed Obligations thereunder.
5. GUARANTEE SECURED. Payment under this Guarantee is secured by
pledges, encumbrances and mortgages of Collateral pursuant to applicable
Security Documents in accordance with the Credit Agreement. Reference is
hereby made to the Credit Agreement and the applicable Security Documents for
a description of the Collateral pledged and the right of the respective
parties to such property, to secure all the obligations of the Guarantor
hereunder.
6. RIGHTS OF SET-OFF. The Banks, and the Agents and Collateral
Agent on behalf of the Banks, are each hereby irrevocably authorized upon the
occurrence and during the continuance of an Event of Default without notice
to the Guarantor (any such notice being expressly waived by the Guarantor to
the extent permitted by applicable law) to set-off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect or contingent or
matured or unmatured, at any time held or owing by the Banks to or for the
credit or the account of the Guarantor, or any part thereof, in such amounts
as the Banks, or the Agents or Collateral Agent on behalf of the Banks, may
elect, against and on account of the obligations and liabilities of the
Guarantor to the Banks, in any currency, whether arising hereunder or
otherwise, as the Banks, or the Agents or Collateral Agent on behalf of the
Banks, may elect, whether or not the Banks, or the Agents or Collateral Agent
on behalf of the Banks, have made any demand for payment but only to the
extent that such obligations, liabilities and claims shall have become due
and payable (whether as stated, by acceleration or otherwise). The Banks, or
the Agents or Collateral Agent on behalf of the Banks, agree to notify the
Guarantor promptly of any such set-off and the application made by the Banks,
or the Agents or Collateral Agent on behalf of the Banks; PROVIDED that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Banks, or the Agents or Collateral Agent on
behalf of the Banks, under this Section 6 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Banks, or the Agents or Collateral Agent on behalf of the Banks, may
otherwise have.
<PAGE>
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7. EFFECTIVENESS; REINSTATEMENT. This Guarantee shall continue
to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned by the Banks upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Credit Party, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, any Credit
Party or any substantial part of its property, or otherwise, all as though
such payments had not been made.
8. PAYMENTS OF GUARANTEED OBLIGATIONS. The Guarantor hereby
guarantees that the Guaranteed Obligations will be paid for the ratable
benefit of the Banks without set-off or counterclaim in lawful currency of
the United States of America at the office of the Collateral Agent located at
425 Lexington Avenue, New York, New York 10017. The Guarantor shall make any
payments required hereunder upon receipt of written notice thereof from the
Agents or Collateral Agent or any Bank; PROVIDED, HOWEVER, that the failure
of the Agents or Collateral Agent or any Bank to give such notice shall not
affect the Guarantor's obligations hereunder.
9. DEFAULT. If (x) any Borrower has failed to pay or perform
when due its Guaranteed Obligations or (y) there is an event with respect to
the Guarantor that would require or permit the acceleration pursuant to
Section 8.04 of the Credit Agreement of any outstanding Loan, or (z) the
Guarantor's obligations, if any, under the Credit Agreement are accelerated,
then in the case of clause (x) all of the Guaranteed Obligations with respect
to the Borrowers and in the case of clause (y) or clause (z) all of the
Guaranteed Obligations shall be immediately due and payable by the Guarantor,
regardless of whether in the case of clause (x) the payment of the Guaranteed
Obligations has been accelerated or in the case of clause (y) or clause (z)
the Borrowers are in default with respect to the Guaranteed Obligations.
10. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter
into the Credit Agreement and to make Loans and to issue Letters of Credit,
the Guarantor represents and warrants to each Bank that the following
statements are true, correct and complete on and as of the Closing Date:
A. ORGANIZATION AND POWERS. (a) The Guarantor is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization and has the corporate power and
authority to own its property and assets and to transact the business in
which it is engaged and presently proposes to engage. (b) The Guarantor has
duly qualified and is qualified to do business, or as of the Closing Date has
taken appropriate steps to qualify, and is in good standing in all juris-
<PAGE>
-7-
dictions in which the conduct of its business or the ownership of its
properties requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. (c) The Guarantor has
all requisite power and authority and all requisite governmental licenses,
authorizations, consents and approvals to own and carry on its businesss as
now conducted and as contemplated to be conducted by the Documents,
including, without limitation, those in compliance with or required by the
Environmental Laws other than such licenses, authorizations, consents and
approvals the failure to obtain which has not had and will not have a
Material Adverse Effect. (d) The Guarantor has all authority to enter into
each of the Security Documents to which it is or is to be a party and to
carry out the transactions contemplated thereby and to execute and deliver
this Guarantee.
B. NO VIOLATIONS. Neither the execution, delivery or performance
by the Guarantor of any of the Credit Documents to which it is a party, nor
compliance with any of the terms and provisions thereof, nor the consummation
of any of the transactions contemplated therein, nor the grant and perfection
of the security interests pursuant to the Security Documents (a) will
contravene any provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any Governmental Authority, (b) will conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute (with notice or lapse of time or
both) a default under any material contractual obligation of the Guarantor,
or (other than as contemplated by the Security Documents) result in the
creation or imposition of (or the obligation to create or impose), any Lien
upon any of the property or assets of the Guarantor pursuant to any material
contractual obligation or (c) will violate any provision of the
organizational documents of the Guarantor.
C. APPROVALS. The execution, delivery and performance by the
Guarantor of the Credit Documents to which it is, or is to be, a party do not
and will not require any registration with, consent or waiver or approval of,
or notice to, or other action to, with or by, any Governmental Authority or
other Person except filings required for the perfection or maintenance of
perfection of security interests granted pursuant to the Security Documents
or enforcement of the Liens or remedies provided by the Credit Documents.
Except for such filings, all consents and approvals from or notices to or
filings with any Governmental Authority or other Person required to be
obtained by Guarantor have been obtained and are in full force and effect
except where the failure to obtain such consents or approvals will not result
in a Material Adverse Effect and except for filings required to perfect or
maintain the perfection of the Liens granted by the Credit Documents and
filings listed on Schedule 5.06 to the Credit Agreement.
<PAGE>
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D. BINDING OBLIGATION. This Guarantee constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, fraudulence conveyance or
transfer, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability
whether enforcement is sought by proceedings in equity or at law.
E. INVESTMENT COMPANY. The Guarantor is not an "investment
company" or a company "controlled" by an "investment company" (as each of
such quoted terms is defined or used in the Investment Company Act of 1940,
as amended) or subject to any foreign, federal or local statute or regulation
limiting its ability to incur indebtedness for money borrowed or guarantee
such indebtedness as contemplated hereby or by any other Credit Document.
11. RATABLE SHARING. The Banks by acceptance of this Guarantee
agree among themselves that with respect to all amounts received by them
which are applicable to the payment of obligations of the Guarantor under
this Guarantee, if the Banks, or the Agents or Collateral Agent on behalf of
the Banks, exercise their rights hereunder, including, without limitation,
acceleration of the obligations of the Guarantor hereunder, equitable
adjustment will be made so that, in effect, all such amounts will be shared
among the Banks PRO RATA based on the relative outstanding Guaranteed
Obligations.
12. MERGER. If the Guarantor shall merge into or consolidate with
another corporation, or liquidate, wind up or dissolve itself in a
transaction not prohibited by the Credit Agreement the Guarantor hereby
covenants and agrees, that upon any such merger, consolidation, liquidation,
or dissolution, the guarantee given in this Guarantee and the due and
punctual performance and observance of all of the covenants and conditions of
the Credit Agreement to be performed by the Guarantor, shall be expressly
assumed (in the event that the Guarantor is not the surviving corporation in
the merger) by supplemental agreements satisfactory in form to the Banks, or
the Agents or Collateral Agent on behalf of the Banks, by the corporation or
corporations formed by such consolidation, or into which the Guarantor shall
have been merged. In addition, the Guarantor shall deliver to the Banks, or
the Agents or Collateral Agent on behalf of the Banks, an Officers'
Certificate and an opinion of counsel, each stating that such merger or
consolidation and such supplemental agreements comply with this Guarantee and
that all conditions precedent herein provided relating to such transaction
have been complied with. In case of any such consolidation or merger and
upon the assumption by the successor corporation or corporations, by
supplemental agreements executed and delivered to the Banks or
<PAGE>
-9-
the Agents or Collateral Agent on behalf of the Banks, and satisfactory in
form to the Banks, or the Agents or Collateral Agent on behalf of the Banks,
of the guarantee given in this Guarantee and the due and punctual performance
of all of the covenants and conditions of the Credit Agreement to be
performed by the Guarantor, such successor corporation or corporations shall
succeed to and be substituted for the Guarantor, with the same effect as if
it or they had been named herein as a Guarantor.
13. NO WAIVER. (a) No failure to exercise and no delay in
exercising, on the part of the Banks, or the Agents or Collateral Agent on
behalf of the Banks, any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other power or right. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided
by law. (b) In the event the Banks, the Agents or the Collateral Agent on
behalf of the Banks, shall have instituted any proceeding to enforce any
right, power or remedy under this Guarantee by sale or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Banks, the Agents or the Collateral
Agent on behalf of the Banks, then and in every such case, the Guarantor, the
Banks, the Agents or the Collateral Agent on behalf of the Banks, and each
Bank shall be restored to its respective former position and rights
hereunder, and all rights, remedies and powers of the Banks, the Agents or
the Collateral Agent on behalf of the Banks, shall continue as if no such
proceeding had been instituted.
14. NOTICES. All notices, demands, instructions or other
communications required or permitted to be given to or made upon any party
hereto shall be given in accordance with the provisions of the Credit
Agreement and at the address either set forth therein or as provided on the
signature page hereof.
15. AMENDMENTS, WAIVERS, ETC. No provision of this Guarantee
shall be waived, amended, terminated or supplemented except by a written
instrument executed by the Guarantor and the Agents or Collateral Agent, on
behalf of the Banks.
16. NOTICE OF EXERCISE. Upon exercise of its rights hereunder,
the Banks, or the Agents or Collateral Agent on behalf of the Banks, as the
case may be, shall provide written notice on the date of such exercise to the
Banks, or the Agents or the Collateral Agent on behalf of the Banks, as the
case may be, of such exercise; PROVIDED, HOWEVER, that the failure by the
Agents, the Collateral Agent, or any of the Banks to provide such written
notice shall not in any way relieve the Guarantor of its obligations under
this Guarantee.
<PAGE>
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17. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
18. CONSENT TO JURISDICTION AND SERVICE PROCESS. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST THE GUARANTOR WITH RESPECT TO THIS GUARANTEE MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS GUARANTEE THE
GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS,
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS GUARANTEE. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE
TRIAL BY JURY, AND THE GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. THE GUARANTOR DESIGNATES AND APPOINTS LEXIS DOCUMENT
SERVICES, INC. WITH AN ADDRESS AT 150 EAST 58TH STREET, 25TH FLOOR, NEW YORK,
NEW YORK 10155, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE
GUARANTOR, AFTER WRITTEN NOTICE TO THE AGENT, IRREVOCABLY AGREEING IN WRITING
TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL PROCESS IN
ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY THE GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL
TO THE GUARANTOR AS PROVIDED IN SECTION 14 HEREOF. IF ANY AGENT APPOINTED BY
THE GUARANTOR REFUSES TO ACCEPT SERVICE, THE GUARANTOR HEREBY AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR SHALL LIMIT THE RIGHT OF ANY BANK TO BRING PROCEEDINGS AGAINST THE
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
19. SEVERABILITY OF PROVISIONS. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
20. HEADINGS. The Section headings used in this Guarantee are for
convenience of reference only and shall not affect the construction of this
Agreement.
21. FUTURE ADVANCES. This Guarantee shall guarantee the payment
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
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22. COUNTERPARTS. This Guarantee and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
<PAGE>
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IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer on the day and
year first above written.
MMH HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit E-2 to
Credit Agreement
FORM OF SUBSIDIARY GUARANTEE
GUARANTEE, dated as of March 30, 1998, ("Guarantee") by each person
which is a party hereto as set forth on the signature pages hereto (each, a
"Guarantor" and, collectively, the "Guarantors"), in favor and for the
benefit of CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), having an office at
425 Lexington Avenue, New York, New York 10017, and in its capacity as
collateral agent (in such capacities and together with any successors in such
capacity, the "Collateral Agent") for the ratable benefit of the lending
institutions (the "Banks") from time to time party to the Credit Agreement
(as hereinafter defined).
R E C I T A L S :
A. Pursuant to a certain Credit Agreement, dated as of March 30,
1998 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and
not defined shall have the meanings assigned to them in the Credit
Agreement), among MORRIS MATERIAL HANDLING, INC. ("MMH"), as a U.S. Borrower,
MATERIAL HANDLING, LLC, as a U.S. Borrower (together with MMH, the "U.S.
Borrowers"), MORRIS MATERIAL HANDLING LIMITED, as U.K. Borrower (the "U.K.
Borrower"), KAVERIT STEEL AND CRANE ULC and MONDEL ULC, as Canadian Borrowers
(the "Canadian Borrowers", and together with the U.S. Borrowers and the U.K.
Borrower, the "Borrowers"), MMH HOLDINGS, INC. ("Holdings"), CREDIT AGRICOLE
INDOSUEZ, as Syndication Agent, BANKBOSTON, N.A., as Documentation Agent, the
Banks and CIBC, as Administrative Agent and Collateral Agent for the Banks
(together with the Syndication Agent and the Documentation Agent, the
"Agents"), the Banks have agreed (i) to make to or for the account of MMH
certain Term Loans up to an aggregate principal amount of $55,000,000, to
make to or for the account of the U.S. Borrowers certain Acquisition Term
Loans up to an aggregate principal amount of $30,000,000 and to make certain
Revolving Loans to the Borrowers up to an aggregate principal amount of
$70,000,000 and (ii) to make certain Swingline Loans to and to issue certain
Letters of Credit for the account of the Borrowers.
B. It is contemplated that the Borrowers may enter into one or
more agreements with one or more of the Banks ("Interest Rate Agreements")
fixing the interest rates with respect to Loans under the Credit Agreement
(all obligations of the Borrowers now existing or hereafter arising under
such Interest Rate Agreements, collectively, the "Interest Rate Obligations").
<PAGE>
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C. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters
of Credit or Acceptances under the Credit Agreement or entering into the
Interest Rate Agreements that the Guarantors shall have executed and
delivered this Guarantee and that this Guarantee shall be in full force and
effect.
D. This Guarantee is given by each Guarantor in favor of the
Collateral Agent for its benefit and the benefit of the Banks to guarantee
all of the Obligations of the Borrowers in accordance with the terms of the
Credit Agreement.
E. Each Guarantor's obligations hereunder shall be joint and
several with the obligations of each other Guarantor hereunder, and shall be
secured pursuant to the Security Documents to which such Guarantor is a party.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, each Guarantor hereby agrees as follows:
1. GUARANTEE. (a) To induce the Banks to execute and deliver
the Credit Agreement and to make the Loans and issue the Letters of Credit
upon the terms and conditions set forth in the Credit Agreement, and in
consideration thereof, each Guarantor hereby unconditionally and irrevocably
(i) guarantees to the Banks and their respective successors, endorsees,
transferees and assigns, the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) and at all
times thereafter of the Obligations of the Borrowers (including amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code); and (ii) agrees to pay any and all reasonable
expenses (including reasonable attorneys' fees and disbursements) which may
be paid or incurred by the Banks, the Agents or the Collateral Agent in
enforcing any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting
against, each Guarantor under this Guarantee (collectively, the "Guaranteed
Obligations").
(b) Each Guarantor agrees that this Guarantee constitutes a
guarantee of payment when due and not of collection and waives any right to
require that any resort be had by the Collateral Agent, the Agents or any
Bank to any of the security held for payment of any of the Guaranteed
Obligations or to any balance of any deposit account or credit on the books
of the Agents, the Collateral Agent or any Bank in favor of any Borrower or
any other Person.
<PAGE>
-3-
(c) No payment or payments made by any Guarantor or any other
Person or received or collected by the Banks (or the Collateral Agent or
Agents on behalf of the Banks) from any Guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Guaranteed Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability or obligations of the Guarantors hereunder
which shall, notwithstanding any such payment or payments other than payments
made to the Banks (or the Collateral Agent or Agents on behalf of the Banks)
by any Guarantor or payments received or collected by the Banks (or the
Collateral Agent or Agents on behalf of the Banks) from any Guarantor, remain
liable for the Guaranteed Obligations until the Guaranteed Obligations are
paid in full in Cash or Cash Equivalents, subject to the provisions of
Section 1(d) hereof.
(d) Notwithstanding any other provisions of this Guarantee, the
maximum aggregate amount of Guaranteed Obligations which each Guarantor
agrees to guarantee pursuant to this Guarantee shall equal the lesser of (i)
the excess of the fair saleable value of the property of such Guarantor over
the total liabilities of such Guarantor (including the maximum amount
reasonably expected to become due in respect of contingent liabilities, other
than any such contingent liabilities under the Credit Agreement and the other
Credit Documents), such excess to be determined on the date of this Guarantee
or the date on which, from time to time, such enforcement or realization is
effected, whichever is higher and (ii) that amount of Guaranteed Obligations
which does not result in a violation of applicable laws relating to
fraudulent conveyance, after giving effect to the value of any rights to
subrogation, reimbursement, indemnification or contribution (including
without limitation rights to contribution from any other Subsidiary
Guarantor) whether by agreement or under applicable law. The obligations of
each Guarantor hereunder shall be joint and several with the obligations of
each other Guarantor hereunder. Subject to the preceding sentences, each
Guarantor understands, agrees and confirms that this is a guarantee of
payment when due and not of collection and that each Bank may, from time to
time, enforce this Guarantee against any Guarantor up to the full amount of
the Guaranteed Obligations owed to such Bank without proceeding against any
other Credit Party, against any security for the Guaranteed Obligations,
against any other guarantor or under any other guarantee covering the
Guaranteed Obligations.
Each Guarantor that makes a payment or distribution under this
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount PRO RATA, based on the net assets of each Subsidiary
Guarantor.
<PAGE>
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2. WAIVER BY GUARANTOR. Each Guarantor hereby waives absolutely
and irrevocably any claim which it may have against any Borrower or any of
their respective Affiliates (other than any right to contribution pursuant to
Section 1(d) hereof) by reason of any payment to the Agents, Collateral Agent
or any Bank, or to any other Person pursuant to or in respect of this
Guarantee, including any claims by way of subrogation, contribution,
reimbursement, indemnity or otherwise, until the Guaranteed Obligations are
paid in full.
3. CONSENT BY GUARANTOR. Each Guarantor hereby consents and
agrees that, without the necessity of any reservation of rights against such
Guarantor and without notice to or further assent by such Guarantor, any
demand for payment of any of the Guaranteed Obligations made by the Agents,
the Collateral Agent or any Bank may be rescinded by the Banks (or the Agents
or Collateral Agent on behalf of the Banks) and any of the Guaranteed
Obligations continued, and the Guaranteed Obligations, or the liability of
any other party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Banks (or
the Agents or the Collateral Agent on behalf of the Banks); and the Credit
Agreement or any other Credit Document, or other guarantee or documents in
connection therewith, or any of them, may be amended, modified, supplemented
or terminated, in whole or in part, as the Banks (or the Agents or Collateral
Agent on behalf of the Banks) may deem advisable from time to time (in
accordance with the terms thereof); and any Guarantee or right of offset or
any collateral may be sold, exchanged, waived, surrendered or released, all
without the necessity of any reservation of rights against such Guarantor and
without notice to or further assent by such Guarantor, which will remain
bound hereunder, notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
waiver, surrender or release. Neither the Banks, the Agents nor the
Collateral Agent shall have any obligation to protect, secure, perfect or
insure any collateral or property at any time held as security for the
Guaranteed Obligations or this Guarantee. When making any demand hereunder
against any Guarantor, the Agents, the Collateral Agent or the Banks may, but
shall be under no obligation to, make a similar demand on any other Credit
Party or any such other guarantor, and any failure by the Agents, the
Collateral Agent or the Banks to make any such demand or to collect any
payments from such other Credit Party or any such other guarantor or any
release of such other Credit Party or any such other guarantor or of each
Guarantor's obligations or liabilities hereunder shall not impair or affect
the rights and remedies, express or implied, or as a matter of law, of the
Agents, the Collateral Agent or the Banks against each Guarantor hereunder. For
<PAGE>
-5-
the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
4. WAIVERS; SUCCESSORS AND ASSIGNS. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Banks upon
this Guarantee or acceptance of this Guarantee, and the Guaranteed
Obligations shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Guarantee, and all dealings between any
Guarantor and any other Credit Party, on the one hand, and the Banks, on the
other hand, shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Guarantee. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
non-payment to or upon any Credit Party or any Guarantor with respect to the
Guaranteed Obligations. This Guarantee shall be construed as a continuing,
absolute and unconditional Guarantee of payment without regard to the
validity, regularity or enforceability of the Credit Agreement, the other
Credit Documents, any of the Guaranteed Obligations or any guarantee therefor
or right of offset with respect thereto at any time or from time to time held
by the Banks and without regard to any defense (other than the defense of
payment), set off or counterclaim which may at any time be available to or be
asserted by any Credit Party against the Banks, or by any other circumstance
whatsoever (with or without notice to or knowledge of any Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Guaranteed Obligations, or of any Guarantor under this
Guarantee, in bankruptcy or in any other instance, and the obligations and
liabilities of each Guarantor hereunder shall not be conditioned or
contingent upon the pursuit by the Banks or any other Person at any time of
any right or remedy against any Credit Party or against any other Person
which may be or become liable or obligated in respect of all or any part of
the Guaranteed Obligations or against any collateral security or guarantee
therefor or right of offset with respect thereto. This Guarantee shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon each Guarantor and the successors and assigns
thereof, and shall inure to the benefit of the Banks, and their respective
successors, indorsees, transferees and assigns permitted under the Credit
Agreement (including each holder from time to time of Guaranteed Obligations)
until all of the Guaranteed Obligations and the obligations of each Guarantor
under this Guarantee shall have been satisfied by payment in full in Cash or
Cash Equivalents, notwithstanding that from time to time during the term of
the Credit Agreement any Credit Party may be released from all of its
Guaranteed Obligations thereunder.
5. GUARANTEE SECURED. Payment under this Guarantee is secured by
pledges, encumbrances and mortgages of Collateral
<PAGE>
-6-
pursuant to applicable Security Documents in accordance with the Credit
Agreement. Reference is hereby made to the Credit Agreement and the
applicable Security Documents for a description of the Collateral pledged and
the right of the respective parties to such property, to secure all the
obligations of any Guarantor hereunder which may be party to such documents.
6. RIGHTS OF SET-OFF. The Banks, and the Agents and Collateral
Agent on behalf of the Banks, are each hereby irrevocably authorized upon the
occurrence and during the continuance of an Event of Default without notice
to any Guarantor (any such notice being expressly waived by each Guarantor to
the extent permitted by applicable law) to set-off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect or contingent or
matured or unmatured, at any time held or owing by the Banks to or for the
credit or the account of any Guarantor, or any part thereof, in such amounts
as the Banks, or the Agents or Collateral Agent on behalf of the Banks, may
elect, against and on account of the obligations and liabilities of any
Guarantor to the Banks, in any currency, whether arising hereunder or
otherwise, as the Banks, or the Agents or Collateral Agent on behalf of the
Banks, may elect, whether or not the Banks, or the Agents or Collateral Agent
on behalf of the Banks, have made any demand for payment but only to the
extent that such obligations, liabilities and claims shall have become due
and payable (whether as stated, by acceleration or otherwise). The Banks, or
the Agents or Collateral Agent on behalf of the Banks, agree to notify any
such Guarantor promptly of any such set-off and the application made by the
Banks, or the Agents or Collateral Agent on behalf of the Banks; PROVIDED
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Banks, or the Agents or
Collateral Agent on behalf of the Banks, under this Section 6 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which the Banks, or the Agents or Collateral Agent on behalf of the
Banks, may otherwise have.
7. EFFECTIVENESS; REINSTATEMENT. This Guarantee shall continue
to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned by the Banks upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Credit Party, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, any Credit
Party or any substantial part of its property, or otherwise, all as though
such payments had not been made.
<PAGE>
-7-
8. PAYMENTS OF GUARANTEED OBLIGATIONS. Each Guarantor hereby
guarantees that the Guaranteed Obligations will be paid for the ratable
benefit of the Banks without set-off or counterclaim in lawful currency of
the United States of America at the office of the Collateral Agent located at
425 Lexington Avenue, New York, New York 10017. Each Guarantor shall make
any payments required hereunder upon receipt of written notice thereof from
the Agents or Collateral Agent or any Bank; PROVIDED, HOWEVER, that the
failure of the Agents or Collateral Agent or any Bank to give such notice
shall not affect any Guarantor's obligations hereunder.
9. DEFAULT. If (x) any Borrower has failed to pay or perform
when due its Guaranteed Obligations or (y) there is an event with respect to
any Guarantor that would require or permit the acceleration pursuant to
Section 8.04 of the Credit Agreement of any outstanding Loan, or (z) any
Guarantor's obligations, if any, under the Credit Agreement are accelerated,
then in the case of clause (x) all of the Guaranteed Obligations with respect
to the Borrowers and in the case of clause (y) or clause (z) all of the
Guaranteed Obligations shall be immediately due and payable by the
Guarantors, regardless of whether in the case of clause (x) the payment of
the Guaranteed Obligations has been accelerated or in the case of clause (y)
or clause (z) the Borrowers are in default with respect to the Guaranteed
Obligations.
10. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter
into the Credit Agreement and to make Loans and to issue Letters of Credit,
each Guarantor represents and warrants to each Bank that the following
statements are true, correct and complete on and as of the Closing Date:
A. ORGANIZATION AND POWERS. (a) Such Guarantor is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization and has the corporate power and
authority to own its property and assets and to transact the business in
which it is engaged and presently proposes to engage. (b) Such Guarantor has
duly qualified and is qualified to do business, or as of the Closing Date has
taken appropriate steps to qualify, and is in good standing in all
jurisdictions in which the conduct of its business or the ownership of its
properties requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. (c) Such Guarantor has
all requisite power and authority and all requisite governmental licenses,
authorizations, consents and approvals to own and carry on its businesss as
now conducted and as contemplated to be conducted by the Documents,
including, without limitation, those in compliance with or required by the
Environmental Laws other than such licenses, authorizations, consents and
approvals the failure to obtain which has not had and will not have a
Material Adverse Effect. (d) Such Guarantor has
<PAGE>
-8-
all authority to enter into each of the Security Documents to which it is or
is to be a party and to carry out the transactions contemplated thereby and
to execute and deliver this Guarantee.
B. NO VIOLATIONS. Neither the execution, delivery or performance
by such Guarantor of any of the Credit Documents to which it is a party, nor
compliance with any of the terms and provisions thereof, nor the consummation
of any of the transactions contemplated therein, nor the grant and perfection
of the security interests pursuant to the Security Documents (a) will
contravene any provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any Governmental Authority, (b) will conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute (with notice or lapse of time or
both) a default under any material contractual obligation of such Guarantor,
or (other than as contemplated by the Security Documents) result in the
creation or imposition of (or the obligation to create or impose), any Lien
upon any of the property or assets of such Guarantor pursuant to any material
contractual obligation or (c) will violate any provision of the
organizational documents of such Guarantor.
C. APPROVALS. The execution, delivery and performance by such
Guarantor of the Credit Documents to which it is, or is to be, a party do not
and will not require any registration with, consent or waiver or approval of,
or notice to, or other action to, with or by, any Governmental Authority or
other Person except filings required for the perfection or maintenance of
perfection of security interests granted pursuant to the Security Documents
or enforcement of the Liens and remedies provided by the Credit Documents.
Except for such filings, all consents and approvals from or notices to or
filings with any Governmental Authority or other Person required to be
obtained by such Guarantor have been obtained and are in full force and
effect except where the failure to obtain such consents or approvals will not
result in a Material Adverse Effect and except for filings required to
perfect or maintain the perfection of Liens granted by the Credit Documents
and filings listed on Schedules 5.06 to the Credit Agreement.
D. BINDING OBLIGATION. This Guarantee constitutes the legal,
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability whether
enforcement is sought by proceedings in equity or at law.
<PAGE>
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E. INVESTMENT COMPANY. Such Guarantor is not an "investment
company" or a company "controlled" by an "investment company" (as each of
such quoted terms is defined or used in the Investment Company Act of 1940,
as amended) or subject to any foreign, federal or local statute or regulation
limiting its ability to incur indebtedness for money borrowed or guarantee
such indebtedness as contemplated hereby or by any other Credit Document.
11. RATABLE SHARING. The Banks by acceptance of this Guarantee
agree among themselves that with respect to all amounts received by them
which are applicable to the payment of obligations of any Guarantor under
this Guarantee, if the Banks, or the Agents or Collateral Agent on behalf of
the Banks, exercise their rights hereunder, including, without limitation,
acceleration of the obligations of any Guarantor hereunder, equitable
adjustment will be made so that, in effect, all such amounts will be shared
among the Banks PRO RATA based on the relative outstanding Guaranteed
Obligations.
12. MERGER. If any Guarantor shall merge into or consolidate with
another corporation, or liquidate, wind up or dissolve itself in a
transaction not prohibited by the Credit Agreement, or if all of the stock of
the Guarantor shall be sold or otherwise disposed of in a manner not
prohibited by the Credit Agreement, such Guarantor hereby covenants and
agrees, that upon any such merger, consolidation, liquidation, or
dissolution, the guarantee given in this Guarantee and the due and punctual
performance and observance of all of the covenants and conditions of the
Credit Agreement to be performed by such Guarantor, shall be expressly
assumed (in the event that such Guarantor is not the surviving corporation in
the merger) by supplemental agreements satisfactory in form to the Banks, or
the Agents or Collateral Agent on behalf of the Banks, by the corporation or
corporations formed by such consolidation, or into which such Guarantor shall
have been merged, or by the corporation or corporations which shall have
acquired such property unless such sale or transfer is permitted under
Section 7.16 or Section 7.17 of the Credit Agreement in which case the
Guarantor shall be released from this Guarantee. In addition, such Guarantor
shall deliver to the Banks, or the Agents or Collateral Agent on behalf of
the Banks, an Officers' Certificate and an opinion of counsel, each stating
that such merger, consolidation or transfer and such supplemental agreements
comply with this Guarantee and that all conditions precedent herein provided
relating to such transaction have been complied with. In case of any such
consolidation, merger, sale or conveyance and upon the assumption by the
successor corporation or corporations, by supplemental agreements executed
and delivered to the Banks or the Agents or Collateral Agent on behalf of the
Banks, and satisfactory in form to the Banks, or the Agents or Collateral
Agent on behalf of the Banks, of the guaran-
<PAGE>
-10-
tee given in this Guarantee and the due and punctual performance of all of
the covenants and conditions of the Credit Agreement to be performed by such
Guarantor, such successor corporation or corporations shall succeed to and be
substituted for such Guarantor, with the same effect as if it or they had
been named herein as a Guarantor.
13. NO WAIVER. (a) No failure to exercise and no delay in
exercising, on the part of the Banks, or the Agents or Collateral Agent on
behalf of the Banks, any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other power or right. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided
by law. (b) In the event the Banks, the Agents or the Collateral Agent on
behalf of the Banks, shall have instituted any proceeding to enforce any
right, power or remedy under this Guarantee by sale or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Banks, the Agents or the Collateral
Agent on behalf of the Banks, then and in every such case, each Guarantor,
the Banks, the Agents or the Collateral Agent on behalf of the Banks, and
each Bank shall be restored to its respective former position and rights
hereunder, and all rights, remedies and powers of the Banks, the Agents or
the Collateral Agent on behalf of the Banks, shall continue as if no such
proceeding had been instituted.
14. NOTICES. All notices, demands, instructions or other
communications required or permitted to be given to or made upon any party
hereto shall be given in accordance with the provisions of the Credit
Agreement and at the address either set forth therein or as provided on the
signature page hereof.
15. AMENDMENTS, WAIVERS, ETC. No provision of this Guarantee
shall be waived, amended, terminated or supplemented except by a written
instrument executed by each Guarantor and the Agents or Collateral Agent, on
behalf of the Banks.
16. NOTICE OF EXERCISE. Upon exercise of its rights hereunder,
the Banks, or the Agents or Collateral Agent on behalf of the Banks, as the
case may be, shall provide written notice on the date of such exercise to the
Banks, or the Agents or the Collateral Agent on behalf of the Banks, as the
case may be, of such exercise; PROVIDED, HOWEVER, that the failure by the
Agents, the Collateral Agent, or any of the Banks to provide such written
notice shall not in any way relieve any Guarantor of its obligations under
this Guarantee.
<PAGE>
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17. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
18. CONSENT TO JURISDICTION AND SERVICE PROCESS. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR WITH RESPECT TO THIS GUARANTEE MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS GUARANTEE EACH
GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS,
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS GUARANTEE. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE
TRIAL BY JURY, AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. EACH GUARANTOR DESIGNATES AND APPOINTS LEXIS DOCUMENT
SERVICES, INC., WITH AN ADDRESS AT 150 EAST 58TH STREET, 25TH FLOOR, NEW
YORK, NEW YORK 10155, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
ANY GUARANTOR, AFTER WRITTEN NOTICE TO THE AGENT, IRREVOCABLY AGREEING IN
WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY EACH GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL
TO EACH GUARANTOR AS PROVIDED IN SECTION 14 HEREOF. IF ANY AGENT APPOINTED
BY ANY GUARANTOR REFUSES TO ACCEPT SERVICE, SUCH GUARANTOR HEREBY AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR SHALL LIMIT THE RIGHT OF ANY BANK TO BRING PROCEEDINGS AGAINST THE
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
19. SEVERABILITY OF PROVISIONS. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
20. HEADINGS. The Section headings used in this Guarantee are for
convenience of reference only and shall not affect the construction of this
Agreement.
21. FUTURE ADVANCES. This Guarantee shall guarantee the payment
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
-12-
22. RELEASE OF HERCULES. Upon a determination of the Board of
Directors of the Company certified to the Administrative Agent, Hercules
shall be deemed released from all obligations under this Guarantee without
any further action required on the part of the Agents or any Bank.
23. COUNTERPARTS. This Guarantee and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
<PAGE>
-13-
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer on
the day and year first above written.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
CMH MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
EPH MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
-14-
HARNISCHFEGER DISTRIBUTION & SERVICE LLC
By:
-----------------------------------
Name:
Title:
HPH MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
MORRIS MATERIAL HANDLING, LLC
By:
-----------------------------------
Name:
Title:
MORRIS MECHANICAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
MPH CRANE, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
-15-
NPH MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
PHME SERVICE, INC.
By:
-----------------------------------
Name:
Title:
SPH CRANE & HOIST, INC.
By:
-----------------------------------
Name:
Title:
HERCULES S.A. DE C.V.
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit I-1 to
Credit Agreement
FORM OF NOTICE OF ASSIGNMENT
[DATE]
Canadian Imperial Bank of Commerce,
as Administrative Agent
425 Lexington Avenue
New York, New York 10017
Attention:
Re: Credit Agreement, dated as of March 30, 1998, among MORRIS
MATERIAL HANDLING, INC., a Delaware corporation, MATERIAL
HANDLING, LLC, a Delaware limited liability company, MMH
HOLDINGS, INC., a Delaware corporation, MORRIS MATERIAL
HANDLING LTD.,, a company organized under the laws of
England and Wales, as the U.K. Borrower, and MONDEL ULC, a
company organized under the laws of Nova Scotia, as a
Canadian Borrower, and KAVERIT STEEL AND CRANE ULC, a
company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks and CANADIAN IMPERIAL BANK OF
COMMERCE, as administrative agent and as collateral agent
for the Banks, CREDIT AGRICOLE INDOSUEZ, as syndication
agent for the Banks, and BANKBOSTON, N.A., as documentation
agent for the Banks.
1. Reference is made to the above-referenced Credit Agreement;
all terms defined in the Credit Agreement shall have the same meanings when
used herein.
2. Pursuant to that certain Assignment and Assumption Agreement
dated as of the date hereof, between Assignor and Assignee,
[INSERT NAME OF ASSIGNOR BANK] ("Assignor") has sold to
[INSERT NAME OF ASSIGNEE BANK]("Assignee") an assignment representing an
assignment of each of the Commitments of Assignor as set forth on Schedule I
hereto.
<PAGE>
-2-
3. The Assignee hereby elects to become party to, and be bound by
each of the provisions of, the Credit Agreement as a "Bank" as defined in the
Credit Agreement with a Commitment as set forth in clause 2 above.
4. Assignee hereby confirms, as to itself, that (i) it has
received a copy of the Credit Agreement and such other information that it
has deemed appropriate to make its own credit analysis and decision to
purchase its assignment, (ii) it will independently and without reliance upon
the Agents or any other Bank and based on such documents and other
information as it deems appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement,
(iii) it has purchased its assignment without recourse or warranty to the
Agents or any of the other Banks and that all such Persons have made no
representations or warranties, and have no responsibility, to the Assignee
with respect to any representation or warranty in the Credit Documents, or
the legality, enforceability or sufficiency of any thereof, the financial
condition of Holdings or any Credit Party or the performance or
nonperformance by Holdings or any Credit Party of any of its obligations or
duties under the Credit Documents, and (iv) effective on the Assignment
Effective Date (as defined in the Assignment and Assumption Agreement)
Assignor shall be released from all of its obligations relating to Assignee's
Share (as defined in the Assignment and Assumption Agreement) under and
pursuant to the terms of the Credit Agreement.
5. The Assignee's address for purposes of notices under the
Credit Agreement is listed on Schedule I hereto.
6. The recordation fee referred to in Section 11.04 of the Credit
Agreement is delivered herewith to the Administrative Agent.
Very truly yours,
[ASSIGNOR BANK]
By:
-----------------------------------
Name:
Title:
<PAGE>
-3-
[ASSIGNEE BANK]
By:
-----------------------------------
Name:
Title:
ACCEPTED AND ACKNOWLEDGED:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
----------------------------------
Name:
Title:
Date:
--------------------------------
<PAGE>
SCHEDULE I
NOTICE OF ASSIGNMENT
Re: Re: Credit Agreement, dated as of March 30, 1998, among MORRIS
MATERIAL HANDLING, INC., a Delaware corporation, MATERIAL HANDLING, LLC,
a Delaware limited liability company, MMH HOLDINGS, INC., a Delaware
corporation, MORRIS MATERIAL HANDLING LTD., a company organized under
the laws of England and Wales, as the U.K. Borrower, MONDEL ULC, a
company organized under the laws of Nova Scotia, as a Canadian Borrower,
and KAVERIT STEEL AND CRANE ULC, a company organized under the laws of
Nova Scotia, as a Canadian Borrower, the Banks and CANADIAN IMPERIAL
BANK OF COMMERCE, as administrative agent and as collateral agent for
the Banks, CREDIT AGRICOLE INDOSUEZ, as syndication agent for the Banks,
and BANKBOSTON, N.A., as documentation agent for the Banks.
Assignee:
Assignor:
Commitment:
ASSIGNEE'S COMMITMENT COMPONENT
<TABLE>
<CAPTION>
Commitment Component
as a Percentage of
relevant portion of
Dollar Amount Loan Facility*
------------- --------------------
<S> <C> <C>
A Term Loan Commitment................
B Term Loan Commitment................
Acquisition Term Loan Commitment......
U.S. Swingline Loan Commitment........
U.K. Swingline Loan Commitment........
Canadian Swingline Loan Commitment....
</TABLE>
<PAGE>
-2-
- ------------
* expressed to five decimals
Payment Instructions
for Assignee:
------------------------------
------------------------------
------------------------------
Notice Instructions
for Assignee:
------------------------------
------------------------------
------------------------------
<PAGE>
Exhibit I-2 to
Credit Agreement
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment Agreement")
dated as of [DATE] between [INSERT NAME OF ASSIGNOR BANK] ("Assignor") and
[INSERT NAME OF ASSIGNEE BANK] ("Assignee"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, Assignor is a party to a Credit Agreement, dated as of
March 30, 1998 (as amended from time to time in accordance with its terms,
the "Credit Agreement"), by and among MORRIS MATERIAL HANDLING, INC., a
Delaware corporation, and MATERIAL HANDLING, LLC, a Delaware limited
liability company (each, a "U.S. Borrower"), MMH HOLDINGS, INC., a Delaware
corporation, MORRIS MATERIAL HANDLING, LTD., a company organized under the
laws of England and Wales, as the U.K. Borrower, MONDEL ULC, a company
organized under the laws of Nova Scotia, as a Canadian Borrower and KAVERIT
STEEL AND CRANE ULC, a company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks and CANADIAN IMPERIAL BANK OF COMMERCE, as
administrative agent and as collateral agent for the Banks, CREDIT AGRICOLE
INDOSUEZ, as syndication agent for the Banks, and BANKBOSTON, N.A., as
documentation agent for the Banks.
WHEREAS, Assignor and Assignee wish Assignor to assign to Assignee
its rights and obligations under the Credit Agreement with respect to all or
a portion of its A Term Loan Commitment, B Term Loan Commitment, Revolving
Loan Commitment, Acquisition Term Loan Commitment, Canadian Swingline Loan
Commitment, U.K. Swingline Loan Commitment and/or U.S. Swingline Loan
Commitment under the Credit Agreement (collectively, "Assignor's Commitment")
and of any outstanding A Term Loans, B Term Loans, Revolving Loans,
Acquisition Terms Loans, Canadian Swingline Loans, U.K. Swingline Loans
and/or U.S. Swingline Loans (collectively, the "Loans");
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
<PAGE>
-2-
1. ASSIGNMENT
Effective on the Assignment Effective Date (defined below),
Assignor hereby assigns to Assignee, without recourse, or representation or
warranty (other than as expressly provided herein), that portion described on
Annex I hereto as the Assignee's share ("Assignee's Share") of all of
Assignor's rights, title and interest arising under the Credit Agreement
relating to Assignor's Commitment including, without limitation, all rights
with respect to the Loans attributable to Assignee's Share (in each case
without giving effect to any assignments or participations thereof by the
Assignor). The dollar amount of Assignee's Share is listed on Annex I hereto.
2. ASSUMPTION
Effective on the Assignment Effective Date, Assignee hereby assumes
from Assignor all of Assignor's obligations arising under the Credit
Agreement relating to Assignee's Share and of any outstanding Loans
attributable to Assignee's Share. It is the intent of the parties hereto
that effective on the Assignment Effective Date Assignor shall be released
from all of its obligations under the Credit Agreement relating to Assignee's
Share pursuant to the terms of the Credit Agreement.
3. EFFECTIVENESS
This Assignment Agreement shall become effective five Business Days
after the date (the "Assignment Effective Date") on which Assignor and
Assignee (whether the same or different copies) shall have signed and
delivered to the Administrative Agent a written notice of the assignment in
the form of Exhibit I-1 to the Credit Agreement (the "Notice of Assignment")
and delivered the recordation fee referred to in Section 11.04 of the Credit
Agreement, if required.
4. PAYMENT OF INTEREST AND FEES TO ASSIGNEE
(a) Interest is payable by the Company in respect of the
Assignee's Share of the Loans at the rates set forth in Section 1.08 of the
Credit Agreement, and Commitment Commission is payable by the Company in
respect of the Assignee's Share of
<PAGE>
-3-
the Unutilized Commitment at the rate set forth in Section 2.03 of the Credit
Agreement.*
(b) It is agreed that Assignee shall be entitled to all interest
on any Loan attributable to Assignee's Share and all Commitment Commission
attributable to Assignee's Share which, in each case, accrues on and after
the Assignment Effective Date and such interest and Commitment Commission
shall be paid directly to the Assignee in the manner set forth in clause (a)
above.
(c) [If the Credit Agreement shall be amended after the date hereof
so as to raise or reduce the rate of interest payable on any Loan during any
period or the rate at which the Commitment Commission is payable or if a
default by any Borrower shall raise the rate of interest payable on any Loan
for any period, then the rate at which interest or Commitment Commission,
as the case may be, shall be distributable to Assignee hereunder for such
period shall be raised or reduced to the same extent.]**
(d) Notwithstanding anything to the contrary contained in this
Assignment Agreement, if and when Assignor receives or collects any payment
of interest on any Loan attributable to Assignee's Share or any payment of
Commitment Commission attributable to Assignee's Share which, in any such
case,
- ------------
* In the event that the Assignor and Assignee agrees that the rate of
interest or Commitment Commission payable to the Assignee shall be
lower than the rate or rates paid by the borrowers, with the Assignor
being entitled to any excess, appropriate modifications should be made
to Section 4(a). Any such modified Section 4(a) must provide,
however, that the Company and the Administrative Agent shall direct
the entire amount of such interest or Commitment Commission to the
Assignee, and that such fee sharing arrangement shall be effectuated
through payments between the Assignee and the Assignor.
** In the event that Assignee and Assignor modify Section 4(a) to show
that the rate of interest or Commitment Commission payable to the
Assignee shall be lower than the rate or rates paid by the Company,
include this provision.
<PAGE>
-4-
is required to be paid to Assignee pursuant to clauses (a) and (b) above,
Assignor shall distribute to Assignee such payment.
(e) Notwithstanding anything to the contrary contained in this
Assignment Agreement, if and when Assignee receives or collects any payment
or interest on any Loan or any payment of Commitment Commission which in any
such case is required to be paid to Assignor pursuant to clauses (a) and (b)
above Assignee shall distribute to Assignor such payment.
(f) To the extent payments of funds payable to Assignee under
clause (d) above or to Assignor under clause (e) above, as the case may be,
are not made within two Business Days of receipt, each of the Assignee or
Assignor, as the case may be, shall be entitled to recover such amount
together with interest, thereon at the Federal Funds Rate PER ANNUM accruing
from the date of receipt of such funds by the other party.
(g) The Agent by acceptance of the Notice of Assignment consents
to the assignments described above and agrees to make payments in respect of
interest and Commitment Commission as described in clause (a) above.
5. PAYMENTS ON ASSIGNMENT EFFECTIVE DATE
(a) In consideration of the assignment by Assignor to Assignee of
Assignee's Share and the Loans attributable to Assignee's Share as set forth
above, (i) Assignee agrees to pay to Assignor on the Assignment Effective
Date an amount in U.S. Dollars which represents the principal amount of the
Loans attributable to Assignee's Share made by Assignor pursuant to the
Credit Agreement and outstanding on the Assignment Effective Date and (ii)
Assignor agrees to pay to Assignee the assignment fee (if any) specified in
Annex I hereto on the Assignment Effective Date.
(b) The Agent shall have received, along with the Notice of
Assignment, a recordation fee of $3,500 if required pursuant to Section 11.04
of the Credit Agreement.
6. REPRESENTATIONS AND WARRANTIES
(a) Each of Assignor and Assignee represents and warrants to the
other party as follows:
(i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment Agreement and to
fulfill its obligations under, and
<PAGE>
-5-
to consummate the transactions contemplated by, this Assignment
Agreement;
(ii) the making and performance by it of this Assignment Agreement
and all documents required to be executed and delivered by it hereunder do
not and will not violate any law or regulation of the jurisdiction of its
incorporation or any other law or regulation applicable to it;
(iii) this Assignment Agreement has been duly executed and delivered
by it and constitutes its legal, valid and binding obligation, enforceable
in accordance with its terms; and
(iv) all approvals, authorizations, or other actions by, or filing
with, any governmental authority necessary for the validity or
enforceability of its obligations under this Assignment Agreement have been
obtained.
(b) Assignor represents and warrants to Assignee that Assignor
owns the Commitment and the Loans that are the subject of this Assignment
Agreement and that Assignee's Share and the Loans attributable to Assignee's
Share are subject to no liens or security interests created by Assignor.
(c) Assignee represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Holdings
and the Credit Parties (as defined below) in connection with the making of
the Loans and the assignment of Assignee's Share and of the Loans
attributable to Assignee's Share to Assignee hereunder and has made and shall
continue to make its own appraisal of the creditworthiness of the Credit
Parties.
7. EXPENSES
Assignor and Assignee agree that each party shall bear its own
expenses in connection with the preparation and execution of this Assignment
Agreement.
8. MISCELLANEOUS
(a) Assignor shall not be responsible to Assignee for the
execution (by any party other than Assignor), effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of the Credit
Agreement or any of the agreements, documents or instruments referred to
therein (collectively, the "Documents") or for any representations,
<PAGE>
-6-
warranties, recitals or statements made therein or in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents made or furnished or made available by
Assignor to Assignee or by or on behalf of any Borrower or any other person
obligated under the Documents (collectively, the "Credit Parties") to
Assignor or Assignee in connection with the Documents and the transactions
contemplated thereby. Assignor shall not be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Documents or as
to the use of the proceeds of the Loans or as to the existence or possible
existence of any default or event of default under the Documents.
(b) Assignor shall have no duty or responsibility either initially
or on a continuing basis to make any investigation of the financial condition
and affairs of the Credit Parties in connection with the making of the Loans
and the assignment of Assignee's Share and the Loans attributable to
Assignee's Share to Assignee hereunder or to provide Assignee with any credit
or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter
and shall further have no responsibility with respect to the accuracy of, or
the completeness of, any information provided to Assignee, whether by
Assignor or by or on behalf of any Credit Party.
(c) The Assignee appoints and authorizes the Agent to take such
action on its behalf and to exercise such powers under the Credit Agreement
and the other Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto.
(d) THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
(e) No term or provision of this Assignment Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the parties to this Assignment Agreement.
(f) This Assignment Agreement may be executed in one or more
counterparts, each of which shall be an original but all of which, taken
together, shall constitute one and the same instrument.
<PAGE>
-7-
(g) Assignor may at any time or from time to time grant to others
assignments or participations in Assignor's Commitment or the Loans but not
in the portions thereof assigned to Assignee pursuant to this Assignment
Agreement.
(h) All payments hereunder or in connection herewith shall be made
in U.S. Dollars and in immediately available funds, if payable to Assignor,
to the account of Assignor at its office as designated in Annex I hereto and,
if payable to Assignee, to the account of Assignee, as designated in Annex I
hereto. The address of the Assignee for notice purposes under the Credit
Agreement shall be as set forth in Annex I hereto.
(i) This Assignment Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. Neither Assignee nor Assignor may assign or transfer any of its
rights or obligations under this Assignment Agreement without the prior
consent of the other party. The preceding sentence shall not limit the right
of the Assignee to assign all or part of Assignee's Share and any outstanding
Loans attributable to Assignee's Share in the manner contemplated by the
Credit Agreement or to any affiliate of the Assignee.
(j) All representations and warranties made herein and indemnities
provided for herein shall survive the consummation of the transactions
contemplated hereby.
(k) It is agreed that except as may be required by law and the
Credit Agreement, the parties hereto will not disclose the existence of any
term of this Assignment Agreement to any Borrower or any other person or
entity; PROVIDED that the disclosure may be made to any regulatory authority
having or asserting jurisdiction upon request or to any representative of
each party (including, without limitation, attorneys and accountants) who
needs to know of such information.
(l) In case any provision in this Assignment Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment Agreement as of the date first above written.
<PAGE>
-8-
[NAME OF ASSIGNOR]
By:
-----------------------------------
Title:
Date:
[NAME OF ASSIGNEE]
By:
-----------------------------------
Title:
<PAGE>
ANNEX I
to
ASSIGNMENT AGREEMENT
1. BORROWERS: Morris Material Handling, Inc., Material Handling, LLC, Morris
Material Handling, Ltd., Mondel ULC and Kaverit Steel and Crane ULC
2. DATE OF CREDIT AGREEMENT: March 30, 1998
3. ASSIGNOR:
4. ASSIGNEE:
5. DATE OF ASSIGNMENT AGREEMENT: , 19
6. ASSIGNEE'S SHARE:
<TABLE>
<CAPTION>
Assignee's
Total Assigned Assigned
Commitments Percentage Amount
----------- ----------- --------
<S> <C> <C> <C>
A Term Loan Commitment $ % $
B Term Loan Commitment $ % $
Acquisition Term Loan Commitment $ % $
Revolving Loan Commitment $ % $
Canadian Swingline Loan Commitment $ % $
U.K. Swingline Loan Commitment $ % $
U.S. Swingline Loan Commitment $ % $
</TABLE>
7. COMMITMENT COMMISSION:
(i) Commitment
Commission
8. INTEREST RATES:
<PAGE>
-2-
(i) Base Rate Loan Base Rate*
(ii) Reserve Adjusted Eurodollar Loan Eurodollar Rate*
(ii) Prime Rate Loan Prime Rate*
9. PAYMENT INSTRUCTIONS:
Assignor:
----------------------------
----------------------------
----------------------------
Assignee:
----------------------------
----------------------------
----------------------------
10. ASSIGNEE'S NOTICE INSTRUCTIONS
----------------------------
----------------------------
----------------------------
- ------------
* Plus the applicable Interest Margin described in Section 1.08 of the Credit
Agreement.
<PAGE>
Exhibit J to
Credit Agreement
FORM OF NOTICE OF BORROWING
Canadian Imperial Bank of Commerce,
as Administrative Agent
425 Lexington Avenue
New York, New York 10017
Pursuant to that certain Credit Agreement, dated as of March [ ], 1998
(as amended or modified in accordance with its terms, the "Credit
Agreement"), among MORRIS MATERIAL HANDLING, INC., a Delaware corporation,
and MATERIAL HANDLING, LLC, a Delaware limited liability company (each, a
"U.S. Borrower"), MMH HOLDINGS, INC., a Delaware corporation, MORRIS MATERIAL
HANDLING LIMITED, a company incorporated under the laws of England and Wales,
as a U.K. Borrower, MONDEL ULC, an unlimited liability company organized
under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND
CRANE ULC, an unlimited liability company organized under the laws of Nova
Scotia, as a Canadian Borrower, the Banks and the New York branch of CREDIT
AGRICOLE INDOSUEZ, as syndication agent for the Banks, BANKBOSTON, N.A., as
documentation agent for the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as
administrative agent and as collateral agent for the Banks, this represents
[NAME OF APPLICABLE BORROWER]'s request to borrow on [DATE] from the Banks on
a PRO RATA basis the principal amounts and types of Loans and at the interest
rate(s) set forth below. The proceeds of such Loans are to be deposited in
the Borrower's account with [ ] or as otherwise
designated pursuant to the Credit Agreement (as defined). Unless otherwise
defined herein, capitalized terms used herein have the meanings assigned to
them in the Credit Agreement.
The undersigned officer (in his capacity as an officer and not
individually), to the best of his knowledge, after reasonable inquiry, does
hereby certify on behalf of the Applicable Borrower that (i) all of the
representations and warranties contained in the Credit Agreement are true,
correct and complete in all material respects on and as of the date hereof to
the same extent as though made on and as of the date hereof, except to the
extent that the same expressly are made only as of a different date; (ii) no
event shall have occurred and be continuing or would result from the
consummation of the borrowing contemplated by this Notice of Borrowing or the
application of the proceeds hereof that would constitute (a) a Default or
<PAGE>
-2-
(b) an Event of Default; (iii) the Borrower has performed in all material
respects all agreements and satisfied all conditions under the Credit
Agreement and the other Credit Documents and Security Documents, to the
extent a party thereto, to be performed or satisfied by it on or before the
date hereof; and (iv) all conditions to the making of the requested Loans
contained in the Credit Agreement have been, and will be on the date of
making of such Loans, satisfied (or will be on the Closing Date if the Loans
requested hereby are being requested to be borrowed on such date).
<TABLE>
<CAPTION>
Loans Requested
to be Borrowed: Type of Loan: Interest Period:
<S> <C> <C>
A Term Loans: $
B Term Loans: $
Acquisition Term Loans: $
Revolving Loans: $
U.S. Swingline Loans: $
U.K. Swingline Loans: L
Canadian Swingline Loans: Cdn.$
Revolving Loans: $
</TABLE>
[BORROWER]
By:
-----------------------------------
Name: [ ]
Title: [ ]
<PAGE>
Exhibit K to
Credit Agreement
FORM OF NOTICE OF CONTINUATION/CONVERSION
To: Canadian Imperial Bank of
Commerce, as Administrative Agent
425 Lexington Avenue
New York, New York 10017
Pursuant to that certain Credit Agreement, dated as of March [ ], 1998
(the "Credit Agreement"), among MMH HOLDINGS, INC., a Delaware corporation
("Holdings"), MORRIS MATERIAL HANDLING, INC., a Delaware corporation (the
"Company"), as a U.S. Borrower, MATERIAL HANDLING, LLC, a Delaware limited
liability company ("Material Handling"), as a U.S. Borrower, MORRIS MATERIAL
HANDLING LIMITED, a company incorporated under the laws of England and Wales,
as a U.K. Borrower, MONDEL ULC, an unlimited liability company organized
under the laws of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND
CRANE ULC, an unlimited liability company organized under the laws of Nova
Scotia, as a Canadian Borrower, the Banks, the New York branch of CREDIT
AGRICOLE INDOSUEZ, as syndication agent for the Banks, BANKBOSTON, N.A., as
documentation agent for the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as
administrative agent and as collateral agent for the Banks (in such
capacities, the "Administrative Agent, this represents the [INSERT NAMES
OF APPLICABLE BORROWER]'s request [A: to convert [$INSERT CURRENCY
AND AMOUNT] in principal amount of presently outstanding [Base Rate/
Reserve Adjusted Eurodollar/U.K. Base Rate], [A Term/B Term/Acquisition
Term/Revolving/U.K. Swingline] Loans to [Base Rate/Reserve Adjusted
Eurodollar/U.K. Base Rate] Loans on [INSERT DATE].] [B: to continue
as Reserve Adjusted Eurodollar Loans, the [A Term/B Term/Acquisition
Term/Revolving/Acquisition Term/U.K. Swingline] Loans in the principal
amount of [INSERT CURRENCY AND AMOUNT], which are currently outstanding
Reserve Adjusted Eurodollar Loans.]
[The Interest Period for such Reserve Adjusted Eurodollar Loans commencing
on such Interest Payment Date is requested to be a [ ]-month period.]
<PAGE>
-2-
The undersigned officer (in his capacity as an officer and not
individually), to the best of his knowledge, after reasonable inquiry, does
hereby certify on behalf of the Applicable Borrower that no Default or Event
of Default has occurred and is continuing under the Credit Agreement.
Capitalized terms used herein without definition shall have the meanings set
forth in the Credit Agreement.
[BORROWER]
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit L to
Credit Agreement
MORRIS MATERIAL HANDLING, INC.
FORM OF BORROWING BASE CERTIFICATE
<TABLE>
<S> <C> <C>
1. Eligible Accounts Receivable
(from Schedule 1)
---------------------
2. Up to $10,000,000 of Accounts
that may be included pursuant to
clause (e) of the definition of
Eligible Accounts Receivable
---------------------
3. Eligible Inventory
(from Schedule 1)
---------------------
4. Eighty-five percent (85%) of (1)
---------------------
5. Fifty percent (50%) of (2)
---------------------
6. Fifty percent (50%) of (3)
---------------------
7. Borrowing Base, sum of (4), (5) and (6)
---------------------
8. Actual Borrowing Base (7), but no more than
the Total Revolving Loan Commitment, $70,000,000
---------------------
9. Aggregate Amount of Outstanding Revolving
Credit Advances (including Letters of Credit)
---------------------
10. Aggregate Dollar Equivalent Amount of
Outstanding or Requested Swingline Loans
---------------------
11. Total Loan Availability, (8) less ((9) plus (10))
---------------------
</TABLE>
<PAGE>
SCHEDULE 1
BORROWING BASE CERTIFICATE
Computation of Availability as of [date]
------------
ACCOUNTS RECEIVABLE
<TABLE>
<S> <C>
Gross accounts receivable (as of last month-end)
--------
Returns, discounts, claims, rebates, offsets, credits,
charges and allowances
--------
Other adjustments
--------
Sub-total
--------
Ineligibles and Deductions:
--------
(a) Credit Party does not have legal and valid title
--------
(b) Unenforceable obligations of account debtor
--------
(c) Intercompany invoices of the type disallowed by the
Credit Agreement
--------
(d) Accounts unpaid more than 90 days after the original
invoice date
--------
(e) Accounts from same account debtor exceeding greater
of $10 million or 10% in face value of all accounts
of the Credit Parties then outstanding, to the extent
of such excess unless supported by a letter of credit
except to the extent set forth in the Credit Agreement
--------
(f) Accounts payable to account debtors, as provided in the
Credit Agreement
--------
(g) Accounts from account debtors in bankruptcy
--------
(h) No first priority lien
--------
(i) Contingent sales
--------
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
(j) Accounts from account debtors for whom more than
50% of accounts are due or unpaid for more than
90 days after original invoice date
--------
(k) Accounts from account debtors for whom 50% or more
of other Accounts are ineligible, except of ineligible
because of clauses (a), (e), (h) or (i)
--------
(l) Accounts subject to Federal Assignment of Claims Act of
1940 or foreign equivalent except to the extent set
forth in the Credit Agreement
--------
(m) Insecure accounts
--------
(n) Account does not represent a final sale
--------
(o) Accounts that fail to comply in all material respects
with all applicable legal requirements
--------
(p) Other reserves and deductions
--------
Total Ineligibles/Deductions
--------
Eligible Accounts Receivable
--------
INVENTORY
Inventory (as of last month-end)
--------
Ineligibles and Deductions:
(i) Not solely owned by a Credit Party
--------
(ii) Not stored on property owned or leased by (i) a Credit
Party or (ii) a contracted warehouseman
--------
(iii) Not subject to first priority Lien in favor of
Administrative Agent
--------
(iv) Obsolete or slow moving
--------
(v) Returns and rejections or goods in transit to
third parties
--------
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C>
(vi) Other reserves and deductions
--------
Total Ineligibles/Deductions
--------
Total Inventory
--------
</TABLE>
<PAGE>
Exhibit M to
Credit Agreement
FORM OF OFFICERS' CERTIFICATE
REGARDING ENVIRONMENTAL REVIEW
The undersigned do hereby certify as of this 30th day of March, 1998, to
the best of their knowledge after reasonable inquiry, as follows:
1. This Certificate is delivered pursuant to Section 4.01(q) of the
Credit Agreement, dated as of March 30, 1998 (the "Credit Agreement"), among
MORRIS MATERIAL HANDLING, INC., a Delaware corporation (the "Company"),
MATERIAL HANDLING, LLC, a Delaware limited liability company, MMH HOLDINGS,
INC., a Delaware corporation ("Holdings"), MORRIS MATERIAL HANDLING LIMITED,
a company incorporated under the laws of England and Wales, as a U.K.
Borrower, MONDEL ULC, an unlimited liability company organized under the laws
of Nova Scotia, as a Canadian Borrower, KAVERIT STEEL AND CRANE ULC, an
unlimited liability company organized under the laws of Nova Scotia, as a
Canadian Borrower, the Banks and the New York branch of CREDIT AGRICOLE
INDOSUEZ, as syndication agent for the Banks, BANKBOSTON, N.A., as
documentation agent for the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE, as
administrative agent and as collateral agent for the Banks (as amended or
modified in accordance with its terms, the "Credit Agreement"). Capitalized
terms used and not otherwise defined herein shall have the meanings assigned
to them in the Credit Agreement.
2. After giving effect to the transactions contemplated by the
Transactions, Holdings and each Credit Party and its Subsidiaries are in
compliance with Environmental Laws to the extent contemplated by Section 5.22
and 6.17 of the Credit Agreement.
3. All information furnished to the Agents by or on behalf of Holdings
or any Credit Party relating to the matters addressed in Sections 5.22 and
5.23 of the Credit Agreement, taken as a whole, is true and accurate in all
material respects and not incomplete by omitting to state anything necessary
to make such information not misleading, taken as a whole, nor has Holdings
or any Credit Party withheld any material information from the Agents.
The undersigned officers have made or have caused to be made such
examination or investigation as is necessary to
<PAGE>
-2-
enable them to express their opinions and make the certifications contained
in this Certificate.
This Certificate is being delivered by the undersigned officers only in
their capacity as officers of Holdings or the Company, as the case may be,
and not individually.
<PAGE>
-3-
IN WITNESS WHEREOF, the undersigned officers have caused this
Certificate to be duly executed and delivered as of the date hereof.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
MMH HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit N to
Credit Agreement
FORM OF OFFICERS' SOLVENCY CERTIFICATE
March 30, 1998
Canadian Imperial Bank of Commerce,
as Administrative Agent
425 Lexington Avenue
New York, New York 10017
and
The Banks party to the Credit
Agreement referenced below
Ladies and Gentlemen:
Pursuant to Section 4.01(t) of the Credit Agreement, dated as of March
30, 1998 (as amended, supplemented or otherwise modified from time to time in
accordance with its terms, the "Credit Agreement"), among MORRIS MATERIAL
HANDLING, INC., a Delaware corporation (the "Company"), MATERIAL HANDLING,
LLC, a Delaware limited liability company, MMH HOLDINGS, INC., a Delaware
corporation ("Holdings"), MORRIS MATERIAL HANDLING LIMITED, a company
incorporated under the laws of England and Wales, as a U.K. Borrower, MONDEL
ULC, an unlimited liability company organized under the laws of Nova Scotia,
as a Canadian Borrower, KAVERIT STEEL AND CRANE ULC, an unlimited liability
company organized under the laws of Nova Scotia, as a Canadian Borrower, the
Banks and the New York branch of CREDIT AGRICOLE INDOSUEZ, as syndication
agent for the Banks, BANKBOSTON, N.A., as documentation agent for the Banks,
and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent and as
collateral agent for the Banks, the undersigned officers do hereby certify on
behalf of Holdings and the Credit Parties as follows (capitalized terms used
and not otherwise defined herein shall have the meanings assigned to them in
the Credit Agreement):
1. For purposes of delivering this certificate, the undersigned have:
(a) consulted with other officers of Holdings and the Credit Parties
responsible for financial and accounting functions concerning contingent
liabilities; and
(b) made such other investigations and inquiries as such officer has
deemed appropriate.
<PAGE>
-2-
2. Based upon the foregoing, the undersigned have concluded that, as
of the date hereof, before and after giving effect to the Transactions, the
incurrence of the Loans by the Borrowers in an amount equal to the sum of the
total A Term Loan Commitment, B Term Loan Commitment and Total Revolving Loan
Commitment, the execution of the Guarantees, the grant of the security
interests in the Collateral and the Transaction (the "Full Transactions"):
(a) the fair value and the present fair saleable value of the
respective assets of Holdings, the Company and each of its Subsidiaries
exceeds its respective stated liabilities and identified contingent
liabilities; and
(b) the fair value and present fair saleable value of the respective
assets of Holdings, the Company and each of its Subsidiaries exceeds its
respective probable liability on its debts (including identified contingent
liabilities) as such debts become absolute and matured; and
(c) Holdings, the Company and each of its Subsidiaries will be able
to pay its respective debts as they mature; and
(d) neither Holdings, the Company nor any of its Subsidiaries will
have unreasonably small capital for the respective business in which it is
engaged and is proposed to be engaged following the consummation of the
Full Transactions; and
(e) neither Holdings, the Company nor any of its Subsidiaries expects
that final judgments against it in actions for money damages with respect
to pending or threatened litigation will be rendered at a time when, or in
an amount such that, it will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered and the cash
available to it after taking into account all other anticipated uses of the
cash (including the payments on or in respect of debts (including
identified contingent liabilities))).
3. To the best knowledge of the undersigned, neither Holdings, the
Company nor any of its Subsidiaries is entering into the arrangements
contemplated by the Credit Agreement or the Credit Documents or intends to
make any transfer or incur
<PAGE>
-3-
any obligations thereunder, with actual intent to hinder, delay or defraud
either present or future creditors.
4. To the best knowledge of the undersigned, neither Holdings, the
Company nor any of its Subsidiaries intends to incur, or believes or
reasonably should believe that such Person will incur, debts beyond such
Person's ability to pay as they become due.
<PAGE>
-4-
This Certificate is being delivered by each of the undersigned only in
his capacity as an officer of Holdings or the Company, as the case may be,
and not individually as of the date hereof.
MMH HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit O to
Credit Agreement
FORM OF OFFICERS' CERTIFICATE
REGARDING CONDITIONS PRECEDENT
Each of the undersigned, each an officer of MMH HOLDINGS, INC., a
Delaware corporation ("Holdings"), and MORRIS MATERIAL HANDLING, INC., a
Delaware corporation (the "Company"), as set forth on the signature page
hereto, does hereby certify on behalf of Holdings and the Company as of this
30th day of March, 1998, to the best of his or her knowledge after reasonable
inquiry, as follows:
1. This Certificate is delivered pursuant to Sections 4.01(a) of the
Credit Agreement, dated as of March 30, 1998 (the "Credit Agreement"), among
MORRIS MATERIAL HANDLING, INC., a Delaware corporation, MATERIAL HANDLING,
LLC, a Delaware limited liability company, MMH HOLDINGS, INC., a Delaware
corporation, MORRIS MATERIAL HANDLING LIMITED, a company incorporated under
the laws of England and Wales, as a U.K. Borrower, MONDEL ULC, an unlimited
liability company organized under the laws of Nova Scotia, as a Canadian
Borrower, KAVERIT STEEL AND CRANE ULC, an unlimited liability company
organized under the laws of Nova Scotia, as a Canadian Borrower, the Banks
and the New York branch of CREDIT AGRICOLE INDOSUEZ, as syndication agent for
the Banks, BANKBOSTON, N.A., as documentation agent for the Banks, and
CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent and as collateral
agent for the Banks. Capitalized terms used and not otherwise defined herein
have the meanings assigned to them in the Credit Agreement.
2. All of the conditions set forth in Sections 4.01, 4.02, and, if
applicable, 4.03 and 4.04 have been satisfied or waived; PROVIDED, that for
purposes of Section 4.02(b), the representations and warranties referenced
therein with respect to the Credit Agreement shall be deemed to include
Holdings.
3. We have read the Credit Agreement, all definitions or other
provisions of the Credit Agreement relating to such conditions and have made,
or have caused to be made, such other examination or investigations as we
have deemed reasonably necessary to make the aforementioned certifications.
This Certificate is being delivered by the undersigned officers in their
capacity as officers of Holdings or the Company, as the case may be, and not
individually.
<PAGE>
-2-
IN WITNESS WHEREOF, each of the undersigned officers has executed this
Certificate as of the date set forth above.
MORRIS MATERIAL HANDLING, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
MMH HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and Michael S. Erwin
("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the
Company, and possesses significant information about its strategic plans and
other trade secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase
units of Niles, LLC, in connection with the recapitalization contemplated by
that certain Recapitalization Agreement, among Harnischfeger Corporation, the
Sellers named therein and MHE Investments, Inc., dated January 28, 1998 (the
"Recapitalization Agreement"), and to acquire options to purchase additional
units of MMH Holdings, Inc., ("MMH") the owner of all of the stock of the
Company; and
WHEREAS, the Executive desires to purchase such units and to acquire
such options, and understands that the offer to purchase units and acquire
options is contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after
the Recapitalization, and Executive wishes to furnish such services to the
Company, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Executive agree
as follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more
of the outstanding shares of MMH to any party which is an affiliate of
Chartwell Investments Inc., (the "Effective Date"). Should Harnischfeger
Corporation or one of its Affiliates not sell 50 percent or more of the
outstanding shares of the Company to a party which is an affiliate of
Chartwell Investments Inc. prior to July 31, 1998, then this Agreement
becomes void ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the
occurrence of an "Employment Related Event" or a "Termination Event" (both
terms as defined in Article III) and subject to the other terms and
provisions of this Agreement, the Company agrees to employ Executive and
Executive agrees to be employed by the Company, for the period beginning as
of the Effective Date and continuing until the third anniversary of the
Effective Date. The Agreement will be extended for one year on the third
anniversary of the Effective Date and on each anniversary thereafter unless
either party gives 60 days' written notice of failure to renew or
<PAGE>
termination prior to any such anniversary date; provided, however, that any
such non-renewal by the Company shall void the Executive's postemployment
obligations contained in the Non-Competition Agreement referred to in Article
V of this Agreement. The Executive may voluntarily resign employment at any
time upon providing 60 days' written notice to the Company's Board of
Directors; provided, however, that the obligations of the Executive under
Article IV (Confidential Information) hereof, and the post-employment
obligations of Executive contained in the separate Non-Competition Agreement
referred to in Article V hereof shall survive such resignation. The
Executive's entitlement to any severance benefits or payments following
termination of employment shall be governed solely by Article III of this
Agreement, and the Executive shall have no entitlement to any such benefits
or payments other than as set forth in Article III of this Agreement, or as
required to be provided to the Executive by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company
shall employ Executive in the position of President and Chief Executive
Officer, or such other title as mutually agreed upon by the Company and the
Executive.
Section 1.4 Duties. Executive agrees to serve in the position
referred to in Section 1.3 and to perform diligently and to the best of his
abilities the duties and services pertaining to such office, as well as such
additional duties and services appropriate to such office as the Board of
Directors of the Company ("Board of Directors") may reasonably assign to
Executive from time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the
period of employment by the Company, to devote all of his business time,
energy and best efforts to the business and affairs of the Company and its
affiliates and not to engage, directly or indirectly, in any other business
or businesses, whether or not similar to that of the Company, except with the
prior written consent of the Board of Directors.
Section 1.6 Board Seat. By its execution of this Agreement, MHE
Investments, Inc. agrees to take all necessary actions to cause Michael Erwin
to be elected and maintained as a member of the Board of Directors of the
Company and the board of directors of MMH for so long as the Executive is
employed pursuant to this Agreement. In addition, it is agreed that Michael
Erwin shall be entitled from time to time to recommend one other member of
management to serve as a director of the Company and as a director of MMH,
subject to the approval of their respective boards.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement,
Executive shall receive an annual base salary of $180,000, subject to annual
review by the Board of Directors.
Section 2.2 Bonus. The Company and Executive shall annually
establish an objective, performance-based bonus plan for Executive. The
percentages, targets, and other terms of the plan will be as mutually agreed
upon between the Compensation Committee of the Board of Directors of the
Company and the Chief Executive Officer of the Company. It is anticipated
that,
2
<PAGE>
for fiscal year 1998, the bonus plan will be based on Economic Value Added,
while for fiscal 1999 and after the plan will be based on EBITDA. Bonuses
will be earned over the Company's fiscal year ending October 31, and shall be
paid by the Company to the Executive as soon as practicable in accordance
with the Company's bonus payment procedures.
Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to purchase an
initial amount of Equity in Niles LLC for payment as agreed upon between
Niles LLC and the Executive.
(b) Equity Options. Executive shall be eligible to receive an
initial option grant of 620 A Options, 620 B Options and 750 C Options
pursuant to the terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be reimbursed for
all customary and reasonable expenses incurred by Executive in the
performance of his duties and responsibilities, subject to such reasonable
substantiation and documentation as may be required by the Company in
accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each plan,
program or arrangement as the case may be, Executive and, to the extent
applicable, Executive's family, dependents and beneficiaries, shall be
allowed to participate in all benefits, plans and programs, including
improvements or modifications of the same, which are now, or may hereafter
be, available to similarly situated employees of the Company generally.
The Company shall not, however, by reason of this paragraph be obligated
to institute, maintain, or refrain from changing, amending or
discontinuing, any such benefit plan or program, so long as such changes
are similarly applicable to employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any
benefits or compensation payable under this Agreement all federal, state,
city or other taxes as may be required pursuant to any law or governmental
regulation or ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event"
means any of the following: (a) Executive's resignation for Good Reason (as
defined below), (b) Executive's termination by the Company without Cause (as
defined below) or (c) Executive's death or permanent disability (as defined
below). Should an Employment Related Event occur, the Executive shall only
be entitled to the benefits and payments set forth below, and Executive
specifically agrees to sign a Release as drafted by the Company under which
the Executive shall agree to waive and release all other rights and
entitlement, whether legal, contractual or equitable
3
<PAGE>
(including waiving and releasing any claims alleging discrimination and/or
harassment to the maximum extent allowed by law) in order to be entitled to
such benefits and payments.
(a) Good Reason. The Executive may terminate his employment under
this Agreement for Good Reason, after having given the Company written
notice specifying the reason the Executive is terminating his employment
and having given the Company thirty days after such notice within which
to cure the condition specified. "Good Reason" means any of the following:
(i) a material reduction of the Executive's duties or authority as
provided in the Agreement or as later increased by the Board of Directors;
(ii) a substantial change in work conditions; (iii) a material decrease in
compensation or benefits; (iv) relocation of his principal workplace over
50 miles from his initial workplace without Executive's consent; (v) the
breach of this Agreement by the Company or an affiliate of the Company;
(vi) a change in control of the Company (as defined in Schedule D hereto);
or (vii) the failure by the Company to obtain the assumption of this
Agreement by any successor to or assignee of the Company or any purported
termination of this Agreement which does not satisfy the requirements of
this Agreement. If at the end of such notice period, the Company has not
cured such condition, the written notice shall take effect, and the
Executive will be entitled to the following: (A) continuation of his then
current Base Salary (prior to any reduction that constitutes Good Reason)
for twelve months from the date of termination payable in accordance with
Company payroll practice; (B) continuation of health and life insurance
benefits for twenty-four months at the Company's expense subject to
applicable cost-sharing arrangements, co-payments, and deductibles in
place immediately prior the Executive's termination (provided, however,
that such health benefits shall not be counted toward the Executive's
entitlement for COBRA, and that such health and life insurance benefits
shall terminate immediately upon Executive obtaining employment with a
third party which provides health and life insurance benefits);
(C) a "pro-rated bonus" for the fiscal year in which the termination
occurs which shall be payable at the time the Company customarily pays
bonuses; (D) the continuation of all other perquisites for six months;
(E) reasonable outplacement assistance for six months (including out of
pocket expenses of the Executive to search for a job not to exceed $5000);
and (F) payment, if requested by the Executive, for all equity in MMH or
the Company owned by the Executive or his family (including but not
limited to Equity Units), payable in equal quarterly installments over the
thirty-six month period following termination, provided, however, that if
this option is requested, the equity shall be valued as of the date of
termination at its fair market value by the Compensation Committee of the
Board of Directors and shall be repurchased so long as permitted under the
terms of any financing documents, including but not limited to indentures
or loan agreements applicable to the Company or any direct or indirect
parent entity of the Company at such time. For purposes of this
Agreement, a "pro-rated bonus" means the portion of the bonus that is
arrived at by using the number of days the Executive was employed by the
Company in the year of termination as the numerator of a fraction of which
365 is the denominator and then multiplying the bonus the Executive was
otherwise eligible to receive by such fraction.
4
<PAGE>
(b) Termination by the Company without Cause. If the Company
terminates the Executive's employment under this Agreement without Cause, the
Executive shall be entitled to the following: (i) a lump sum payment equal
to his then current annual Base Salary plus a lump sum payment equal to the
Base Salary which would have otherwise been payable for the balance of the
fiscal year in which termination occurs, and (ii) the same benefits and
compensation and payable at the same time as provided in clauses (B) through
(F) of Section 3.1(a). "Cause" means any of the following acts by the
Executive which, if curable, have not been cured by Executive within 30 days'
written notice thereof: (i) willful failure to substantially and materially
perform his duties as assigned to him by Board of Directors (other than any
such failure resulting from the Executive's reasonable business judgment or
incapacity due to physical or mental illness); (ii) commission of a fraud on
the Company; (iii) breach of fiduciary duty involving material personal gain;
or (iv) willful misconduct materially and demonstrably injurious or
detrimental to the Company or its affiliates.
(c) Death or Permanent Disability. This Agreement shall
terminate immediately upon the Executive's Death or Permanent Disability.
Permanent Disability shall have the same meaning as set forth in the
Company's long term disability policy. Upon termination for Death or
Permanent Disability, the Executive, or his estate, shall receive the
following: (i) all accrued Base Salary and other accrued entitlements earned
through the date of termination, (ii) the continuation of Base Salary for 90
days after such termination, and (iii) the compensation and benefits set
forth in clauses (B), (C), (D) and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the
Executive's resignation without Good Reason or termination by the Company for
Cause. In the event of a termination due to a Termination Event, the
Executive shall receive his accrued Base Salary and accrued entitlements
through the date of termination. In the event the Executive resigns from the
Company without Good Reason, such resignation only becomes effective upon 60
days' written notice to the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In
the event of Executive's termination of employment for any reason (including
the failure of the Company to renew the Agreement), such termination or
non-renewal shall also be considered a resignation as a member of the Board
of Directors, a resignation from the board of directors of any affiliates or
subsidiaries of the Company and a resignation from any offices held by the
Executive with the Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide
Business Conduct Policy and the Employee Proprietary Rights and
Confidentiality Agreement attached hereto as Schedule B. The provisions of
such documents are incorporated into this Agreement.
5
<PAGE>
Article V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall
execute and deliver to the Company a non-competition agreement in the form
attached hereto as Schedule C (the "Non-Competition Agreement"), which shall
become effective if and when this Agreement becomes effective as provided in
Section 1.1 hereof.
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under
this Agreement, in accordance with the Company's charter and bylaws. The
Company shall purchase and maintain for the benefit of Executive a director's
and officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by facsimile
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to such address or sent to such
facsimile number as each party may furnish to the other in writing from time
to time. Unless notified otherwise by Executive, copies of notices or other
communications sent to Executive shall be sent to the address noted on the
signature page attached hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement
is entered into under, and shall be governed for all purposes by, the laws of
the State of Wisconsin. In any such litigation, each party hereto waives
personal service of any summons, complaint or other process and agrees that
the service thereof may be made by certified mail directed to such party at
his or its address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require compliance
with, any condition or provision of this Agreement shall (i) be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time or (ii) preclude insistence upon strict
compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or unenforceable,
then the invalidity or unenforceability of that provision all not affect the
validity or enforceability of any other provision of this Agreement, and all
other provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
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<PAGE>
Section 7.6 Headings. The paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall have the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and
obligations of the parties hereunder, are personal and neither this
Agreement, nor any right, benefit or obligation of either party hereto, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent
of the other party except that vested rights to payment shall be subject to
devise, and shall descend in accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as
otherwise provided herein or under any benefit plan or other agreement
between the Company and the Executive, termination of Executive's employment
under this Agreement shall not affect any right or obligation of either party
hereto which is accrued or vested prior to or upon such termination or the
rights and obligations set forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains
all the covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by the Company,
and supersedes all prior employment agreements between the Executive and the
Company or any of its predecessors. Each party to this Agreement
acknowledges that no representation, inducement, promise or agreement, oral
or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement,
or promise relating to the employment of Executive by the Company, which is
not contained in this Agreement, shall be valid or binding. Any modification
of this Agreement will be effective only if it is in writing and signed by
the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter
(the "Side Letter"), Executive shall be entitled to be reimbursed for
reasonable attorney's fees incurred in the negotiation of this Agreement to
the limit established in the Side Letter. In addition, Executive shall be
entitled to reimbursement of attorney's fees in any litigation between the
Company and Executive with respect to Executive's enforcement of this
Agreement to the extent Executive prevails in such litigation.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MORRIS MATERIAL HANDLING, INC.
By: /s/ Martin L. Ditkof
-------------------------------
Name: Martin L. Ditkof
Title: Secretary
/s/ Michael S. Erwin
----------------------------------
Executive
Acknowledged by
MHE INVESTMENTS, INC.
By: /s/ Michael S. Shein
------------------------------
Name: Michael S. Shein
Title: Vice President
/s/ Michael S. Erwin
------------------------------------
Executive
8
<PAGE>
Schedule A
Option Plan
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Reserved: 1,186.0849 shares of common stock and
4,328.2500 shares of Series C preferred
stock in MMH Holdings, Inc. (the
"Company"), with a value of $8.1 million
on the Closing Date (such grant to be
denominated in 8,100 units, consisting
of 0.1464 shares of common stock and
0.5344 shares of Series C preferred
stock units and hereinafter referred to
as "Equity Units").
Amount of Initial Grant: An initial option grant (the "Initial
Grant") shall be made with respect to
the number of Equity Units set forth in
the Employment Agreement. Additional
option grants shall be made as
determined by the Board of Directors or
Compensation Committee of the Company.
The Initial Grant and future grants
shall be from a pool of 8,100 Equity
Units set aside for such grants.
Exercise Price: The exercise price of an Equity Unit
shall be equal to: (i) the fair market
value of a share of common stock on the
date of grant multiplied by the number
of shares of common stock covered by the
Equity Unit, plus (ii) the liquidation
preference multiplied by the number of
shares of preferred stock covered by the
Equity Unit. The exercise price would
have been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not
previously exercised or terminated will
expire ten years from the date of grant.
Method of Exercise: Prior to an "initial public offering" of
Frasier or any subsidiary company, cash
only; provided, however, the Board of
Directors or Compensation Committee of
the Company may authorize cashless
exercises. An option may only be
exercised with respect to whole Equity
Units (i.e., as to all the shares of
common stock and preferred stock covered
by the Equity Unit).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Termination of Employment: Upon the occurrence of an
"Employment-Related Event," options, to
the extent vested on the date of the
Employment-Related Event, shall be
exercisable for 90 days from such date.
80% of all A Options and B Options and
100% of C Options which are not vested
on the date of the Employment-Related
Event shall be forfeited.
Upon the occurrence of a Termination
Event all options (vested and
nonvested) shall terminate on the
date of the Termination Event.
Call on Shares Acquired In the event of the Executive's
on Exercise of Option: termination of employment for any reason
(Employment Related Event or Termination
Event) prior to an "initial public
offering" of the shares of the Company,
all shares of the Company held by
Executive shall be subject to a "call"
by the Company at the FMV on the date of
the "call"). In the event that the
Company is restricted from purchasing
such shares for cash under any
applicable financing or other
agreements, the Company may issue the
Executive a note or such other
permissible security (which shall
contain commercially reasonable terms)
in full satisfaction of such call.
Tag-along Rights: The Executive will have the same
tag-along rights as set forth in
paragraph 8 of the Term Sheet for Equity
Investment Stockholders Agreement
(attached as Exhibit E to the
Recapitalization Agreement among
Harnischfeger Corporation, the Sellers
named therein and MHE Investments, Inc.,
dated January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except
without consideration to a trust or
partnership the only beneficiaries or
partners (as the case may be) of which
are immediate family member of
Executive; shares obtained upon the
exercise of options may be transferred
only in accordance with the laws of
descent and distribution.
Other than with respect to transfers of
options pursuant to the preceding
sentence, no third party shall have any
direct or indirect beneficial interest
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
in the options or the shares obtained
upon the exercise thereof.
Vesting: A Options: 1/3 of the total number of
Equity Units subject to the Initial
Grant shall vest ratably (25% a year) on
each of the first through fourth
anniversaries of the date of grant ("A
Options"), provided the Executive is in
the employ of the Company on each such
date.
If there is a Change in Control (as
defined in Schedule D to the Employment
Agreement) prior to the fourth
anniversary of the date of grant, and
the Executive is still in the employ of
the Company, all unvested A Options
shall vest.
B Options: 1/3 of the total number of
Equity Units subject to the Initial
Grant shall vest 25% a year at the end
of each of 1999, 2000, 2001, and 2002,
subject to satisfaction of the
applicable EBITDA-based "Performance
Hurdle" for each such year ("B
Options"). In the event that the
Performance Hurdle is not met for any
particular year, the applicable portion
of the B Options which did not vest will
be carried over to the next year. Thus,
if on a cumulative basis, the aggregate
Performance Hurdles for such two year
period are met, any portion that did not
vest previously, shall vest. For
example, if the Performance Hurdle is
not met in 1999, but on a cumulative
basis (i.e., the sum of EBITDA for 1999
and 2000 equals or exceeds the sum of
the Performance Hurdles for 1999 and
2000) the unvested B Options
attributable to 1999 and 2000 will vest
in 2000. Any portion of B Options which
does not vest because of not meeting the
relevant Performance Hurdle in a
particular year or on a cumulative basis
in a subsequent year will be treated
like C Options upon the "Determination
Date" (defined below) and will vest if
the relevant performance criterion for C
Options is satisfied.
For purposes of the B Options,
Performance Hurdle shall mean the
precise EBITDA target attached as
Exhibit I for fiscal years 1999-2002,
which in the event of any acquisition
will be increased by the pro
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
forma projections used in approving any
such acquisitions.
The Board shall certify to Executive the
attainment or lack of attainment of the
applicable Performance Hurdles with
respect to any calendar year as soon as
practicable following the receipt of
audited financial statements of the
Company.
If there is a Change in Control prior to
the end of fiscal year 2002, and the
Executive is still in the employ of the
Company, unvested B Options shall vest
only if the criterion for the vesting of
C Options is met, as provided in the
next section.
C Options: 1/3 of the total number of
Equity Units subject to the Initial
Grant, plus any B Options which did not
vest and have been carried forward,
shall vest if the Internal Rate of
Return earned by the Company exceeds 40%
by the "Determination Date," ("C
Options") and the Executive is still in
the employ of the Company on the
Determination Date.
The Determination Date regarding the
attainment of the Internal Rate of
Return shall be the closing date of a
"Change of Control".
Initial Public Offering After an initial public
offering, and subject to the approval of
the Compensation Committee, the
Executive will be permitted to exercise
his vested options and sell his Equity
Units.
</TABLE>
4
<PAGE>
SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
<PAGE>
THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
2
<PAGE>
1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
3
<PAGE>
- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
4
<PAGE>
- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
5
<PAGE>
PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
6
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are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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<PAGE>
and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
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Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
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TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
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(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
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(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and Michael S. Erwin ("Executive") to be
effective on the date of the Closing of the Recapitalization of MMH Holdings,
Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the foregoing,
the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
-----------------------------
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SCHEDULE D
For purposes of this Employment Agreement, a "Change of Control" of the
Company will be deemed to have occurred at such time as (i) any Person
(including a Person's Affiliates and associates) or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of
(a) 50% or more of the total Voting Stock of the Company or Holdings or (b)
50% of all classes of Common Stock (whether voting or non-voting), taken as a
whole, of the Company or Holdings, or (c) all or substantially all of the
assets of the Company, (ii) any Person (including a Person's Affiliates and
associates) or Group, other than Chartwell Investments Inc. and its
affiliates, including but not limited to Niles L.L.C. and Frasier L.L.C. (a
"Permitted Holder"), becomes the beneficial owner of more than 30% of the
total Voting Stock of the Company or Holdings, and the Permitted Holders
beneficially own, in the aggregate, a less percentage of the total Voting
Stock of the Company or Holdings, as the case may be, than such other Person
or Group and the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company or Holdings, as the case may be, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
or Holdings, as the case may be, has been approved by 66-2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the board of directors of the
Company or Holdings, as the case may be.
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and David D. Smith
("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the
Company, and possesses significant information about its strategic plans and
other trade secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase
units of Niles, LLC, in connection with the recapitalization contemplated by
that certain Recapitalization Agreement, among Harnischfeger Corporation, the
Sellers named therein and MHE Investments, Inc., dated January 28, 1998 (the
"Recapitalization Agreement"), and to acquire options to purchase additional
units of MMH Holdings, Inc., ("MMH") the owner of all of the stock of the
Company; and
WHEREAS, the Executive desires to purchase such units and to acquire
such options, and understands that the offer to purchase units and acquire
options is contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after
the Recapitalization, and Executive wishes to furnish such services to the
Company, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Executive agree
as follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more
of the outstanding shares of MMH to any party which is an affiliate of
Chartwell Investments Inc., (the "Effective Date"). Should Harnischfeger
Corporation or one of its Affiliates not sell 50 percent or more of the
outstanding shares of the Company to a party which is an affiliate of
Chartwell Investments Inc. prior to July 31, 1998, then this Agreement
becomes void ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the occurrence
of an "Employment Related Event" or a "Termination Event" (both terms as
defined in Article III) and subject to the other terms and provisions of this
Agreement, the Company agrees to employ Executive and Executive agrees to be
employed by the Company, for the period beginning as of the Effective Date
and continuing until the third anniversary of the Effective Date. The
Agreement will be extended for one year on the third anniversary of the
Effective Date and on each anniversary thereafter unless either party gives
60 days' written notice of failure to renew or
<PAGE>
termination prior to any such anniversary date; provided, however, that any
such non-renewal by the Company shall void the Executive's postemployment
obligations contained in the Non-Competition Agreement referred to in Article
V of this Agreement. The Executive may voluntarily resign employment at any
time upon providing 60 days' written notice to the Company's Board of
Directors; provided, however, that the obligations of the Executive under
Article IV (Confidential Information) hereof, and the post-employment
obligations of Executive contained in the separate Non-Competition Agreement
referred to in Article V hereof shall survive such resignation. The
Executive's entitlement to any severance benefits or payments following
termination of employment shall be governed solely by Article III of this
Agreement, and the Executive shall have no entitlement to any such benefits
or payments other than as set forth in Article III of this Agreement, or as
required to be provided to the Executive by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company
shall employ Executive in the position of Vice President, or such other title
as mutually agreed upon by the Company and the Executive.
Section 1.4 Duties. Executive agrees to serve in the position referred
to in Section 1.3 and to perform diligently and to the best of his abilities
the duties and services pertaining to such office, as well as such additional
duties and services appropriate to such office as the Board of Directors of
the Company ("Board of Directors") may reasonably assign to Executive from
time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the
period of employment by the Company, to devote all of his business time,
energy and best efforts to the business and affairs of the Company and its
affiliates and not to engage, directly or indirectly, in any other business
or businesses, whether or not similar to that of the Company, except with the
prior written consent of the Board of Directors.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement, Executive
shall receive an annual base salary of $111,300, subject to annual review by
the Board of Directors.
Section 2.2 Bonus. The Company and Executive shall annually establish
an objective, performance-based bonus plan for Executive. The percentages,
targets, and other terms of the plan will be as mutually agreed upon between
the Compensation Committee of the Board of Directors of the Company and the
Chief Executive Officer of the Company. It is anticipated that, for fiscal
year 1998, the bonus plan will be based on Economic Value Added, while for
fiscal 1999 and after the plan will be based on EBITDA. Bonuses will be
earned over the Company's fiscal year ending October 31, and shall be paid by
the Company to the Executive as soon as practicable in accordance with the
Company's bonus payment procedures.
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Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to purchase
an initial amount of Equity in Niles LLC for payment as agreed upon
between Niles LLC and the Executive.
(b) Equity Options. Executive shall be eligible to receive an
initial option grant of 248 A Options, 248 B Options and 320 C Options
pursuant to the terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be reimbursed
for all customary and reasonable expenses incurred by Executive in the
performance of his duties and responsibilities, subject to such
reasonable substantiation and documentation as may be required by the
Company in accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each plan,
program or arrangement as the case may be, Executive and, to the extent
applicable, Executive's family, dependents and beneficiaries, shall be
allowed to participate in all benefits, plans and programs, including
improvements or modifications of the same, which are now, or may hereafter
be, available to similarly situated employees of the Company generally.
The Company shall not, however, by reason of this paragraph be obligated to
institute, maintain, or refrain from changing, amending or discontinuing,
any such benefit plan or program, so long as such changes are similarly
applicable to employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any
benefits or compensation payable under this Agreement all federal, state,
city or other taxes as may be required pursuant to any law or governmental
regulation or ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event"
means any of the following: (a) Executive's resignation for Good Reason (as
defined below), (b) Executive's termination by the Company without Cause (as
defined below) or (c) Executive's death or permanent disability (as defined
below). Should an Employment Related Event occur, the Executive shall only
be entitled to the benefits and payments set forth below, and Executive
specifically agrees to sign a Release as drafted by the Company under which
the Executive shall agree to waive and release all other rights and
entitlement, whether legal, contractual or equitable (including waiving and
releasing any claims alleging discrimination and/or harassment to the maximum
extent allowed by law) in order to be entitled to such benefits and payments.
(a) Good Reason. The Executive may terminate his employment
under this Agreement for Good Reason, after having given the Company
written notice
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<PAGE>
specifying the reason the Executive is terminating his employment and
having given the Company thirty days after such notice within which to
cure the condition specified. "Good Reason" means any of the following:
(i) a material reduction of the Executive's duties or authority as
provided in the Agreement or as later increased by the Board of
Directors; (ii) a substantial change in work conditions; (iii) a
material decrease in compensation or benefits; (iv) relocation of his
principal workplace over 50 miles from his initial workplace without
Executive's consent; (v) the breach of this Agreement by the Company or
an affiliate of the Company; (vi) a change in control of the Company (as
defined in Schedule D hereto); or (vii) the failure by the Company to
obtain the assumption of this Agreement by any successor to or assignee
of the Company or any purported termination of this Agreement which does
not satisfy the requirements of this Agreement. If at the end of such
notice period, the Company has not cured such condition, the written
notice shall take effect, and the Executive will be entitled to the
following: (A) continuation of his then current Base Salary (prior to
any reduction that constitutes Good Reason) for twelve months from the
date of termination payable in accordance with Company payroll practice;
(B) continuation of health and life insurance benefits for twenty-four
months at the Company's expense subject to applicable cost-sharing
arrangements, co-payments, and deductibles in place immediately prior the
Executive's termination (provided, however, that such health benefits shall
not be counted toward the Executive's entitlement for COBRA, and that
such health and life insurance benefits shall terminate immediately upon
Executive obtaining employment with a third party which provides health
and life insurance benefits); (C) a "pro-rated bonus" for the fiscal
year in which the termination occurs which shall be payable at the time
the Company customarily pays bonuses;(D) the continuation of all other
perquisites for six months; (E) reasonable outplacement assistance for
six months (including out of pocket expenses of the Executive to search
for a job not to exceed $5000); and (F) payment, if requested by the
Executive, for all equity in MMH or the Company owned by the Executive
or his family (including but not limited to Equity Units), payable in
equal quarterly installments over the twenty-four month period following
termination, provided, however, that if this option is requested, the
equity shall be valued as of the date of termination at its fair market
value by the Compensation Committee of the Board of Directors and shall be
repurchased so long as permitted under the terms of any financing
documents, including but not limited to indentures or loan agreements
applicable to the Company or any direct or indirect parent entity of the
Company at such time. For purposes of this Agreement, a "pro-rated
bonus" means the portion of the bonus that is arrived at by using the
number of days the Executive was employed by the Company in the year of
termination as the numerator of a fraction of which 365 is the
denominator and then multiplying the bonus the Executive was otherwise
eligible to receive by such fraction.
(b) Termination by the Company without Cause. If the Company
terminates the Executive's employment under this Agreement without Cause,
the Executive shall be entitled to the following: (i) a lump sum payment
equal to his then current annual Base Salary plus a lump sum payment equal
to the Base Salary which would have otherwise been payable for the balance
of the fiscal year in which termination occurs, and (ii) the same benefits
and compensation and payable at the same time as
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provided in clauses (B) through (F) of Section 3.1(a). "Cause" means
any of the following acts by the Executive which, if curable, have not
been cured by Executive within 30 days' written notice thereof: (i)
willful failure to substantially and materially perform his duties as
assigned to him by Board of Directors (other than any such failure
resulting from the Executive's reasonable business judgment or
incapacity due to physical or mental illness); (ii) commission of a
fraud on the Company; (iii) breach of fiduciary duty involving material
personal gain; or (iv) willful misconduct materially and demonstrably
injurious or detrimental to the Company or its affiliates.
(c) Death or Permanent Disability. This Agreement shall
terminate immediately upon the Executive's Death or Permanent
Disability. Permanent Disability shall have the same meaning as set
forth in the Company's long term disability policy. Upon termination
for Death or Permanent Disability, the Executive, or his estate, shall
receive the following: (i) all accrued Base Salary and other accrued
entitlements earned through the date of termination, (ii) the
continuation of Base Salary for 90 days after such termination, and
(iii) the compensation and benefits set forth in clauses (B), (C), (D)
and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the
Executive's resignation without Good Reason or termination by the Company for
Cause. In the event of a termination due to a Termination Event, the
Executive shall receive his accrued Base Salary and accrued entitlements
through the date of termination. In the event the Executive resigns from the
Company without Good Reason, such resignation only becomes effective upon 60
days' written notice to the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In
the event of Executive's termination of employment for any reason (including
the failure of the Company to renew the Agreement), such termination or
non-renewal shall also be considered a resignation as a member of the Board
of Directors, a resignation from the board of directors of any affiliates or
subsidiaries of the Company and a resignation from any offices held by the
Executive with the Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide Business
Conduct Policy and the Employee Proprietary Rights and Confidentiality
Agreement attached hereto as Schedule B. The provisions of such documents
are incorporated into this Agreement.
ARTICLE V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall
execute and deliver to the Company a non-competition agreement in the form
attached hereto as Schedule C (the "Non-Competition Agreement"), which shall
become effective if and when this Agreement becomes effective as provided in
Section 1.1 hereof.
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<PAGE>
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under
this Agreement, in accordance with the Company's charter and bylaws. The
Company shall purchase and maintain for the benefit of Executive a director's
and officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by facsimile
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to such address or sent to such
facsimile number as each party may furnish to the other in writing from time
to time. Unless notified otherwise by Executive, copies of notices or other
communications sent to Executive shall be sent to the address noted on the
signature page attached hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement is
entered into under, and shall be governed for all purposes by, the laws of
the State of Wisconsin. In any such litigation, each party hereto waives
personal service of any summons, complaint or other process and agrees that
the service thereof may be made by certified mail directed to such party at
his or its address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require compliance
with, any condition or provision of this Agreement shall (i) be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time or (ii) preclude insistence upon strict
compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or unenforceable,
then the invalidity or unenforceability of that provision all not affect the
validity or enforceability of any other provision of this Agreement, and all
other provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
Section 7.6 Headings. The paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
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Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall have the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and obligations
of the parties hereunder, are personal and neither this Agreement, nor any
right, benefit or obligation of either party hereto, shall be subject to
voluntary or involuntary assignment, alienation or transfer, whether by
operation of law or otherwise, without the prior written consent of the other
party except that vested rights to payment shall be subject to devise, and
shall descend in accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as otherwise
provided herein or under any benefit plan or other agreement between the
Company and the Executive, termination of Executive's employment under this
Agreement shall not affect any right or obligation of either party hereto
which is accrued or vested prior to or upon such termination or the rights
and obligations set forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains
all the covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by the Company,
and supersedes all prior employment agreements between the Executive and the
Company or any of its predecessors. Each party to this Agreement
acknowledges that no representation, inducement, promise or agreement, oral
or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement,
or promise relating to the employment of Executive by the Company, which is
not contained in this Agreement, shall be valid or binding. Any modification
of this Agreement will be effective only if it is in writing and signed by
the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter
(the "Side Letter"), Executive shall be entitled to be reimbursed for
reasonable attorney's fees incurred in the negotiation of this Agreement to
the limit established in the Side Letter. In addition, Executive shall be
entitled to reimbursement of attorney's fees in any litigation between the
Company and Executive with respect to Executive's enforcement of this
Agreement to the extent Executive prevails in such litigation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MORRIS MATERIAL HANDLING, INC.
By: /s/ Michael S. Erwin
----------------------------------
Name: Michael S. Erwin
Title: President
/s/ David D. Smith
--------------------------------------
Executive
Acknowledged by
MHE INVESTMENTS, INC.
By: /s/ Michael S. Shein
-----------------------------------
Name: Michael S. Shein
Title: Vice President
/s/ David D. Smith
--------------------------------------
Executive
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Schedule A
Option Plan
Number of Shares Reserved: 1,186.0849 shares of common stock and
4,328.2500 shares of Series C preferred stock
in MMH Holdings, Inc. (the "Company"), with a
value of $8.1 million on the Closing Date (such
grant to be denominated in 8,100 units,
consisting of 0.1464 shares of common stock and
0.5344 shares of Series C preferred stock units
and hereinafter referred to as "Equity Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant")
shall be made with respect to the number of
Equity Units set forth in the Employment
Agreement. Additional option grants shall be
made as determined by the Board of Directors or
Compensation Committee of the Company. The
Initial Grant and future grants shall be from a
pool of 8,100 Equity Units set aside for such
grants.
Exercise Price: The exercise price of an Equity Unit shall be
equal to: (i) the fair market value of a share
of common stock on the date of grant multiplied
by the number of shares of common stock covered
by the Equity Unit, plus (ii) the liquidation
preference multiplied by the number of shares
of preferred stock covered by the Equity Unit.
The exercise price would have been $1,000 on
the Closing Date.
Term: Options, or any portion thereof, not previously
exercised or terminated will expire ten years
from the date of grant.
Method of Exercise: Prior to an "initial public offering" of
Frasier or any subsidiary company, cash only;
provided, however, the Board of Directors or
Compensation Committee of the Company may
authorize cashless exercises. An option may
only be exercised with respect to whole Equity
Units (i.e., as to all the shares of common
stock and preferred stock covered by the Equity
Unit).
<PAGE>
Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the
date of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of
all A Options and B Options and 100% of C
Options which are not vested on the date of the
Employment-Related Event shall be forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate
on the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related
Event or Termination Event) prior to an "initial
public offering" of the shares of the Company,
all shares of the Company held by Executive
shall be subject to a "call" by the Company at
the FMV on the date of the "call"). In the
event that the Company is restricted from
purchasing such shares for cash under any
applicable financing or other agreements, the
Company may issue the Executive a note or such
other permissible security (which shall contain
commercially reasonable terms) in full
satisfaction of such call.
Tag-along Rights: The Executive will have the same tag-along
rights as set forth in paragraph 8 of the Term
Sheet for Equity Investment Stockholders
Agreement (attached as Exhibit E to the
Recapitalization Agreement among Harnischfeger
Corporation, the Sellers named therein and MHE
Investments, Inc., dated January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except
without consideration to a trust or partnership
the only beneficiaries or partners (as the case
may be) of which are immediate family member of
Executive; shares obtained upon the exercise of
options may be transferred only in accordance
with the laws of descent and distribution.
Other than with respect to transfers of options
pursuant to the preceding sentence, no third
party shall have any direct or indirect
beneficial interest
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in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
ratably (25% a year) on each of the first
through fourth anniversaries of the date of
grant ("A Options"), provided the Executive is
in the employ of the Company on each such date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior
to the fourth anniversary of the date of grant,
and the Executive is still in the employ of the
Company, all unvested A Options shall vest.
B Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
25% a year at the end of each of 1999, 2000,
2001, and 2002, subject to satisfaction of the
applicable EBITDA-based "Performance Hurdle" for
each such year ("B Options"). In the event that
the Performance Hurdle is not met for any
particular year, the applicable portion of the B
Options which did not vest will be carried over
to the next year. Thus, if on a cumulative basis,
the aggregate Performance Hurdles for such two
year period are met, any portion that did not vest
previously, shall vest. For example, if the
Performance Hurdle is not met in 1999, but on a
cumulative basis (i.e., the sum of EBITDA for
1999 and 2000 equals or exceeds the sum of the
Performance Hurdles for 1999 and 2000) the
unvested B Options attributable to 1999 and
2000 will vest in 2000. Any portion of B
Options which does not vest because of not
meeting the relevant Performance Hurdle in a
particular year or on a cumulative basis in a
subsequent year will be treated like C Options
upon the "Determination Date" (defined below)
and will vest if the relevant performance
criterion for C Options is satisfied.
For purposes of the B Options, Performance
Hurdle shall mean the precise EBITDA target
attached as Exhibit I for fiscal years
1999-2002, which in the event of any
acquisition will be increased by the pro
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forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the
attainment or lack of attainment of the
applicable Performance Hurdles with respect to
any calendar year as soon as practicable
following the receipt of audited financial
statements of the Company.
If there is a Change in Control prior to the
end of fiscal year 2002, and the Executive is
still in the employ of the Company, unvested B
Options shall vest only if the criterion for
the vesting of C Options is met, as provided in
the next section.
C Options: 1/3 of the total number of Equity
Units subject to the Initial Grant, plus any B
Options which did not vest and have been
carried forward, shall vest if the Internal
Rate of Return earned by the Company exceeds
40% by the "Determination Date," ("C Options")
and the Executive is still in the employ of the
Company on the Determination Date.
The Determination Date regarding the attainment
of the Internal Rate of Return shall be the
closing date of a "Change of Control".
Initial Public Offering After an initial public offering, and subject
to the approval of the Compensation Committee,
the Executive will be permitted to exercise his
vested options and sell his Equity Units.
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SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
<PAGE>
THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
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1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
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- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
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- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
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PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
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are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
11
<PAGE>
Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
12
<PAGE>
TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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13
<PAGE>
Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
1
<PAGE>
(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
2
<PAGE>
(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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3
<PAGE>
SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and David D. Smith ("Executive") to be effective
on the date of the Closing of the Recapitalization of MMH Holdings, Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the foregoing,
the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
-----------------------------
3
<PAGE>
SCHEDULE D
For purposes of this Employment Agreement, a "Change of Control" of the
Company will be deemed to have occurred at such time as (i) any Person
(including a Person's Affiliates and associates) or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of
(a) 50% or more of the total Voting Stock of the Company or Holdings or (b)
50% of all classes of Common Stock (whether voting or non-voting), taken as a
whole, of the Company or Holdings, or (c) all or substantially all of the
assets of the Company, (ii) any Person (including a Person's Affiliates and
associates) or Group, other than Chartwell Investments Inc. and its
affiliates, including but not limited to Niles L.L.C. and Frasier L.L.C. (a
"Permitted Holder"), becomes the beneficial owner of more than 30% of the
total Voting Stock of the Company or Holdings, and the Permitted Holders
beneficially own, in the aggregate, a less percentage of the total Voting
Stock of the Company or Holdings, as the case may be, than such other Person
or Group and the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company or Holdings, as the case may be, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
or Holdings, as the case may be, has been approved by 66-2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously
so approved) cease to constitute a majority of the board of directors of the
Company or Holdings, as the case may be.
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and Martin L. Ditkof
("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the Company,
and possesses significant information about its strategic plans and other trade
secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase units of
Niles, LLC, in connection with the recapitalization contemplated by that certain
Recapitalization Agreement, among Harnischfeger Corporation, the Sellers named
therein and MHE Investments, Inc., dated January 28, 1998 (the "Recapitalization
Agreement"), and to acquire options to purchase additional units of MMH
Holdings, Inc., ("MMH") the owner of all of the stock of the Company; and
WHEREAS, the Executive desires to purchase such units and to acquire such
options, and understands that the offer to purchase units and acquire options is
contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after the
Recapitalization, and Executive wishes to furnish such services to the Company,
pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, the Company and Executive agree as follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more of
the outstanding shares of MMH to any party which is an affiliate of Chartwell
Investments Inc., (the "Effective Date"). Should Harnischfeger Corporation or
one of its Affiliates not sell 50 percent or more of the outstanding shares of
the Company to a party which is an affiliate of Chartwell Investments Inc.
prior to July 31, 1998, then this Agreement becomes void ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the occurrence of an
"Employment Related Event" or a "Termination Event" (both terms as defined in
Article III) and subject to the other terms and provisions of this Agreement,
the Company agrees to employ Executive and Executive agrees to be employed by
the Company, for the period beginning as of the Effective Date and continuing
until the third anniversary of the Effective Date. The Agreement will be
extended for one year on the third anniversary of the Effective Date and on each
anniversary thereafter unless either party gives 60 days' written notice of
failure to renew or
<PAGE>
termination prior to any such anniversary date; provided, however, that any such
non-renewal by the Company shall void the Executive's postemployment obligations
contained in the Non-Competition Agreement referred to in Article V of this
Agreement. The Executive may voluntarily resign employment at any time upon
providing 60 days' written notice to the Company's Board of Directors; provided,
however, that the obligations of the Executive under Article IV (Confidential
Information) hereof, and the post-employment obligations of Executive contained
in the separate Non-Competition Agreement referred to in Article V hereof shall
survive such resignation. The Executive's entitlement to any severance benefits
or payments following termination of employment shall be governed solely by
Article III of this Agreement, and the Executive shall have no entitlement to
any such benefits or payments other than as set forth in Article III of this
Agreement, or as required to be provided to the Executive by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company shall
employ Executive in the position of General Counsel and Secretary, or such other
title as mutually agreed upon by the Company and the Executive.
Section 1.4 Duties. Executive agrees to serve in the position referred to in
Section 1.3 and to perform diligently and to the best of his abilities the
duties and services pertaining to such office, as well as such additional duties
and services appropriate to such office as the Board of Directors of the Company
("Board of Directors") may reasonably assign to Executive from time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the period
of employment by the Company, to devote all of his business time, energy and
best efforts to the business and affairs of the Company and its affiliates and
not to engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company, except with the prior written
consent of the Board of Directors.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement, Executive shall
receive an annual base salary of $96,600, subject to annual review by the Board
of Directors.
Section 2.2 Bonus. The Company and Executive shall annually establish an
objective, performance-based bonus plan for Executive. The percentages, targets,
and other terms of the plan will be as mutually agreed upon between the
Compensation Committee of the Board of Directors of the Company and the Chief
Executive Officer of the Company. It is anticipated that, for fiscal year 1998,
the bonus plan will be based on Economic Value Added, while for fiscal 1999 and
after the plan will be based on EBITDA. Bonuses will be earned over the
Company's fiscal year ending October 31, and shall be paid by the Company to the
Executive as soon as practicable in accordance with the Company's bonus payment
procedures.
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<PAGE>
Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to purchase an initial
amount of Equity in Niles LLC for payment as agreed upon between Niles LLC
and the Executive.
(b) Equity Options. Executive shall be eligible to receive an initial
option grant of 88 A Options, 88 B Options and 100 C Options pursuant to the
terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder, Executive
shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be reimbursed for all
customary and reasonable expenses incurred by Executive in the performance
of his duties and responsibilities, subject to such reasonable
substantiation and documentation as may be required by the Company in
accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each plan, program
or arrangement as the case may be, Executive and, to the extent applicable,
Executive's family, dependents and beneficiaries, shall be allowed to
participate in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly situated employees of the Company generally. The Company shall
not, however, by reason of this paragraph be obligated to institute,
maintain, or refrain from changing, amending or discontinuing, any such
benefit plan or program, so long as such changes are similarly applicable to
employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any benefits
or compensation payable under this Agreement all federal, state, city or other
taxes as may be required pursuant to any law or governmental regulation or
ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event" means
any of the following: (a) Executive's resignation for Good Reason (as defined
below), (b) Executive's termination by the Company without Cause (as defined
below) or (c) Executive's death or permanent disability (as defined below).
Should an Employment Related Event occur, the Executive shall only be entitled
to the benefits and payments set forth below, and Executive specifically agrees
to sign a Release as drafted by the Company under which the Executive shall
agree to waive and release all other rights and entitlement, whether legal,
contractual or equitable (including waiving and releasing any claims alleging
discrimination and/or harassment to the maximum extent allowed by law) in order
to be entitled to such benefits and payments.
(a) Good Reason. The Executive may terminate his employment under this
Agreement for Good Reason, after having given the Company written notice
3
<PAGE>
specifying the reason the Executive is terminating his employment and having
given the Company thirty days after such notice within which to cure the
condition specified. "Good Reason" means any of the following: (i) a
material reduction of the Executive's duties or authority as provided in the
Agreement or as later increased by the Board of Directors; (ii) a
substantial change in work conditions; (iii) a material decrease in
compensation or benefits; (iv) relocation of his principal workplace over 50
miles from his initial workplace without Executive's consent; (v) the breach
of this Agreement by the Company or an affiliate of the Company; (vi) a
change in control of the Company (as defined in Schedule D hereto); or (vii)
the failure by the Company to obtain the assumption of this Agreement by any
successor to or assignee of the Company or any purported termination of this
Agreement which does not satisfy the requirements of this Agreement. If at
the end of such notice period, the Company has not cured such condition, the
written notice shall take effect, and the Executive will be entitled to the
following: (A) continuation of his then current Base Salary (prior to any
reduction that constitutes Good Reason) for twelve months from the date of
termination payable in accordance with Company payroll practice; (B)
continuation of health and life insurance benefits for twenty-four months at
the Company's expense subject to applicable cost-sharing arrangements,
co-payments, and deductibles in place immediately prior the Executive's
termination (provided, however, that such health benefits shall not be
counted toward the Executive's entitlement for COBRA, and that such health
and life insurance benefits shall terminate immediately upon Executive
obtaining employment with a third party which provides health and life
insurance benefits); (C) a "pro-rated bonus" for the fiscal year in which
the termination occurs which shall be payable at the time the Company
customarily pays bonuses; (D) the continuation of all other perquisites for
six months; (E) reasonable outplacement assistance for six months (including
out of pocket expenses of the Executive to search for a job not to exceed
$5000); and (F) payment, if requested by the Executive, for all equity in
MMH or the Company owned by the Executive or his family (including but not
limited to Equity Units), payable in equal quarterly installments over the
twenty-four month period following termination, provided, however, that if
this option is requested, the equity shall be valued as of the date of
termination at its fair market value by the Compensation Committee of the
Board of Directors and shall be repurchased so long as permitted under the
terms of any financing documents, including but not limited to indentures or
loan agreements applicable to the Company or any direct or indirect parent
entity of the Company at such time. For purposes of this Agreement, a
"pro-rated bonus" means the portion of the bonus that is arrived at by using
the number of days the Executive was employed by the Company in the year of
termination as the numerator of a fraction of which 365 is the denominator
and then multiplying the bonus the Executive was otherwise eligible to
receive by such fraction.
4
<PAGE>
(b) Termination by the Company without Cause. If the Company terminates
the Executive's employment under this Agreement without Cause, the Executive
shall be entitled to the following: (i) a lump sum payment equal to his then
current annual Base Salary plus a lump sum payment equal to the Base Salary
which would have otherwise been payable for the balance of the fiscal year
in which termination occurs, and (ii) the same benefits and compensation and
payable at the same time as provided in clauses (B) through (F) of Section
3.1(a). "Cause" means any of the following acts by the Executive which, if
curable, have not been cured by Executive within 30 days' written notice
thereof: (i) willful failure to substantially and materially perform his
duties as assigned to him by Board of Directors (other than any such failure
resulting from the Executive's reasonable business judgment or incapacity
due to physical or mental illness); (ii) commission of a fraud on the
Company; (iii) breach of fiduciary duty involving material personal gain; or
(iv) willful misconduct materially and demonstrably injurious or detrimental
to the Company or its affiliates.
(c) Death or Permanent Disability. This Agreement shall terminate
immediately upon the Executive's Death or Permanent Disability. Permanent
Disability shall have the same meaning as set forth in the Company's long
term disability policy. Upon termination for Death or Permanent Disability,
the Executive, or his estate, shall receive the following: (i) all accrued
Base Salary and other accrued entitlements earned through the date of
termination, (ii) the continuation of Base Salary for 90 days after such
termination, and (iii) the compensation and benefits set forth in clauses
(B), (C), (D) and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the Executive's
resignation without Good Reason or termination by the Company for Cause. In the
event of a termination due to a Termination Event, the Executive shall receive
his accrued Base Salary and accrued entitlements through the date of
termination. In the event the Executive resigns from the Company without Good
Reason, such resignation only becomes effective upon 60 days' written notice to
the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In the
event of Executive's termination of employment for any reason (including the
failure of the Company to renew the Agreement), such termination or non-renewal
shall also be considered a resignation as a member of the Board of Directors, a
resignation from the board of directors of any affiliates or subsidiaries of the
Company and a resignation from any offices held by the Executive with the
Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide Business
Conduct Policy and the Employee Proprietary Rights and Confidentiality Agreement
attached hereto as Schedule B. The provisions of such documents are incorporated
into this Agreement.
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<PAGE>
ARTICLE V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall execute
and deliver to the Company a non-competition agreement in the form attached
hereto as Schedule C (the "Non-Competition Agreement"), which shall become
effective if and when this Agreement becomes effective as provided in Section
1.1 hereof.
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under this
Agreement, in accordance with the Company's charter and bylaws. The Company
shall purchase and maintain for the benefit of Executive a director's and
officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by facsimile or when mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed to such address or sent to such facsimile number as each
party may furnish to the other in writing from time to time. Unless notified
otherwise by Executive, copies of notices or other communications sent to
Executive shall be sent to the address noted on the signature page attached
hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement is
entered into under, and shall be governed for all purposes by, the laws of the
State of Wisconsin. In any such litigation, each party hereto waives personal
service of any summons, complaint or other process and agrees that the service
thereof may be made by certified mail directed to such party at his or its
address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall (i) be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time or (ii) preclude insistence upon strict compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision all not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
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Section 7.6 Headings. The paragraph headings have been inserted for purposes
of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall have the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and obligations of
the parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party except that
vested rights to payment shall be subject to devise, and shall descend in
accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as otherwise
provided herein or under any benefit plan or other agreement between the Company
and the Executive, termination of Executive's employment under this Agreement
shall not affect any right or obligation of either party hereto which is accrued
or vested prior to or upon such termination or the rights and obligations set
forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains all
the covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Executive by the Company, and supersedes
all prior employment agreements between the Executive and the Company or any of
its predecessors. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, has been made
by either party, or by anyone acting on behalf of either party, which is not
embodied herein, and that no agreement, statement, or promise relating to the
employment of Executive by the Company, which is not contained in this
Agreement, shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter (the
"Side Letter"), Executive shall be entitled to be reimbursed for reasonable
attorney's fees incurred in the negotiation of this Agreement to the limit
established in the Side Letter. In addition, Executive shall be entitled to
reimbursement of attorney's fees in any litigation between the Company and
Executive with respect to Executive's enforcement of this Agreement to the
extent Executive prevails in such litigation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MORRIS MATERIAL HANDLING, INC.
By: /s/ Michael S. Erwin
---------------------------------------
Name: Michael S. Erwin
Title: President
/s/ Martin L. Ditkof
---------------------------------------
Executive
Acknowledged by
MHE INVESTMENTS, INC.
By: /s/ Michael S. Shein
---------------------------------------
Name: Michael S. Shein
Title: Vice President
/s/ Martin L. Ditkof
---------------------------------------
Executive
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Schedule A
Option Plan
Number of Shares Reserved: 1,186.0849 shares of common stock and 4,328.2500
shares of Series C preferred stock in MMH Holdings,
Inc. (the "Company"), with a value of $8.1 million
on the Closing Date (such grant to be denominated
in 8,100 units, consisting of 0.1464 shares of
common stock and 0.5344 shares of Series C
preferred stock units and hereinafter referred to
as "Equity Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant") shall
be made with respect to the number of Equity Units
set forth in the Employment Agreement. Additional
option grants shall be made as determined by the
Board of Directors or Compensation Committee of the
Company. The Initial Grant and future grants shall
be from a pool of 8,100 Equity Units set aside for
such grants.
Exercise Price: The exercise price of an Equity Unit shall be equal
to: (i) the fair market value of a share of common
stock on the date of grant multiplied by the number
of shares of common stock covered by the Equity
Unit, plus (ii) the liquidation preference
multiplied by the number of shares of preferred
stock covered by the Equity Unit. The exercise
price would have been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not previously
exercised or terminated will expire ten years from
the date of grant.
Method of Exercise: Prior to an "initial public offering" of Frasier or
any subsidiary company, cash only; provided,
however, the Board of Directors or Compensation
Committee of the Company may authorize cashless
exercises. An option may only be exercised with
respect to whole Equity Units (i.e., as to all the
shares of common stock and preferred stock covered
by the Equity Unit).
<PAGE>
Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the date
of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of all
A Options and B Options and 100% of C Options which
are not vested on the date of the
Employment-Related Event shall be forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate on
the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related Event
or Termination Event) prior to an "initial public
offering" of the shares of the Company, all shares
of the Company held by Executive shall be subject
to a "call" by the Company at the FMV on the date
of the "call"). In the event that the Company is
restricted from purchasing such shares for cash
under any applicable financing or other agreements,
the Company may issue the Executive a note or such
other permissible security (which shall contain
commercially reasonable terms) in full satisfaction
of such call.
Tag-along Rights: The Executive will have the same tag-along rights
as set forth in paragraph 8 of the Term Sheet for
Equity Investment Stockholders Agreement (attached
as Exhibit E to the Recapitalization Agreement
among Harnischfeger Corporation, the Sellers named
therein and MHE Investments, Inc., dated January
28, 1998).
Restrictions on Transfer: Options will be non-transferable, except without
consideration to a trust or partnership the only
beneficiaries or partners (as the case may be) of
which are immediate family member of Executive;
shares obtained upon the exercise of options may be
transferred only in accordance with the laws of
descent and distribution.
Other than with respect to transfers of options
pursuant to the preceding sentence, no third party
shall have any direct or indirect beneficial
interest
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in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity Units
subject to the Initial Grant shall vest ratably
(25% a year) on each of the first through fourth
anniversaries of the date of grant ("A Options"),
provided the Executive is in the employ of the
Company on each such date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior to
the fourth anniversary of the date of grant, and
the Executive is still in the employ of the
Company, all unvested A Options shall vest.
B Options: 1/3 of the total number of Equity Units
subject to the Initial Grant shall vest 25% a year
at the end of each of 1999, 2000, 2001, and 2002,
subject to satisfaction of the applicable
EBITDA-based "Performance Hurdle" for each such
year ("B Options"). In the event that the
Performance Hurdle is not met for any particular
year, the applicable portion of the B Options which
did not vest will be carried over to the next year.
Thus, if on a cumulative basis, the aggregate
Performance Hurdles for such two year period are
met, any portion that did not vest previously,
shall vest. For example, if the Performance Hurdle
is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000 equals
or exceeds the sum of the Performance Hurdles for
1999 and 2000) the unvested B Options attributable
to 1999 and 2000 will vest in 2000. Any portion of
B Options which does not vest because of not
meeting the relevant Performance Hurdle in a
particular year or on a cumulative basis in a
subsequent year will be treated like C Options upon
the "Determination Date" (defined below) and will
vest if the relevant performance criterion for C
Options is satisfied.
For purposes of the B Options, Performance Hurdle
shall mean the precise EBITDA target attached as
Exhibit I for fiscal years 1999-2002, which in the
event of any acquisition will be increased by the
pro
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forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the attainment
or lack of attainment of the applicable Performance
Hurdles with respect to any calendar year as soon
as practicable following the receipt of audited
financial statements of the Company.
If there is a Change in Control prior to the end of
fiscal year 2002, and the Executive is still in the
employ of the Company, unvested B Options shall
vest only if the criterion for the vesting of C
Options is met, as provided in the next section.
C Options: 1/3 of the total number of Equity Units
subject to the Initial Grant, plus any B Options
which did not vest and have been carried forward,
shall vest if the Internal Rate of Return earned by
the Company exceeds 40% by the "Determination
Date," ("C Options") and the Executive is still in
the employ of the Company on the Determination
Date.
The Determination Date regarding the attainment of
the Internal Rate of Return shall be the closing
date of a "Change of Control".
Initial Public Offering After an initial public offering, and subject to
the approval of the Compensation Committee, the
Executive will be permitted to exercise his vested
options and sell his Equity Units.
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SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
<PAGE>
THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
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<PAGE>
1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
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- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
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- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
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PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
6
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are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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<PAGE>
and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
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Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
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TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
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(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
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(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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3
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<PAGE>
SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and Martin L. Ditkof ("Executive") to be
effective on the date of the Closing of the Recapitalization of MMH Holdings,
Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the foregoing,
the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
-----------------------------
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SCHEDULE D
For purposes of this Employment Agreement, a "Change of Control" of the
Company will be deemed to have occurred at such time as (i) any Person
(including a Person's Affiliates and associates) or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of
(a) 50% or more of the total Voting Stock of the Company or Holdings or (b)
50% of all classes of Common Stock (whether voting or non-voting), taken as a
whole, of the Company or Holdings, or (c) all or substantially all of the
assets of the Company, (ii) any Person (including a Person's Affiliates and
associates) or Group, other than Chartwell Investments Inc. and its
affiliates, including but not limited to Niles L.L.C. and Frasier L.L.C. (a
"Permitted Holder"), becomes the beneficial owner of more than 30% of the
total Voting Stock of the Company or Holdings, and the Permitted Holders
beneficially own, in the aggregate, a less percentage of the total Voting
Stock of the Company or Holdings, as the case may be, than such other Person
or Group and the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company or Holdings, as the case may be, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
or Holdings, as the case may be, has been approved by 66-2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the board of directors of the
Company or Holdings, as the case may be.
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and Richard J.
Niespodziani ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the Company,
and possesses significant information about its strategic plans and other trade
secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase units of
Niles, LLC, in connection with the recapitalization contemplated by that certain
Recapitalization Agreement, among Harnischfeger Corporation, the Sellers named
therein and MHE Investments, Inc., dated January 28, 1998 (the "Recapitalization
Agreement"), and to acquire options to purchase additional units of MMH
Holdings, Inc., ("MMH") the owner of all of the stock of the Company; and
WHEREAS, the Executive desires to purchase such units and to acquire such
options, and understands that the offer to purchase units and acquire options is
contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after the
Recapitalization, and Executive wishes to furnish such services to the Company,
pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, the Company and Executive agree as follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more of
the outstanding shares of MMH to any party which is an affiliate of Chartwell
Investments Inc., (the "Effective Date"). Should Harnischfeger Corporation or
one of its Affiliates not sell 50 percent or more of the outstanding shares of
the Company to a party which is an affiliate of Chartwell Investments Inc. prior
to July 31, 1998, then this Agreement becomes void ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the occurrence of an
"Employment Related Event" or a "Termination Event" (both terms as defined in
Article III) and subject to the other terms and provisions of this Agreement,
the Company agrees to employ Executive and Executive agrees to be employed by
the Company, for the period beginning as of the Effective Date and continuing
until the third anniversary of the Effective Date. The Agreement will be
extended for one year on the third anniversary of the Effective Date and on
<PAGE>
each anniversary thereafter unless either party gives 60 days' written notice of
failure to renew or termination prior to any such anniversary date; provided,
however, that any such non-renewal by the Company shall void the Executive's
postemployment obligations contained in the Non-Competition Agreement referred
to in Article V of this Agreement. The Executive may voluntarily resign
employment at any time upon providing 60 days' written notice to the Company's
Board of Directors; provided, however, that the obligations of the Executive
under Article IV (Confidential Information) hereof, and the post-employment
obligations of Executive contained in the separate Non-Competition Agreement
referred to in Article V hereof shall survive such resignation. The Executive's
entitlement to any severance benefits or payments following termination of
employment shall be governed solely by Article III of this Agreement, and the
Executive shall have no entitlement to any such benefits or payments other than
as set forth in Article III of this Agreement, or as required to be provided to
the Executive by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company shall
employ Executive in the position of Vice President, or such other title as
mutually agreed upon by the Company and the Executive.
Section 1.4 Duties. Executive agrees to serve in the position referred to in
Section 1.3 and to perform diligently and to the best of his abilities the
duties and services pertaining to such office, as well as such additional duties
and services appropriate to such office as the Board of Directors of the Company
("Board of Directors") may reasonably assign to Executive from time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the period
of employment by the Company, to devote all of his business time, energy and
best efforts to the business and affairs of the Company and its affiliates and
not to engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company, except with the prior written
consent of the Board of Directors.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement, Executive shall
receive an annual base salary of $111,540, subject to annual review by the Board
of Directors.
Section 2.2 Bonus. The Company and Executive shall annually establish an
objective, performance-based bonus plan for Executive. The percentages, targets,
and other terms of the plan will be as mutually agreed upon between the
Compensation Committee of the Board of Directors of the Company and the Chief
Executive Officer of the Company. It is anticipated that, for fiscal year 1998,
the bonus plan will be based on Economic Value Added, while for fiscal 1999 and
after the plan will be based on EBITDA. Bonuses will be earned over the
Company's fiscal year ending October 31, and shall be paid by the Company to the
Executive as soon as practicable in accordance with the Company's bonus payment
procedures.
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Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to purchase an initial
amount of Equity in Niles LLC for payment as agreed upon between Niles LLC
and the Executive.
(b) Equity Options. Executive shall be eligible to receive an initial
option grant of 200 A Options, 200 B Options and 276 C Options pursuant to
the terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder, Executive
shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be reimbursed for all
customary and reasonable expenses incurred by Executive in the performance
of his duties and responsibilities, subject to such reasonable
substantiation and documentation as may be required by the Company in
accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each plan, program
or arrangement as the case may be, Executive and, to the extent applicable,
Executive's family, dependents and beneficiaries, shall be allowed to
participate in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly situated employees of the Company generally. The Company shall
not, however, by reason of this paragraph be obligated to institute,
maintain, or refrain from changing, amending or discontinuing, any such
benefit plan or program, so long as such changes are similarly applicable to
employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any benefits
or compensation payable under this Agreement all federal, state, city or other
taxes as may be required pursuant to any law or governmental regulation or
ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event" means
any of the following: (a) Executive's resignation for Good Reason (as defined
below), (b) Executive's termination by the Company without Cause (as defined
below) or (c) Executive's death or permanent disability (as defined below).
Should an Employment Related Event occur, the Executive shall only be entitled
to the benefits and payments set forth below, and Executive specifically agrees
to sign a Release as drafted by the Company under which the Executive shall
agree to waive and release all other rights and entitlement, whether legal,
contractual or equitable (including waiving and releasing any claims alleging
discrimination and/or harassment to the maximum extent allowed by law) in order
to be entitled to such benefits and payments.
(a) Good Reason. The Executive may terminate his employment under this
Agreement for Good Reason, after having given the Company written notice
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specifying the reason the Executive is terminating his employment and having
given the Company thirty days after such notice within which to cure the
condition specified. "Good Reason" means any of the following: (i) a
material reduction of the Executive's duties or authority as provided in the
Agreement or as later increased by the Board of Directors; (ii) a
substantial change in work conditions; (iii) a material decrease in
compensation or benefits; (iv) relocation of his principal workplace over 50
miles from his initial workplace without Executive's consent; (v) the breach
of this Agreement by the Company or an affiliate of the Company; (vi) a
change in control of the Company (as defined in Schedule D hereto); or (vii)
the failure by the Company to obtain the assumption of this Agreement by any
successor to or assignee of the Company or any purported termination of this
Agreement which does not satisfy the requirements of this Agreement. If at
the end of such notice period, the Company has not cured such condition, the
written notice shall take effect, and the Executive will be entitled to the
following: (A) continuation of his then current Base Salary (prior to any
reduction that constitutes Good Reason) for twelve months from the date of
termination payable in accordance with Company payroll practice; (B)
continuation of health and life insurance benefits for twenty-four months at
the Company's expense subject to applicable cost-sharing arrangements,
co-payments, and deductibles in place immediately prior the Executive's
termination (provided, however, that such health benefits shall not be
counted toward the Executive's entitlement for COBRA, and that such health
and life insurance benefits shall terminate immediately upon Executive
obtaining employment with a third party which provides health and life
insurance benefits); (C) a "pro-rated bonus" for the fiscal year in which
the termination occurs which shall be payable at the time the Company
customarily pays bonuses; (D) the continuation of all other perquisites for
six months; (E) reasonable outplacement assistance for six months (including
out of pocket expenses of the Executive to search for a job not to exceed
$5000); and (F) payment, if requested by the Executive, for all equity in
MMH or the Company owned by the Executive or his family (including but not
limited to Equity Units), payable in equal quarterly installments over the
twenty-four month period following termination, provided, however, that if
this option is requested, the equity shall be valued as of the date of
termination at its fair market value by the Compensation Committee of the
Board of Directors and shall be repurchased so long as permitted under the
terms of any financing documents, including but not limited to indentures or
loan agreements applicable to the Company or any direct or indirect parent
entity of the Company at such time. For purposes of this Agreement, a
"pro-rated bonus" means the portion of the bonus that is arrived at by using
the number of days the Executive was employed by the Company in the year of
termination as the numerator of a fraction of which 365 is the denominator
and then multiplying the bonus the Executive was otherwise eligible to
receive by such fraction.
(b) Termination by the Company without Cause. If the Company terminates
the Executive's employment under this Agreement without Cause, the Executive
shall be entitled to the following: (i) a lump sum payment equal to his then
current annual Base Salary plus a lump sum payment equal to the Base Salary
which would have otherwise been payable for the balance of the fiscal year
in which termination occurs, and (ii) the same benefits and compensation and
payable at the same time as
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provided in clauses (B) through (F) of Section 3.1(a). "Cause" means any of
the following acts by the Executive which, if curable, have not been cured
by Executive within 30 days' written notice thereof: (i) willful failure to
substantially and materially perform his duties as assigned to him by Board
of Directors (other than any such failure resulting from the Executive's
reasonable business judgment or incapacity due to physical or mental
illness); (ii) commission of a fraud on the Company; (iii) breach of
fiduciary duty involving material personal gain; or (iv) willful misconduct
materially and demonstrably injurious or detrimental to the Company or its
affiliates.
(c) Death or Permanent Disability. This Agreement shall terminate
immediately upon the Executive's Death or Permanent Disability. Permanent
Disability shall have the same meaning as set forth in the Company's long
term disability policy. Upon termination for Death or Permanent Disability,
the Executive, or his estate, shall receive the following: (i) all accrued
Base Salary and other accrued entitlements earned through the date of
termination, (ii) the continuation of Base Salary for 90 days after such
termination, and (iii) the compensation and benefits set forth in clauses
(B), (C), (D) and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the Executive's
resignation without Good Reason or termination by the Company for Cause. In the
event of a termination due to a Termination Event, the Executive shall receive
his accrued Base Salary and accrued entitlements through the date of
termination. In the event the Executive resigns from the Company without Good
Reason, such resignation only becomes effective upon 60 days' written notice to
the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In the
event of Executive's termination of employment for any reason (including the
failure of the Company to renew the Agreement), such termination or non-renewal
shall also be considered a resignation as a member of the Board of Directors, a
resignation from the board of directors of any affiliates or subsidiaries of the
Company and a resignation from any offices held by the Executive with the
Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide Business
Conduct Policy and the Employee Proprietary Rights and Confidentiality Agreement
attached hereto as Schedule B. The provisions of such documents are incorporated
into this Agreement.
ARTICLE V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall execute
and deliver to the Company a non-competition agreement in the form attached
hereto as Schedule C (the "Non-Competition Agreement"), which shall become
effective if and when this Agreement becomes effective as provided in Section
1.1 hereof.
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<PAGE>
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under this
Agreement, in accordance with the Company's charter and bylaws. The Company
shall purchase and maintain for the benefit of Executive a director's and
officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by facsimile or when mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed to such address or sent to such facsimile number as each
party may furnish to the other in writing from time to time. Unless notified
otherwise by Executive, copies of notices or other communications sent to
Executive shall be sent to the address noted on the signature page attached
hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement is
entered into under, and shall be governed for all purposes by, the laws of the
State of Wisconsin. In any such litigation, each party hereto waives personal
service of any summons, complaint or other process and agrees that the service
thereof may be made by certified mail directed to such party at his or its
address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall (i) be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time or (ii) preclude insistence upon strict compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision all not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
Section 7.6 Headings. The paragraph headings have been inserted for purposes
of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
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Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall have the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and obligations of
the parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party except that
vested rights to payment shall be subject to devise, and shall descend in
accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as otherwise
provided herein or under any benefit plan or other agreement between the Company
and the Executive, termination of Executive's employment under this Agreement
shall not affect any right or obligation of either party hereto which is accrued
or vested prior to or upon such termination or the rights and obligations set
forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains all
the covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Executive by the Company, and supersedes
all prior employment agreements between the Executive and the Company or any of
its predecessors. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, has been made
by either party, or by anyone acting on behalf of either party, which is not
embodied herein, and that no agreement, statement, or promise relating to the
employment of Executive by the Company, which is not contained in this
Agreement, shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter (the
"Side Letter"), Executive shall be entitled to be reimbursed for reasonable
attorney's fees incurred in the negotiation of this Agreement to the limit
established in the Side Letter. In addition, Executive shall be entitled to
reimbursement of attorney's fees in any litigation between the Company and
Executive with respect to Executive's enforcement of this Agreement to the
extent Executive prevails in such litigation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MORRIS MATERIAL HANDLING, INC.
By:
/S/ Michael S. Erwin
------------------------------
Name: Michael S. Erwin
Title: President
/S/ Richard J. Niespodziani
--------------------------------
Executive
Acknowledged by
MHE INVESTMENTS, INC.
By:
/S/ Michael S. Shein
------------------------------
Name: Michael S. Shein
Title: Vice President
/S/ Richard J. Niespodziani
--------------------------------
Executive
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Schedule A
Option Plan
Number of Shares Reserved: 1,186.0849 shares of common stock and 4,328.2500
shares of Series C preferred stock in MMH Holdings,
Inc. (the "Company"), with a value of $8.1 million
on the Closing Date (such grant to be denominated
in 8,100 units, consisting of 0.1464 shares of
common stock and 0.5344 shares of Series C
preferred stock units and hereinafter referred to
as "Equity Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant") shall
be made with respect to the number of Equity Units
set forth in the Employment Agreement. Additional
option grants shall be made as determined by the
Board of Directors or Compensation Committee of the
Company. The Initial Grant and future grants shall
be from a pool of 8,100 Equity Units set aside for
such grants.
Exercise Price: The exercise price of an Equity Unit shall be equal
to: (i) the fair market value of a share of common
stock on the date of grant multiplied by the number
of shares of common stock covered by the Equity
Unit, plus (ii) the liquidation preference
multiplied by the number of shares of preferred
stock covered by the Equity Unit. The exercise
price would have been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not previously
exercised or terminated will expire ten years from
the date of grant.
Method of Exercise: Prior to an "initial public offering" of Frasier or
any subsidiary company, cash only; provided,
however, the Board of Directors or Compensation
Committee of the Company may authorize cashless
exercises. An option may only be exercised with
respect to whole Equity Units (i.e., as to all the
shares of common stock and preferred stock covered
by the Equity Unit).
<PAGE>
Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the date
of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of all
A Options and B Options and 100% of C Options which
are not vested on the date of the
Employment-Related Event shall be forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate on
the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related Event
or Termination Event) prior to an "initial public
offering" of the shares of the Company, all shares
of the Company held by Executive shall be subject
to a "call" by the Company at the FMV on the date
of the "call"). In the event that the Company is
restricted from purchasing such shares for cash
under any applicable financing or other agreements,
the Company may issue the Executive a note or such
other permissible security (which shall contain
commercially reasonable terms) in full satisfaction
of such call.
Tag-along Rights: The Executive will have the same tag-along rights
as set forth in paragraph 8 of the Term Sheet for
Equity Investment Stockholders Agreement (attached
as Exhibit E to the Recapitalization Agreement
among Harnischfeger Corporation, the Sellers named
therein and MHE Investments, Inc., dated January
28, 1998).
Restriction on Transfer: Options will be non-transferable, except without
consideration to a trust or partnership the only
beneficiaries or partners (as the case may be) of
which are immediate family member of Executive;
shares obtained upon the exercise of options may be
transferred only in accordance with the laws of
descent and distribution.
Other than with respect to transfers of options
pursuant to the preceding sentence, no third party
shall have any direct or indirect beneficial
interest
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in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity Units
subject to the Initial Grant shall vest ratably
(25% a year) on each of the first through fourth
anniversaries of the date of grant ("A Options"),
provided the Executive is in the employ of the
Company on each such date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior to
the fourth anniversary of the date of grant, and
the Executive is still in the employ of the
Company, all unvested A Options shall vest.
B Options: 1/3 of the total number of Equity Units
subject to the Initial Grant shall vest 25% a year
at the end of each of 1999, 2000, 2001, and 2002,
subject to satisfaction of the applicable
EBITDA-based "Performance Hurdle" for each such
year ("B Options"). In the event that the
Performance Hurdle is not met for any particular
year, the applicable portion of the B Options which
did not vest will be carried over to the next year.
Thus, if on a cumulative basis, the aggregate
Performance Hurdles for such two year period are
met, any portion that did not vest previously,
shall vest. For example, if the Performance Hurdle
is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000 equals
or exceeds the sum of the Performance Hurdles for
1999 and 2000) the unvested B Options attributable
to 1999 and 2000 will vest in 2000. Any portion of
B Options which does not vest because of not
meeting the relevant Performance Hurdle in a
particular year or on a cumulative basis in a
subsequent year will be treated like C Options upon
the "Determination Date" (defined below) and will
vest if the relevant performance criterion for C
Options is satisfied.
For purposes of the B Options, Performance Hurdle
shall mean the precise EBITDA target attached as
Exhibit I for fiscal years 1999-2002, which in the
event of any acquisition will be increased by the
pro
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forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the attainment
or lack of attainment of the applicable Performance
Hurdles with respect to any calendar year as soon
as practicable following the receipt of audited
financial statements of the Company.
If there is a Change in Control prior to the end of
fiscal year 2002, and the Executive is still in the
employ of the Company, unvested B Options shall
vest only if the criterion for the vesting of C
Options is met, as provided in the next section.
C Options: 1/3 of the total number of Equity Units
subject to the Initial Grant, plus any B Options
which did not vest and have been carried forward,
shall vest if the Internal Rate of Return earned by
the Company exceeds 40% by the "Determination
Date," ("C Options") and the Executive is still in
the employ of the Company on the Determination
Date.
The Determination Date regarding the attainment of
the Internal Rate of Return shall be the closing
date of a "Change of Control".
Initial Public Offering After an initial public offering, and subject to
the approval of the Compensation Committee, the
Executive will be permitted to exercise his vested
options and sell his Equity Units.
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SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
<PAGE>
THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
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1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
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- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
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- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
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PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
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are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
11
<PAGE>
Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
12
<PAGE>
TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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13
<PAGE>
Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
1
<PAGE>
(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
2
<PAGE>
(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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3
<PAGE>
SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and Richard J. Niespodziani ("Executive") to be
effective on the date of the Closing of the Recapitalization of MMH Holdings,
Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the
foregoing, the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
-----------------------------
3
<PAGE>
SCHEDULE D
For purposes of this Employment Agreement, a "Change of Control" of the
Company will be deemed to have occurred at such time as (i) any Person
(including a Person's Affiliates and associates) or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of
(a) 50% or more of the total Voting Stock of the Company or Holdings or (b)
50% of all classes of Common Stock (whether voting or non-voting), taken as a
whole, of the Company or Holdings, or (c) all or substantially all of the
assets of the Company, (ii) any Person (including a Person's Affiliates and
associates) or Group, other than Chartwell Investments Inc. and its
affiliates, including but not limited to Niles L.L.C. and Frasier L.L.C. (a
"Permitted Holder"), becomes the beneficial owner of more than 30% of the
total Voting Stock of the Company or Holdings, and the Permitted Holders
beneficially own, in the aggregate, a less percentage of the total Voting
Stock of the Company or Holdings, as the case may be, than such other Person
or Group and the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company or Holdings, as the case may be, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
or Holdings, as the case may be, has been approved by 66-2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the board of directors of the
Company or Holdings, as the case may be.
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and Peter A. Kerrick
("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the
Company, and possesses significant information about its strategic plans and
other trade secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase
units of Niles, LLC, in connection with the recapitalization contemplated by
that certain Recapitalization Agreement, among Harnischfeger Corporation, the
Sellers named therein and MHE Investments, Inc., dated January 28, 1998 (the
"Recapitalization Agreement"), and to acquire options to purchase additional
units of MMH Holdings, Inc., ("MMH") the owner of all of the stock of the
Company; and
WHEREAS, the Executive desires to purchase such units and to acquire
such options, and understands that the offer to purchase units and acquire
options is contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after
the Recapitalization, and Executive wishes to furnish such services to the
Company, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Executive agree
as follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more
of the outstanding shares of MMH to any party which is an affiliate of
Chartwell Investments Inc., (the "Effective Date"). Should Harnischfeger
Corporation or one of its Affiliates not sell 50 percent or more of the
outstanding shares of the Company to a party which is an affiliate of
Chartwell Investments Inc. prior to July 31, 1998, then this Agreement
becomes void ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the
occurrence of an "Employment Related Event" or a "Termination Event" (both
terms as defined in Article III) and subject to the other terms and
provisions of this Agreement, the Company agrees to employ Executive and
Executive agrees to be employed by the Company, for the period beginning as
of the Effective Date and continuing until the third anniversary of the
Effective Date. The Agreement will be extended for one year on the third
anniversary of the Effective Date and on each anniversary thereafter unless
either party gives 60 days' written notice of failure to renew or
<PAGE>
termination prior to any such anniversary date; provided, however, that any
such non-renewal by the Company shall void the Executive's postemployment
obligations contained in the Non-Competition Agreement referred to in Article
V of this Agreement. The Executive may voluntarily resign employment at any
time upon providing 60 days' written notice to the Company's Board of
Directors; provided, however, that the obligations of the Executive under
Article IV (Confidential Information) hereof, and the post-employment
obligations of Executive contained in the separate Non-Competition Agreement
referred to in Article V hereof shall survive such resignation. The
Executive's entitlement to any severance benefits or payments following
termination of employment shall be governed solely by Article III of this
Agreement, and the Executive shall have no entitlement to any such benefits
or payments other than as set forth in Article III of this Agreement, or as
required to be provided to the Executive by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company
shall employ Executive in the position of Vice President, or such other title
as mutually agreed upon by the Company and the Executive.
Section 1.4 Duties. Executive agrees to serve in the position
referred to in Section 1.3 and to perform diligently and to the best of his
abilities the duties and services pertaining to such office, as well as such
additional duties and services appropriate to such office as the Board of
Directors of the Company ("Board of Directors") may reasonably assign to
Executive from time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the
period of employment by the Company, to devote all of his business time,
energy and best efforts to the business and affairs of the Company and its
affiliates and not to engage, directly or indirectly, in any other business
or businesses, whether or not similar to that of the Company, except with the
prior written consent of the Board of Directors.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement,
Executive shall receive an annual base salary of $104,496, subject to annual
review by the Board of Directors.
Section 2.2 Bonus. The Company and Executive shall annually
establish an objective, performance-based bonus plan for Executive. The
percentages, targets, and other terms of the plan will be as mutually agreed
upon between the Compensation Committee of the Board of Directors of the
Company and the Chief Executive Officer of the Company. It is anticipated
that, for fiscal year 1998, the bonus plan will be based on Economic Value
Added, while for fiscal 1999 and after the plan will be based on EBITDA.
Bonuses will be earned over the Company's fiscal year ending October 31, and
shall be paid by the Company to the Executive as soon as practicable in
accordance with the Company's bonus payment procedures.
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<PAGE>
Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to
purchase an initial amount of Equity in Niles LLC for payment as agreed
upon between Niles LLC and the Executive.
(b) Equity Options. Executive shall be eligible to receive
an initial option grant of 200 A Options, 200 B Options and 276 C Options
pursuant to the terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be
reimbursed for all customary and reasonable expenses incurred by
Executive in the performance of his duties and responsibilities, subject
to such reasonable substantiation and documentation as may be required by
the Company in accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each
plan, program or arrangement as the case may be, Executive and, to the
extent applicable, Executive's family, dependents and beneficiaries, shall
be allowed to participate in all benefits, plans and programs, including
improvements or modifications of the same, which are now, or may hereafter
be, available to similarly situated employees of the Company generally.
The Company shall not, however, by reason of this paragraph be obligated
to institute, maintain, or refrain from changing, amending or
discontinuing, any such benefit plan or program, so long as such changes
are similarly applicable to employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any
benefits or compensation payable under this Agreement all federal, state,
city or other taxes as may be required pursuant to any law or governmental
regulation or ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event"
means any of the following: (a) Executive's resignation for Good Reason (as
defined below), (b) Executive's termination by the Company without Cause (as
defined below) or (c) Executive's death or permanent disability (as defined
below). Should an Employment Related Event occur, the Executive shall only
be entitled to the benefits and payments set forth below, and Executive
specifically agrees to sign a Release as drafted by the Company under which
the Executive shall agree to waive and release all other rights and
entitlement, whether legal, contractual or equitable (including waiving and
releasing any claims alleging discrimination and/or harassment to the maximum
extent allowed by law) in order to be entitled to such benefits and payments.
(a) Good Reason. The Executive may terminate his
employment under this Agreement for Good Reason, after having given the
Company written notice
3
<PAGE>
specifying the reason the Executive is terminating his employment and
having given the Company thirty days after such notice within which to
cure the condition specified. "Good Reason" means any of the following:
(i) a material reduction of the Executive's duties or authority as
provided in the Agreement or as later increased by the Board of
Directors; (ii) a substantial change in work conditions; (iii) a
material decrease in compensation or benefits; (iv) relocation of his
principal workplace over 50 miles from his initial workplace without
Executive's consent; (v) the breach of this Agreement by the Company or
an affiliate of the Company; (vi) a change in control of the Company (as
defined in Schedule D hereto); or (vii) the failure by the Company to
obtain the assumption of this Agreement by any successor to or assignee
of the Company or any purported termination of this Agreement which does
not satisfy the requirements of this Agreement. If at the end of such
notice period, the Company has not cured such condition, the written
notice shall take effect, and the Executive will be entitled to the
following: (A) continuation of his then current Base Salary (prior to
any reduction that constitutes Good Reason) for twelve months from the
date of termination payable in accordance with Company payroll practice;
(B) continuation of health and life insurance benefits for twenty-four
months at the Company's expense subject to applicable cost-sharing
arrangements, co-payments, and deductibles in place immediately prior
the Executive's termination (provided, however, that such health
benefits shall not be counted toward the Executive's entitlement for
COBRA, and that such health and life insurance benefits shall terminate
immediately upon Executive obtaining employment with a third party which
provides health and life insurance benefits); (C) a "pro-rated bonus"
for the fiscal year in which the termination occurs which shall be
payable at the time the Company customarily pays bonuses; (D) the
continuation of all other perquisites for six months; (E) reasonable
outplacement assistance for six months (including out of pocket expenses
of the Executive to search for a job not to exceed $5000); and (F)
payment, if requested by the Executive, for all equity in MMH or the
Company owned by the Executive or his family (including but not limited
to Equity Units), payable in equal quarterly installments over the
twenty-four month period following termination, provided, however, that
if this option is requested, the equity shall be valued as of the date
of termination at its fair market value by the Compensation Committee of
the Board of Directors and shall be repurchased so long as permitted
under the terms of any financing documents, including but not limited to
indentures or loan agreements applicable to the Company or any direct or
indirect parent entity of the Company at such time. For purposes of
this Agreement, a "pro-rated bonus" means the portion of the bonus that
is arrived at by using the number of days the Executive was employed by
the Company in the year of termination as the numerator of a fraction of
which 365 is the denominator and then multiplying the bonus the
Executive was otherwise eligible to receive by such fraction.
(b) Termination by the Company without Cause. If
the Company terminates the Executive's employment under this Agreement
without Cause, the Executive shall be entitled to the following: (i) a
lump sum payment equal to his then current annual Base Salary plus a
lump sum payment equal to the Base Salary which would have otherwise
been payable for the balance of the fiscal year in which termination
occurs, and (ii) the same benefits and compensation and payable at the
same time as
4
<PAGE>
provided in clauses (B) through (F) of Section 3.1(a). "Cause" means
any of the following acts by the Executive which, if curable, have not
been cured by Executive within 30 days' written notice thereof: (i)
willful failure to substantially and materially perform his duties as
assigned to him by Board of Directors (other than any such failure
resulting from the Executive's reasonable business judgment or
incapacity due to physical or mental illness); (ii) commission of a
fraud on the Company; (iii) breach of fiduciary duty involving material
personal gain; or (iv) willful misconduct materially and demonstrably
injurious or detrimental to the Company or its affiliates.
(c) Death or Permanent Disability. This Agreement
shall terminate immediately upon the Executive's Death or Permanent
Disability. Permanent Disability shall have the same meaning as set
forth in the Company's long term disability policy. Upon termination
for Death or Permanent Disability, the Executive, or his estate, shall
receive the following: (i) all accrued Base Salary and other accrued
entitlements earned through the date of termination, (ii) the
continuation of Base Salary for 90 days after such termination, and
(iii) the compensation and benefits set forth in clauses (B), (C), (D)
and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the
Executive's resignation without Good Reason or termination by the Company for
Cause. In the event of a termination due to a Termination Event, the
Executive shall receive his accrued Base Salary and accrued entitlements
through the date of termination. In the event the Executive resigns from the
Company without Good Reason, such resignation only becomes effective upon 60
days' written notice to the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In
the event of Executive's termination of employment for any reason (including
the failure of the Company to renew the Agreement), such termination or
non-renewal shall also be considered a resignation as a member of the Board
of Directors, a resignation from the board of directors of any affiliates or
subsidiaries of the Company and a resignation from any offices held by the
Executive with the Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide
Business Conduct Policy and the Employee Proprietary Rights and
Confidentiality Agreement attached hereto as Schedule B. The provisions of
such documents are incorporated into this Agreement.
Article V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall
execute and deliver to the Company a non-competition agreement in the form
attached hereto as Schedule C (the "Non-Competition Agreement"), which shall
become effective if and when this Agreement becomes effective as provided in
Section 1.1 hereof.
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<PAGE>
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under
this Agreement, in accordance with the Company's charter and bylaws. The
Company shall purchase and maintain for the benefit of Executive a director's
and officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by facsimile
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to such address or sent to such
facsimile number as each party may furnish to the other in writing from time
to time. Unless notified otherwise by Executive, copies of notices or other
communications sent to Executive shall be sent to the address noted on the
signature page attached hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement
is entered into under, and shall be governed for all purposes by, the laws of
the State of Wisconsin. In any such litigation, each party hereto waives
personal service of any summons, complaint or other process and agrees that
the service thereof may be made by certified mail directed to such party at
his or its address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require compliance
with, any condition or provision of this Agreement shall (i) be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time or (ii) preclude insistence upon strict
compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or unenforceable,
then the invalidity or unenforceability of that provision all not affect the
validity or enforceability of any other provision of this Agreement, and all
other provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
Section 7.6 Headings. The paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
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Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall has the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and
obligations of the parties hereunder, are personal and neither this
Agreement, nor any right, benefit or obligation of either party hereto, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent
of the other party except that vested rights to payment shall be subject to
devise, and shall descend in accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as
otherwise provided herein or under any benefit plan or other agreement
between the Company and the Executive, termination of Executive's employment
under this Agreement shall not affect any right or obligation of either party
hereto which is accrued or vested prior to or upon such termination or the
rights and obligations set forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains
all the covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by the Company,
and supersedes all prior employment agreements between the Executive and the
Company or any of its predecessors. Each party to this Agreement
acknowledges that no representation, inducement, promise or agreement, oral
or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement,
or promise relating to the employment of Executive by the Company, which is
not contained in this Agreement, shall be valid or binding. Any modification
of this Agreement will be effective only if it is in writing and signed by
the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter
(the "Side Letter"), Executive shall be entitled to be reimbursed for
reasonable attorney's fees incurred in the negotiation of this Agreement to
the limit established in the Side Letter. In addition, Executive shall be
entitled to reimbursement of attorney's fees in any litigation between the
Company and Executive with respect to Executive's enforcement of this
Agreement to the extent Executive prevails in such litigation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MORRIS MATERIAL HANDLING, INC.
By: /s/ Michael S. Erwin
---------------------------------------------
Name: Michael S. Erwin
Title: President
/s/ Peter A. Kerrick
------------------------------------------------
Executive
Acknowledged by
MHE INVESTMENTS, INC.
By: /s/ Michael S. Shein
---------------------------------------------
Name: /s/ Michael S. Shein
Title: Vice President
/s/ Peter A. Kerrick
------------------------------------------------
Executive
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<TABLE>
<CAPTION>
Schedule A
Option Plan
<S> <C>
Number of Shares Reserved: 1,186.0849 shares of common stock and
4,328.2500 shares of Series C
preferred stock in MMH Holdings, Inc.
(the "Company"), with a value of $8.1
million on the Closing Date (such
grant to be denominated in 8,100
units, consisting of 0.1464 shares of
common stock and 0.5344 shares of
Series C preferred stock units and
hereinafter referred to as "Equity
Units").
Amount of Initial Grant: An initial option grant (the "Initial
Grant") shall be made with respect to
the number of Equity Units set forth
in the Employment Agreement.
Additional option grants shall be
made as determined by the Board of
Directors or Compensation Committee
of the Company. The Initial Grant and
future grants shall be from a pool of
8,100 Equity Units set aside for such
grants.
Exercise Price: The exercise price of an Equity Unit
shall be equal to: (i) the fair
market value of a share of common
stock on the date of grant multiplied
by the number of shares of common
stock covered by the Equity Unit,
plus (ii) the liquidation preference
multiplied by the number of shares of
preferred stock covered by the Equity
Unit. The exercise price would have
been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not
previously exercised or terminated
will expire ten years from the date
of grant.
Method of Exercise: Prior to an "initial public offering"
of Frasier or any subsidiary company,
cash only; provided, however, the
Board of Directors or Compensation
Committee of the Company may
authorize cashless exercises. An
option may only be exercised with
respect to whole Equity Units (i.e.,
as to all the shares of common stock
and preferred stock covered by the
Equity Unit).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the
date of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of
all A Options and B Options and 100% of C
Options which are not vested on the date of the
Employment-Related Event shall be forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate
on the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related
Event or Termination Event) prior to an
"initial public offering" of the shares of the
Company, all shares of the Company held by
Executive shall be subject to a "call" by the
Company at the FMV on the date of the "call").
In the event that the Company is restricted
from purchasing such shares for cash under any
applicable financing or other agreements, the
Company may issue the Executive a note or such
other permissible security (which shall contain
commercially reasonable terms) in full
satisfaction of such call.
Tag-along Rights: The Executive will have the same tag-along
rights as set forth in paragraph 8 of the Term
Sheet for Equity Investment Stockholders
Agreement (attached as Exhibit E to the
Recapitalization Agreement among Harnischfeger
Corporation, the Sellers named therein and MHE
Investments, Inc., dated January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except
without consideration to a trust or partnership
the only beneficiaries or partners (as the case
may be) of which are immediate family member of
Executive; shares obtained upon the exercise of
options may be transferred only in accordance
with the laws of descent and distribution.
Other than with respect to transfers of options
pursuant to the preceding sentence, no third
party shall have any direct or indirect
beneficial interest
</TABLE>
<PAGE>
<TABLE>
<S> <C>
in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
ratably (25% a year) on each of the first
through fourth anniversaries of the date of
grant ("A Options"), provided the Executive is
in the employ of the Company on each such date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior
to the fourth anniversary of the date of grant,
and the Executive is still in the employ of the
Company, all unvested A Options shall vest.
B Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
25% a year at the end of each of 1999, 2000,
2001, and 2002, subject to satisfaction of the
applicable EBITDA-based "Performance Hurdle"
for each such year ("B Options"). In the event
that the Performance Hurdle is not met for any
particular year, the applicable portion of the
B Options which did not vest will be carried
over to the next year. Thus, if on a
cumulative basis, the aggregate Performance
Hurdles for such two year period are met, any
portion that did not vest previously, shall
vest. For example, if the Performance Hurdle
is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000
equals or exceeds the sum of the Performance
Hurdles for 1999 and 2000) the unvested B
Options attributable to 1999 and 2000 will vest
in 2000. Any portion of B Options which does
not vest because of not meeting the relevant
Performance Hurdle in a particular year or on a
cumulative basis in a subsequent year will be
treated like C Options upon the "Determination
Date" (defined below) and will vest if the
relevant performance criterion for C Options is
satisfied.
For purposes of the B Options, Performance
Hurdle shall mean the precise EBITDA target
attached as Exhibit I for fiscal years
1999-2002, which in the event of any
acquisition will be increased by the pro
</TABLE>
<PAGE>
<TABLE>
<S> <C>
forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the
attainment or lack of attainment of the
applicable Performance Hurdles with respect to
any calendar year as soon as practicable
following the receipt of audited financial
statements of the Company.
If there is a Change in Control prior to the
end of fiscal year 2002, and the Executive is
still in the employ of the Company, unvested B
Options shall vest only if the criterion for
the vesting of C Options is met, as provided in
the next section.
C Options: 1/3 of the total number of Equity
Units subject to the Initial Grant, plus any B
Options which did not vest and have been
carried forward, shall vest if the Internal
Rate of Return earned by the Company exceeds
40% by the "Determination Date," ("C Options")
and the Executive is still in the employ of the
Company on the Determination Date.
The Determination Date regarding the attainment
of the Internal Rate of Return shall be the
closing date of a "Change of Control".
Initial Public Offering After an initial public offering, and subject
to the approval of the Compensation Committee,
the Executive will be permitted to exercise his
vested options and sell his Equity Units.
</TABLE>
<PAGE>
SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
<PAGE>
THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
2
<PAGE>
1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
3
<PAGE>
- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
4
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- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
5
<PAGE>
PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
6
<PAGE>
are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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<PAGE>
and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
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Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
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TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
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(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
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(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and Peter A. Kerrick ("Executive") to be
effective on the date of the Closing of the Recapitalization of MMH Holdings,
Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the foregoing,
the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
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SCHEDULE D
For purposes of this Employment Agreement, a "Change of Control" of the
Company will be deemed to have occurred at such time as (i) any Person
(including a Person's Affiliates and associates) or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of
(a) 50% or more of the total Voting Stock of the Company or Holdings or (b)
50% of all classes of Common Stock (whether voting or non-voting), taken as a
whole, of the Company or Holdings, or (c) all or substantially all of the
assets of the Company, (ii) any Person (including a Person's Affiliates and
associates) or Group, other than Chartwell Investments Inc. and its
affiliates, including but not limited to Niles L.L.C. and Frasier L.L.C. (a
"Permitted Holder"), becomes the beneficial owner of more than 30% of the
total Voting Stock of the Company or Holdings, and the Permitted Holders
beneficially own, in the aggregate, a less percentage of the total Voting
Stock of the Company or Holdings, as the case may be, than such other Person
or Group and the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company or Holdings, as the case may be, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Holdings (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
or Holdings, as the case may be, has been approved by 66-2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the board of directors of the
Company or Holdings, as the case may be.
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Exhibit 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") by and between Morris Material
Handling, Inc., a Delaware corporation (the "Company"), and Edward J. Doolan
("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a valued and important employee of the Company,
and possesses significant information about its strategic plans and other trade
secrets; and
WHEREAS, the Executive has been offered the opportunity to purchase units
of Niles, LLC, in connection with the recapitalization contemplated by that
certain Recapitalization Agreement, among Harnischfeger Corporation, the
Sellers named therein and MHE Investments, Inc., dated January 28, 1998 (the
"Recapitalization Agreement"), and to acquire options to purchase additional
units of MMH Holdings, Inc., ("MMH") the owner of all of the stock of the
Company; and
WHEREAS, the Executive desires to purchase such units and to acquire such
options, and understands that the offer to purchase units and acquire options
is contingent upon the execution of this Agreement; and
WHEREAS, the Company wishes to secure the services of Executive after the
Recapitalization, and Executive wishes to furnish such services to the Company,
pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Executive agree as
follows:
ARTICLE I: EMPLOYMENT, TERM AND DUTIES
Section 1.1. Condition Precedent. This Agreement shall take effect
immediately upon Harnischfeger Corporation or one of its Affiliates (as that
term is defined in the Recapitalization Agreement) selling 50 percent or more
of the outstanding shares of MMH to any party which is an affiliate of
Chartwell Investments Inc., (the "Effective Date"). Should Harnischfeger
Corporation or one of its Affiliates not sell 50 percent or more of the
outstanding shares of the Company to a party which is an affiliate of Chartwell
Investments Inc. prior to July 31, 1998, then this Agreement becomes void
ab initio.
Section 1.2. Term. Unless terminated sooner pursuant to the occurrence of
an "Employment Related Event" or a "Termination Event" (both terms as defined
in Article III) and subject to the other terms and provisions of this Agreement,
the Company agrees to employ Executive and Executive agrees to be employed by
the Company, for the period beginning as of the Effective Date and continuing
until the third anniversary of the Effective Date. The Agreement will be
extended for one year on the third anniversary of the Effective Date and on each
anniversary thereafter unless either party gives 60 days' written notice of
failure to renew or
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termination prior to any such anniversary date; provided, however, that any
such non-renewal by the Company shall void the Executive's postemployment
obligations contained in the Non-Competition Agreement referred to in Article V
of this Agreement. The Executive may voluntarily resign employment at any time
upon providing 60 days' written notice to the Company's Board of Directors;
provided, however, that the obligations of the Executive under Article IV
(Confidential Information) hereof, and the post-employment obligations of
Executive contained in the separate Non-Competition Agreement referred to in
Article V hereof shall survive such resignation. The Executive's entitlement to
any severance benefits or payments following termination of employment shall be
governed solely by Article III of this Agreement, and the Executive shall have
no entitlement to any such benefits or payments other than as set forth in
Article III of this Agreement, or as required to be provided to the Executive
by operation of law.
Section 1.3 Title. From and after the Effective Date, the Company shall
employ Executive in the position of Vice President, or such other title as
mutually agreed upon by the Company and the Executive.
Section 1.4 Duties. Executive agrees to serve in the position referred to in
Section 1.3 and to perform diligently and to the best of his abilities the
duties and services pertaining to such office, as well as such additional duties
and services appropriate to such office as the Board of Directors of the Company
("Board of Directors") may reasonably assign to Executive from time to time.
Section 1.5 Business Time and Efforts. Executive agrees, during the period
of employment by the Company, to devote all of his business time, energy and
best efforts to the business and affairs of the Company and its affiliates and
not to engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company, except with the prior written
consent of the Board of Directors.
ARTICLE II: COMPENSATION AND BENEFITS
Section 2.1 Base Salary. During the term of this Agreement, Executive shall
receive an annual base salary of $109,800, subject to annual review by the Board
of Directors.
Section 2.2 Bonus. The Company and Executive shall annually establish an
objective, performance-based bonus plan for Executive. The percentages, targets,
and other terms of the plan will be as mutually agreed upon between the
Compensation Committee of the Board of Directors of the Company and the Chief
Executive Officer of the Company. It is anticipated that, for fiscal year 1998,
the bonus plan will be based on Economic Value Added, while for fiscal 1999 and
after the plan will be based on EBITDA. Bonuses will be earned over the
Company's fiscal year ending October 31, and shall be paid by the Company to the
Executive as soon as practicable in accordance with the Company's bonus payment
procedures.
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Section 2.3 Equity.
(a) Equity Purchase. Executive shall be eligible to purchase an initial
amount of Equity in Niles LLC for payment as agreed upon between Niles LLC
and the Executive.
(b) Equity Options. Executive shall be eligible to receive an initial
option grant of 200 A Options, 200 B Options and 276 C Options pursuant to
the terms of Schedule A, attached hereto.
Section 2.4 Other Perquisites. During his employment hereunder, Executive
shall be afforded the following incidental benefits:
(a) Expenses. Executive shall be entitled to be reimbursed for all
customary and reasonable expenses incurred by Executive in the performance
of his duties and responsibilities, subject to such reasonable
substantiation and documentation as may be required by the Company in
accordance with its normal policies.
(b) Other Company Benefits. Subject to the terms of each plan, program
or arrangement as the case may be, Executive and, to the extent applicable,
Executive's family, dependents and beneficiaries, shall be allowed to
participate in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly situated employees of the Company generally. The Company shall
not, however, by reason of this paragraph be obligated to institute,
maintain, or refrain from changing, amending or discontinuing, any such
benefit plan or program, so long as such changes are similarly applicable to
employees of the Company generally.
Section 2.5 Withholding of Taxes. The Company may withhold from any
benefits or compensation payable under this Agreement all federal, state, city
or other taxes as may be required pursuant to any law or governmental regulation
or ruling.
ARTICLE III: TERMINATION OF EMPLOYMENT
Section 3.1 Employment-Related Event. An "Employment-Related Event"
means any of the following: (a) Executive's resignation for Good Reason (as
defined below), (b) Executive's termination by the Company without Cause (as
defined below) or (c) Executive's death or permanent disability (as defined
below). Should an Employment Related Event occur, the Executive shall only be
entitled to the benefits and payments set forth below, and Executive
specifically agrees to sign a Release as drafted by the Company under which the
Executive shall agree to waive and release all other rights and entitlement,
whether legal, contractual or equitable (including waiving and releasing any
claims alleging discrimination and/or harassment to the maximum extent allowed
by law) in order to be entitled to such benefits and payments.
(a) Good Reason. The Executive may terminate his employment under this
Agreement for Good Reason, after having given the Company written notice
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specifying the reason the Executive is terminating his employment and having
given the Company thirty days after such notice within which to cure the
condition specified. "Good Reason" means any of the following: (i) a
material reduction of the Executive's duties or authority as provided in the
Agreement or as later increased by the Board of Directors; (ii) a
substantial change in work conditions; (iii) a material decrease in
compensation or benefits; (iv) relocation of his principal workplace over 50
miles from his initial workplace without Executive's consent; (v) the breach
of this Agreement by the Company or an affiliate of the Company; (vi) a
change in control of the Company (as defined in Schedule D hereto); or (vii)
the failure by the Company to obtain the assumption of this Agreement by any
successor to or assignee of the Company or any purported termination of this
Agreement which does not satisfy the requirements of this Agreement. If at
the end of such notice period, the Company has not cured such condition, the
written notice shall take effect, and the Executive will be entitled to the
following: (A) continuation of his then current Base Salary (prior to any
reduction that constitutes Good Reason) for twelve months from the date of
termination payable in accordance with Company payroll practice; (B)
continuation of health and life insurance benefits for twenty-four months at
the Company's expense subject to applicable cost-sharing arrangements,
co-payments, and deductibles in place immediately prior the Executive's
termination (provided, however, that such health benefits shall not be
counted toward the Executive's entitlement for COBRA, and that such health
and life insurance benefits shall terminate immediately upon Executive
obtaining employment with a third party which provides health and life
insurance benefits); (C) a "pro-rated bonus" for the fiscal year in which
the termination occurs which shall be payable at the time the Company
customarily pays bonuses; (D) the continuation of all other perquisites for
six months; (E) reasonable outplacement assistance for six months (including
out of pocket expenses of the Executive to search for a job not to exceed
$5000); and (F) payment, if requested by the Executive, for all equity in
MMH or the Company owned by the Executive or his family (including but not
limited to Equity Units), payable in equal quarterly installments over the
twenty-four month period following termination, provided, however, that if
this option is requested, the equity shall be valued as of the date of
termination at its fair market value by the Compensation Committee of the
Board of Directors and shall be repurchased so long as permitted under the
terms of any financing documents, including but not limited to indentures or
loan agreements applicable to the Company or any direct or indirect parent
entity of the Company at such time. For purposes of this Agreement, a
"pro-rated bonus" means the portion of the bonus that is arrived at by using
the number of days the Executive was employed by the Company in the year of
termination as the numerator of a fraction of which 365 is the denominator
and then multiplying the bonus the Executive was otherwise eligible to
receive by such fraction.
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(b) Termination by the Company without Cause. If the Company terminates
the Executive's employment under this Agreement without Cause, the Executive
shall be entitled to the following: (i) a lump sum payment equal to his then
current annual Base Salary plus a lump sum payment equal to the Base Salary
which would have otherwise been payable for the balance of the fiscal year
in which termination occurs, and (ii) the same benefits and compensation and
payable at the same time as provided in clauses (B) through (F) of Section
3.1(a). "Cause" means any of the following acts by the Executive which, if
curable, have not been cured by Executive within 30 days' written notice
thereof: (i) willful failure to substantially and materially perform his
duties as assigned to him by Board of Directors (other than any such failure
resulting from the Executive's reasonable business judgment or incapacity
due to physical or mental illness); (ii) commission of a fraud on the
Company; (iii) breach of fiduciary duty involving material personal gain; or
(iv) willful misconduct materially and demonstrably injurious or detrimental
to the Company or its affiliates.
(c) Death or Permanent Disability. This Agreement shall terminate
immediately upon the Executive's Death or Permanent Disability. Permanent
Disability shall have the same meaning as set forth in the Company's long
term disability policy. Upon termination for Death or Permanent Disability,
the Executive, or his estate, shall receive the following: (i) all accrued
Base Salary and other accrued entitlements earned through the date of
termination, (ii) the continuation of Base Salary for 90 days after such
termination, and (iii) the compensation and benefits set forth in clauses
(B), (C), (D) and (F) of Section 3.1(a).
Section 3.2 Termination Event. "Termination Event" means the Executive's
resignation without Good Reason or termination by the Company for Cause. In the
event of a termination due to a Termination Event, the Executive shall receive
his accrued Base Salary and accrued entitlements through the date of
termination. In the event the Executive resigns from the Company without Good
Reason, such resignation only becomes effective upon 60 days' written notice to
the Company.
Section 3.3 Resignation from the Board of Directors and Offices. In the
event of Executive's termination of employment for any reason (including the
failure of the Company to renew the Agreement), such termination or non-renewal
shall also be considered a resignation as a member of the Board of Directors, a
resignation from the board of directors of any affiliates or subsidiaries of the
Company and a resignation from any offices held by the Executive with the
Company or with any of its affiliates or subsidiaries.
ARTICLE IV: MISCONDUCT AND CONFIDENTIAL INFORMATION
Executive agrees to be bound by the provisions of the World Wide Business
Conduct Policy and the Employee Proprietary Rights and Confidentiality Agreement
attached hereto as Schedule B. The provisions of such documents are incorporated
into this Agreement.
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ARTICLE V: NON-COMPETITION; NON-SOLICITATION; INJUNCTIVE RELIEF
Simultaneously with the execution of this Agreement, Executive shall execute
and deliver to the Company a non-competition agreement in the form attached
hereto as Schedule C (the "Non-Competition Agreement"), which shall become
effective if and when this Agreement becomes effective as provided in Section
1.1 hereof.
ARTICLE VI: INDEMNIFICATION
The Company shall, to the fullest extent permitted by applicable law
indemnify and hold harmless Executive from all claims or expenses that may be
asserted against the Company and affiliates thereof due to his employment, or
that may otherwise derive from Executive's employment as contemplated under this
Agreement, in accordance with the Company's charter and bylaws. The Company
shall purchase and maintain for the benefit of Executive a director's and
officer's liability policy.
ARTICLE VII: MISCELLANEOUS
Section 7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by facsimile or when mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed to such address or sent to such facsimile number as each
party may furnish to the other in writing from time to time. Unless notified
otherwise by Executive, copies of notices or other communications sent to
Executive shall be sent to the address noted on the signature page attached
hereto.
Section 7.2 Applicable Law, Jurisdiction and Venue. This Agreement is
entered into under, and shall be governed for all purposes by, the laws of the
State of Wisconsin. In any such litigation, each party hereto waives personal
service of any summons, complaint or other process and agrees that the service
thereof may be made by certified mail directed to such party at his or its
address for purposes of notice under Section 7.1 hereof.
Section 7.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall (i) be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time or (ii) preclude insistence upon strict compliance in the future.
Section 7.4 Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision all not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
Section 7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
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Section 7.6 Headings. The paragraph headings have been inserted for purposes
of convenience and shall not be used for interpretive purposes.
Section 7.7 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
Section 7.8 Affiliate. As used in this Agreement, unless otherwise
indicated, "affiliate" shall have the same definition as set forth in the
Recapitalization Agreement.
Section 7.9 Assignment. This Agreement, and the rights and obligations of
the parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party except that
vested rights to payment shall be subject to devise, and shall descend in
accordance with applicable laws of inheritance.
Section 7.10 Effects of Termination of Employment. Except as otherwise
provided herein or under any benefit plan or other agreement between the Company
and the Executive, termination of Executive's employment under this Agreement
shall not affect any right or obligation of either party hereto which is accrued
or vested prior to or upon such termination or the rights and obligations set
forth herein.
Section 7.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, contains all
the covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Executive by the Company, and supersedes
all prior employment agreements between the Executive and the Company or any of
its predecessors. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, has been made
by either party, or by anyone acting on behalf of either party, which is not
embodied herein, and that no agreement, statement, or promise relating to the
employment of Executive by the Company, which is not contained in this
Agreement, shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
Section 7.12 Attorney's Fees. Pursuant to the terms of a side letter (the
"Side Letter"), Executive shall be entitled to be reimbursed for reasonable
attorney's fees incurred in the negotiation of this Agreement to the limit
established in the Side Letter. In addition, Executive shall be entitled to
reimbursement of attorney's fees in any litigation between the Company and
Executive with respect to Executive's enforcement of this Agreement to the
extent Executive prevails in such litigation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MORRIS MATERIAL HANDLING, INC.
By: /s/ Michael S. Erwin
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Name: Michael S. Erwin
Title: President
/s/ Edward J. Doolan
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Executive
Acknowledged by
MHE INVESTMENTS, INC.
By: /s/ Michael S. Shein
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Name: Michael S. Shein
Title: Vice President
/s/ Edward J. Doolan
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Executive
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Schedule A
Option Plan
Number of Shares Reserved: 1,186.0849 shares of common stock and
4,328.2500 shares of Series C preferred stock
in MMH Holdings, Inc. (the "Company"), with a
value of $8.1 million on the Closing Date
(such grant to be denominated in 8,100 units,
consisting of 0.1464 shares of common stock
and 0.5344 shares of Series C preferred stock
units and hereinafter referred to as "Equity
Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant")
shall be made with respect to the number of
Equity Units set forth in the Employment
Agreement. Additional option grants shall be
made as determined by the Board of Directors
or Compensation Committee of the Company. The
Initial Grant and future grants shall be from
a pool of 8,100 Equity Units set aside for
such grants.
Exercise Price: The exercise price of an Equity Unit shall be
equal to: (i) the fair market value of a share
of common stock on the date of grant
multiplied by the number of shares of common
stock covered by the Equity Unit, plus (ii)
the liquidation preference multiplied by the
number of shares of preferred stock covered by
the Equity Unit. The exercise price would have
been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not
previously exercised or terminated will expire
ten years from the date of grant.
Method of Exercise: Prior to an "initial public offering" of
Frasier or any subsidiary company, cash only;
provided, however, the Board of Directors or
Compensation Committee of the Company may
authorize cashless exercises. An option may
only be exercised with respect to whole Equity
Units (i.e., as to all the shares of common
stock and preferred stock covered by the
Equity Unit).
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Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the
date of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of
all A Options and B Options and 100% of C
Options which are not vested on the date of
the Employment-Related Event shall be
forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate
on the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related
Event or Termination Event) prior to an
"initial public offering" of the shares of the
Company, all shares of the Company held by
Executive shall be subject to a "call" by the
Company at the FMV on the date of the "call").
In the event that the Company is restricted
from purchasing such shares for cash under any
applicable financing or other agreements, the
Company may issue the Executive a note or such
other permissible security (which shall
contain commercially reasonable terms) in full
satisfaction of such call.
Tag-along Rights: The Executive will have the same tag-along
rights as set forth in paragraph 8 of the Term
Sheet for Equity Investment Stockholders
Agreement (attached as Exhibit E to the
Recapitalization Agreement among Harnischfeger
Corporation, the Sellers named therein and MHE
Investments, Inc., dated January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except
without consideration to a trust or
partnership the only beneficiaries or partners
(as the case may be) of which are immediate
family member of Executive; shares obtained
upon the exercise of options may be
transferred only in accordance with the laws
of descent and distribution.
Other than with respect to transfers of
options pursuant to the preceding sentence, no
third party shall have any direct or indirect
beneficial interest
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in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
ratably (25% a year) on each of the first
through fourth anniversaries of the date of
grant ("A Options"), provided the Executive is
in the employ of the Company on each such
date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior
to the fourth anniversary of the date of
grant, and the Executive is still in the
employ of the Company, all unvested A Options
shall vest.
B Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
25% a year at the end of each of 1999, 2000,
2001, and 2002, subject to satisfaction of the
applicable EBITDA-based "Performance Hurdle"
for each such year ("B Options"). In the event
that the Performance Hurdle is not met for any
particular year, the applicable portion of the
B Options which did not vest will be carried
over to the next year. Thus, if on a
cumulative basis, the aggregate Performance
Hurdles for such two year period are met, any
portion that did not vest previously, shall
vest. For example, if the Performance Hurdle
is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000
equals or exceeds the sum of the Performance
Hurdles for 1999 and 2000) the unvested B
Options attributable to 1999 and 2000 will
vest in 2000. Any portion of B Options which
does not vest because of not meeting the
relevant Performance Hurdle in a particular
year or on a cumulative basis in a subsequent
year will be treated like C Options upon the
"Determination Date" (defined below) and will
vest if the relevant performance criterion for
C Options is satisfied.
For purposes of the B Options, Performance
Hurdle shall mean the precise EBITDA target
attached as Exhibit I for fiscal years
1999-2002, which in the event of any
acquisition will be increased by the pro
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forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the
attainment or lack of attainment of the
applicable Performance Hurdles with respect to
any calendar year as soon as practicable
following the receipt of audited financial
statements of the Company.
If there is a Change in Control prior to the
end of fiscal year 2002, and the Executive is
still in the employ of the Company, unvested B
Options shall vest only if the criterion for
the vesting of C Options is met, as provided
in the next section.
C Options: 1/3 of the total number of Equity
Units subject to the Initial Grant, plus any B
Options which did not vest and have been
carried forward, shall vest if the Internal
Rate of Return earned by the Company exceeds
40% by the "Determination Date," ("C Options")
and the Executive is still in the employ of
the Company on the Determination Date.
The Determination Date regarding the
attainment of the Internal Rate of Return
shall be the closing date of a "Change of
Control".
Initial Public Offering After an initial public offering, and subject
to the approval of the Compensation Committee,
the Executive will be permitted to exercise
his vested options and sell his Equity Units.
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SCHEDULE B
STATEMENT OF PURPOSE
This Worldwide Business Conduct Policy shall apply to all officers,
employees, agents, consultants and directors of HII and of all HII
subsidiaries, operating units and divisions worldwide. References to "HII"
and "Company" in this Policy refers to Harnischfeger Industries, Inc. and all
of its subsidiaries, operating units and divisions. References to "Law
Department" refers to the in-house lawyers located at the HII offices as well
as at the operating unit offices.
Each manager shall review this Policy with all employees for whom he or
she has direct operational responsibility and with new employees as they are
hired. The manager shall have each employee execute the attached certificate
which will certify that the employee has received a copy of the Policy and
that the employee understands the policy and agrees to comply with it. The
executed certificate shall be returned to the operating united Human
Resources Department where it will become a part of each employee's permanent
file.
During each employee's annual performance review, the manager conducting
the review shall review this Policy with the employee. The employee shall
then sign the attached annual compliance certificate which shall also be
returned to the operating unit Human Resources Department. The annual
compliance certificate confirms that the employee has brought to the
attention of his or her immediate supervisor, to management or to the Law
Department all violations of this Policy of which the employee has become
aware during the preceding 12-month period.
WORLDWIDE APPLICATION
This policy applies to all HII operations worldwide, and shall be
translated into the local language to ensure that it is understood by all
employees. Because Harnischfeger Industries, Inc., the parent company, is a
United States corporation, U.S. laws are more likely to apply to its
subsidiaries, operating units and divisions. This Policy therefore
concentrates principally on U.S. laws and regulations. However, employees at
operations outside of the U.S. should adhere to local laws (as distinguished
from local customs) in matters not addressed in this Policy or where local
laws are more rigorous or restrictive than those set forth in this Policy.
REPORTING VIOLATIONS
Each employee shall report to his or her immediate supervisor,
management, or to the Law Department any violation or suspected violation of
this Policy as soon as he or she becomes aware of it. Managers and
supervisors shall then pass along reports of violations or suspected
violations to the Law Department. The Company will maintain the
confidentiality of such disclosures to the extent consistent with the best
interests of the Company and its obligations under law.
To ignore the unethical conduct of others is to be part of the problem,
it is each employee's personal responsibility to bring violations or suspected
violations to the attention of his or her supervisor, management, or the Law
Department.
COMPLIANCE
HII may conduct unannounced internal audits of each of its
subsidiaries, operating units and divisions from time to time to ensure
compliance with this Policy. All HII personnel shall cooperate fully with
such audit efforts.
PENALTIES
This Policy will be vigorously enforced. Conduct contrary to this Policy
shall be considered to be outside of the scope of employment of HII
employees. Failure of any HII personnel to comply with the requirements set
forth in this Policy shall result in appropriate employee sanctions and
disciplinary action, which may include termination of employment. In some
cases the company may have an obligation to call violations of this Policy
to the attention of appropriate enforcement authorities where violations of
this Policy may also be a violation of the law.
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THE POLICY
Part I. Conflicts of Interest.
All employees of HII have a duty to HII to further its aims and
goals and to work on behalf of its best interest. No employee should place
himself or herself in a position where the employee's actions or personal
interests may be in conflict with those of HII. While it is not possible to
discuss every circumstance that may lead to a conflict of interest, the
following are examples:
1.1.1. The holding by an employee, or any member of his or her immediate
family, without written approval of the Law Department, of any substantial
financial interest in any enterprise which has material business dealings
with HII (e.g. competitors, suppliers, and customers) or which engages in any
field of activity engaged in by HII. Financial interests in such an
enterprise which are (i) less that $10,000 and (ii) amount to less
than 3% of the total shareholder's equity of the enterprise shall not be
considered "substantial".
1.1.2. Acting as a director, officer, employee, or otherwise for any
business or other institution with which HII has a competitive or
significant business relationship without the written approval of the Law
Department. An employee should report to his or her supervisor any situation
where members of the employee's immediate household hold positions which are
likely to cause the employee to have a conflict between the interests of HII
and another institution.
1.1.3. Competition with HII in the purchase or sale of any kind of
property, tangible or intangible; or diversion from HII, for the employee's
own direct or indirect benefit, or a business opportunity in which HII has or
is likely to have an interest.
1.1.4. Use of HII assets (funds, facilities, property, know-how, or
personnel) by an employee of HII for other business or personal endeavors
from which the employee might materially benefit.
1.2. Antitrust Compliance.
1.2.1. The following business practices, which generally involve collusive
action with competitors, customers or suppliers, may be considered
"unreasonable" restraints of trade in violation of the antitrust laws. These
practices constitute violations of our Policy:
a. Price Fixing. An agreement with a competitor to fix prices or to
fix terms and conditions of sale.
b. Production Restrictions. An agreement with a competitor to limit
or restrict production of goods for the purpose of limiting supply
and keeping prices high.
c. Market Division. An agreement with a competitor to divide
markets through allocation of sales territories, product lines,
or classes of customers or suppliers.
d. Refusals to Deal. An agreement with a competitor or with any
other party to boycott or not deal with one or more third parties.
e. Bid Rigging. Agreements between actual or potential competitors
to limit competition through coordinated or false bidding
practices.
f. Tying Arrangements. Selling a product on the condition that the
customer purchase another product not desired by the customer.
g. Exclusive Dealing. Selling on the condition that the customer
will not deal with a competitor.
h. Monopolization. Practices designed to exclude or destroy
competitors in areas where HII may have a significant market share,
for example through sales at unreasonably low prices or though
restrictive practices.
1.2.2. Acquisition and Distributors. Certain other business transactions
and practices (such as mergers and acquisitions) may violate the antitrust
laws if they "unreasonably" restrain trade or damage a competitor. The legal
considerations involved in these transactions and practices can be very
complex. Accordingly, you must consult the Law Department before entering
into any agreement for (a) the acquisition of a business; (b) the formation,
amendment or termination of any distributor agreement; or (c) the
establishment of or deviation from a formal pricing policy or list.
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1.2.3. "Gentlemen's Agreements". If a business transaction or practice
violates the antitrust laws, the form of the "agreement" which results in the
violation is immaterial. Oral undertakings, handshakes, "side letters",
"gentlemen's agreements", and other kinds of conduct from which agreements
may be implied, regardless of the name they go by, are still violations.
1.2.4. Contacts with Competitors. The antitrust laws do not prohibit all
contacts with competitors-only those which result in agreements,
understandings, plans, or conspiracies to limit or restrict competition. Apart
from the antitrust laws, however, discussions and exchanges of information
with competitors may jeopardize the best interests of HII by prematurely
disclosing our plans and business strategies. Accordingly, all discussions
and exchanges of information with competitors should be approached with great
care-and with prior advice from the Law Department.
1.2.5. Professional or Trade Associations. Certain HII employees
participate either personally or as HII representatives in various government
advisory committees or civic, professional, technical, or industry
associations that exist for legitimate, socially beneficial purposes. When
representatives of competitors attend meetings of these groups-no matter how
formal or informal the meetings may be-HII employees must take special care
to avoid making statements or engaging in conduct proscribed by this Policy.
Should employees have any doubt concerning the propriety of any matters
under discussion at such meetings, they must immediately disassociate
themselves from the discussion and, if necessary, leave the meeting. It is
important in these situations not only to comply with this Policy, but also
to avoid situations which raise suspicions of law violations in the minds of
hostile, prejudiced third parties. Problems arising from meetings of this
type should be reported promptly to the Law Department.
1.2.6. International Dealings. The antitrust laws of the United States
will often apply to international business transactions. Additionally,
foreign countries have antitrust laws of their own. International business of
the Company should therefore be conducted in accordance with this Policy.
1.3. Accounts and Record Keeping.
HII's books, records and accounts shall be maintained in accordance with
all applicable accounting rules and regulations. All transactions affecting
assets, liabilities, shareholders' equity, revenues and expenses will be
recorded on a timely basis in detailed journals and be traceable through the
general ledger and resulting financial statements.
Under no circumstances will any off-the-books funds or other unrecorded
assets be maintained. No false, misleading or artificial entries shall be
made in any financial books, records or accounts. No payment on behalf of HII
shall be approved or made with the intention or understanding that any part
of such payment is to be used for any purpose other than that described by
the documents supporting the payment.
Except as otherwise directed by the Law Department regarding privileged
information, each employee shall supply all information and data requested at
any time by the Company's internal or independent auditors. Each employee
shall promptly advise management of any inaccuracy or deficiency in the
accounting records.
Be aware that special record keeping rules apply where HII is providing
goods or services to the U.S. Government Record keeping procedures for such
projects shall be approved by the controller for the unit involved.
The HII "Internal Accounting Control Standards Manual" should be
consulted by unit management in order to ensure that (a) transactions are
authorized; (b) transactions are recorded completely, timely and accurately;
(c) access to assets is controlled and assets are safeguarded; and (d) assets
are verified periodically.
1.4. Entering into Contracts and Other Binding Commitments.
HII employees who receive or generate contracts, subcontracts, purchase
orders, letter agreements or other binding commitments are responsible for
determining that they specifically describe the goods, duration, and
commercial terms, and should solicit the assistance of the Law Department
whenever questions arise.
Commercial terms for the sale of HII products should include at a
minimum:
- - A written document signed by authorized representatives of Buyer and HII.
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- -- A clear description of what documents comprise the agreement, and what
documents, such as the buyer's standard terms, are excluded.
- -- Price, payment and delivery terms.
- -- A statement of HII's warranty commitment, excluding any implied
warranties.
- -- A "Limitation of Liability" clause which should state at a minimum "HII
shall have no liability to [Buyer] for lost profits or for incidental or
consequential damages of any kind whether arising in contract, tort,
product liability or otherwise, or language of equivalent legal effect
(per the Law Department).
Any contracts or other agreements which do not meet these minimum
requirements, or which raise other questions as to their meaning and effect,
shall be submitted to the Law Department for review. In addition, any
documents of a legal nature shall be reviewed by the Law Department prior to
execution, including guarantees, assignments, releases, indemnification
agreements, and financing agreements.
Contracts, subcontracts, purchase orders, letter agreements and other
binding commitments to which HII is a party are to be signed on HII's behalf
only as follows:
(a) By an officer of the business unit involved;
(b) If a purchase, by an authorized purchasing department employee; or
(c) In accordance with the business unit's internal signing authority
policy.
1.5 Dealing with Suppliers and Customers.
1.5.1. Employees must award orders, contracts, and commitments to suppliers
strictly on the basis of merit. Merit, as stated in this policy, means on the
basis of quality, price, performance, and other normal business factors
relating to the product or service to be supplied.
1.5.2. Employees must promote and sell HII's products based on design,
quality, service, dependability, and competitive prices and shall refrain
from making misleading or exaggerated claims about the products.
1.5.3. Sales and purchases shall be made on the basis of merit, not on the
basis of reciprocity. The fact that HII has made or may in the future make
purchases from a prospective customer shall not be used to influence a
prospective customer to buy. HII purchases from its customers are
permissible but must be a matter of unilateral choice, and the products or
services offered must be competitive in price, quality, and service.
1.6. Safety and Health.
Under the Occupational Safety and Health Act, the Occupational Safety and
Health Administration (OSHA) has adopted standards for job safety and health
applicable to employers such as HII. The operating manager of each HII
facility located within the United States shall comply with all applicable
OSHA standards and shall ensure that safe and healthful working conditions
exist for all employees at that facility. Unsafe conditions observed by
employees shall be promptly reported to the operating manager. The operating
managers of facilities located outside of the United States shall comply with
all applicable local standards and shall ensure that safe and healthful
working conditions exist for all employees at such facilities.
1.7. Environmental Policy.
HII recognizes the importance of preserving the environment, conserving
global resources and protecting human health. HII is committed to taking
strong initiatives in these areas by:
- -- Complying with federal, state and local environmental laws and
regulations in all of the countries in which we operate.
- -- Continuing improvement of our operations to enhance pollution prevention,
minimize waste production, increase recycling, and efficiently use
non-renewable resources.
- -- Integrating environmental considerations into all corporate processes,
including strategic planning.
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- -- Conducting environmental audits on a regular basis to evaluate
conformance with this policy and applicable environmental laws and
regulations.
- -- Including progress toward environmental, health and safety goals as
criteria in business and personal performance evaluations.
- -- Striving to anticipate future environmental, health and safety risks and
regulatory requirements and having a positive approach to dealing with
them.
Each employee is expected to adhere to the spirit as well as the letter
of this policy. Managers have a special obligation to be aware of
environmental, health and safety risks and standards and to advise senior
management of any adverse situation which comes to their attention.
All complaints received by any facility from any state or federal agency
alleging that HII is not in compliance with any environmental law or any
permit issued under any environmental law shall be promptly reported to the
Law Department.
1.8. Product Safety.
The Policy of HII is to provider product and services which:
- -- Perform their required function safely for their intended use.
- -- Perform their required function reliably and with minimum adverse effects
on the environment.
- -- Meet or exceed applicable governmental, state and local regulations and
industry standards.
- -- Reduce the risk of injury to persons, property and the environment.
- -- Are accurately and properly advertised, labeled, promoted, and packaged.
1.9. Media Relations.
HII values its relationships with the media and will take steps to
provide full and prompt disclosure of all material developments or events.
Media relations are the responsibility of the HII Corporate
Communications Department and all statements to the media or responses to
inquiries from the media shall be made by or coordinated with the HII
Corporate Communications Department in Milwaukee. In the event the media
inquiry concerns a pending threatened legal, environmental or safety-related
matter, media communications should also be coordinated with the Law
Department.
Any employee who is asked for a statement by any member of the media
should respond by explaining this policy and encouraging the person making
the inquiry to contact the HII Corporate Communications Department.
1.10. Political Contributions.
1.10.1. No funds or assets of HII shall be used for federal, state or local
political campaign contributions. This prohibition covers not only direct
contributions but also indirect assistance or support of candidates or
political parties through purchase of tickets to special dinners or other
fund-raising events, or the furnishing of any other goods, services or
equipment to political parties or committees.
1.10.2. No funds or assets of HII shall be used, directly or indirectly, for
political contributions outside the United States, even where permitted by
applicable local law.
1.10.3 Both federal and state governments can assist or restrict the
business of HII through passing laws and regulations. It is important that
HII set forth its position regarding these laws and regulations before they
are passed. However, stringent controls restrict contacts with public
officials, lobbying and public affairs. Therefore, no employee should
entertain a public official or otherwise engage in lobbying efforts on behalf
of HII without authorization from the Law Department.
1.10.4. The above prohibitions apply only to the direct or indirect use of
corporate funds or assets for political purposes and are not intended to
discourage employees from making personal contributions to the candidates,
parties or committees of their choice. Under no circumstances shall
employees be reimbursed in any way for political contributions.
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PART II. INTERNATIONAL COMMERCE
2.1. Export Controls.
In general, anything shipped abroad from any of the countries in which
HII does business must be accompanied by an export license. There are certain
statutory licenses which allow us to export nonmilitary and non-high
technology goods to our most-favored trading partners without any specific
license. Export control regulations are, however, quite complex, and
employees involved in export transactions must observe the following:
2.1.1. There must exist a specific export license (or a regulation waiving
the requirement that an export license be obtained) covering the intended
export transaction. This includes exports of technology as well as exports of
goods and services.
2.1.2. Any information furnished to the U.S. government, the government of
any other country, or to companies retained to facilitate HII export
transactions must be truthful, accurate and complete. This includes both
information as to the technology in question and as to the economic value of
the exports.
2.1.3. The export of certain high-technology goods and most
military-related products, services and technology must be reviewed and
approved by the U.S. Office of Defense Trade Controls.
2.1.4. The definition of "export" is quite broad and can include
conversations of a technical nature with a citizen of another country even
thought that conversation takes place entirely within the U.S. An "export"
may also take place during plant tours where foreign visitors may obtain
technical information. Any questions concerning export control laws should be
directed to the Law Department.
2.2. Payments to Government Officials and Personnel Outside of the U.S.
The Foreign Corrupt Practices Act prohibits the making or offering of any
monetary payment, gift or other thing of value to foreign officials,
political parties, or candidates for foreign political office for the purpose
of obtaining or retaining business with a person, business concern or
government agency. Employees of HII shall conduct business in strict
compliance with the requirements of this Act as follows:
- - Under no circumstances shall an employee of HII make a payment to a
government employee or official or political candidate if he or she knows
or has reason to believe that it is for the purpose of obtaining or
retaining business for HII. Payments to distributors, sales agents,
consultants or representatives with the knowledge or with reason to
believe that any portion of such payments will be passed along to a
government employee or official or political candidate are also
prohibited. Requests for commissions or payments that are unusual or not
supported by fair consideration shall be reviewed with the Law Department.
- - In some countries, certain industries such as paper mills, mines, and
utilities are owned or controlled by government-owned corporations.
Officers, directors, and employees of these industries are therefore
considered government employees. Thus, employees of HII cannot make or
offer payments, gifts, or other valuable consideration to these
individuals in order to obtain or retain business for HII.
2.3. International Boycotts and Restrictive Trade Practices.
U.S. law prohibits HII or any of its employees from refusing to do
business with anyone based upon race, religion, sex or national origin and
from providing information concerning these matters to customers or potential
customers. They also prohibit the providing of information about
relationships that HII may have with a boycotted country. Any document
received by HII which contains any boycott language, whether pursuant to a
specific contract or not, and whether or not HII responds, should be
identified and reported to the Law Department. Examples of boycott language
include:
"Certify that these goods are not of Israeli origin."
"Certify that these goods are not shipped on a blacklisted vessel."
"Certify that you have no dealings with Israel."
"Certify that you have no operations in Israel."
No information with regard to any such requests may be furnished, orally
or in writing, and the mere receipt of a request for such information must be
reported to U.S. government agencies. The complexities of the law in this area
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are such that HII employees are required to immediately report to the Law
Department any request which calls for, or even appears to involved, any
prohibited information.
PART III: DOING BUSINESS WITH THE U.S. GOVERNMENT
3.1 Conduct of Business with the United States Government.
The conduct of business with the U.S. Government is subject to a
large body of statutory and regulatory requirements. Failure to observe these
requirements can result in criminal prosecution of individual employees and
debarment or disqualification of the Company from Government contracting.
Consult the Law Department for details of these rules.
Employees shall fully comply with all applicable statutory and
regulatory provisions, including but not limited to the following:
3.1.1 The False Statements Act.
The False Statements Act prohibits the making of any statement,
written or oral, which is knowingly false, or the knowing and willful
concealment of a material fact during a transaction with the Government.
Employees shall ensure that all statements made to the Government or its
representatives are true and accurate to that person's best knowledge and
belief.
3.1.2 The False Claims Act.
The False Claims Act prohibits the submission of any claim upon or
against the Government which is known to be false. Employees shall ensure
that all time charges, expense accounts, invoices, or other requests for
payment submitted to the Government are true and accurate and reflect only
those time periods and charges which were actually incurred in performance of
the contract or job order for which they have been submitted.
3.1.3. The Truth-In-Negotiations Act.
The Truth-In-Negotiations Act requires that employees certify that cost
and pricing data submitted to the Government in accurate, complete and
current.
3.1.4. The Procurement Integrity Act.
The Procurement Integrity Act prohibits:
(a) the offering or acceptance of bribes, kickbacks, or gratuities;
(b) the unauthorized exchange of proprietary or source selection
information; or
(c) the discussion, offer or promise of future employment to, from or
with a Government procurement official.
3.1.5. The Anti-Kickback Act.
The Anti-Kickback Act prohibits Government prime contractors from
receiving any fee, commission, gift, gratuity or other compensation from a
subcontractor as an inducement for the award of a subcontract or order.
Employees shall ensure that no fee, commission, gift, gratuity or other
compensation is made by or received from a prospective or current
subcontractor as a result of the receipt or award of any Government
subcontract or job order.
3.1.6. Reporting Requirements.
Employees shall comply with all applicable Government reporting
requirements in an accurate and timely manner, and copies of such reports
shall be retained until destroyed in accordance with Government record
retention requirements.
3.1.7. Time and Materials Charging Policy.
It is the policy of HII that all time actually spent and all materials
actually used in performing government contracts shall be accurately reported
in accordance with established procedures and applicable legal requirements,
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and that all reported labor and material costs shall be charged only to the
contract(s) for which they were properly incurred.
This Policy expressly forbids (1) the knowing or deliberate mischarging
of costs or time, and (2) the alteration of completed time sheets, except to
correct errors.
3.3 Government Investigations.
Because of HII's broad business base, the company may from time to time
be subject to investigations by government agencies.
It is HII's policy to cooperate with every reasonably and valid request
by federal, state and local government investigators. At the same time, HII
is entitled to all the safeguards provided in the law for person under
investigation, including representation by counsel. Accordingly, if a
government investigator requests an interview with any HII personnel, seeks
information or access to files and records, access to a facility, or poses
written questions, he or she should be told that HII will cooperate, but that
you must first discuss the matter with the Law Department. You should
immediately telephone the Law Department which will then provide advice as to
further action.
Should you personally be approached after business hours by government
officials seeking information, we recommend you decline to respond to any
questions until you consult with the Law Department the next business day.
PART IV: EMPLOYMENT
4.1 Equal Employment Opportunity.
It is the policy of HII to provide equal opportunity for employment
promotion to all qualified persons; to prohibit discrimination because of
race, creed, color, national origin, sex, age, or handicap and to promote the
full realization of Equal Employment Opportunity through a positive,
continuing program throughout the entire Company.
Affirmative Action programs implementing the Company's Equal Employment
Opportunity policy shall exist at each plant location. Employees shall be
made aware of the existence of such Affirmative Action Programs by the
posting of bulletins or by individual communication. At U.S. operations this
communication shall state:
"As a Federal Contractor obligated to meet the requirements of Executive
Order 11246 and any subsequent amendments, an Affirmative Action Program has
been prepared for this Facility. It contains goals, actions and timetables
which relate to Equal Opportunity in all personnel actions. To avail
yourself of the benefits of this Program, you are urged to contact your
Supervisor and the Human Resources Department."
In addition, there shall be no segregation or discrimination due to race,
creed, color, national origin, sex, age, or handicap at any of the Company's
facilities, including without limitation washrooms, restrooms, vending
machine areas, cafeterias, locker rooms or work areas (other than providing
separate wash/rest rooms and locker rooms for each sex).
Managerial employees in all subsidiaries, operating units and divisions
of the Company shall take affirmative action to ensure that this Equal
Employment Opportunity Policy is follows.
4.2 Sexual Harassment.
HII prohibits sexual harassment of its employees in any form. It is both
illegal and against policy for any employee, male or female, to harass
another employee by:
- - Making unwelcome sexual advances or requests for sexual favors or other
verbal or physical conduct of a sexual nature a condition of an employee's
continued employment;
- - Making submission to or rejection of such conduct the basis for employment
decisions affecting the employee; or
- - Creating an intimidating, hostile, or offensive working environment by
such conduct.
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Other sexually harassing conduct in the workplace, whether committed by
supervisors or non-supervisory personnel is also prohibited. This includes:
offensive sexual flirtations, advances, or propositions; verbal abuse of a
sexual nature; graphic verbal commentaries about an individual's body; sexual
degrading words used to describe an individual; and the display in the
workplace of sexually suggestive objects or pictures.
PART V: CORPORATE ASSETS
5.1 Improper Use of Corporate Assets.
The assets of Hll are much more than our equipment, inventory, corporate
funds or office supplies. They include designs, drawings, software codes,
trade secrets, financial data, and other information about Hll.
These assets are only to be used for the benefit of Hll. They may not be
used for the personal gain of employees or others. Each employee is
responsible for making sure that Hll assets are used only for valid company
purposes.
Thus, employees may not transfer any Hll assets to other people or firms,
except for sale of goods in the ordinary course of business. Intentional
misapplication or waste of Hll equipment, tools, materials, supplies or other
assets is a violation of this Policy. In addition, unauthorized removal of
these assets from Hll facilities may be a violation of the law.
In the event that assets which are no longer needed in the business are
sold to employees, such sales must be approved by management and supported by
proper documentation.
5.2 Trade Secrets and Proprietary or Confidential information.
Employees shall take all steps necessary to appropriately safeguard Hll's
trade secrets and proprietary or confidential information.
Proprietary or confidential information includes any information which is
not generally known to the public and which is useful or helpful to Hll
and/or which would be useful or helpful to competitors. Common examples
include financial data, sales figures, new product information, manufacturing
methods, customer and supplier lists, information concerning corporate
acquisitions or divestitures, capital investment plans, supplier prices,
engineering data and drawings, and computer software and date stored in our
databases.
With respect to Hll's trade secrets and proprietary or confidential
information:
- -- Such information shall not be disclosed to anyone outside of Hll except in
conjunction with a written disclosure agreement to be provided by the Law
Department.
- -- Employees with access to such information should disclose it to others
within the company on a "need-to-know" basis only.
- -- Employees shall be alert to inadvertent disclosures which may arise in
social conversations or in normal business relations with suppliers and
customers.
Employees shall in addition strictly comply with the terms and conditions
of the "Employee Proprietary Rights and Confidentiality Agreement" signed by
each employee.
With respect to trade secrets and proprietary or confidential information
of other companies:
- -- Employees shall not receive any such information unless there is a clear
commercial reason for doing so and then only under the terms of a written
confidentiality agreement which has been reviewed by the Law Department.
- -- If any employee is approached with any offer of such information which he
or she has reason to believe may have been obtained improperly, he or she
must immediately disclose the matter to his or her immediate supervisor
or to the Law Department.
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5.3. Protection of Trademarks.
The trademarks of HII, its subsidiaries, operating units and divisions,
are assets of considerable value. However, in order to preserve their
validity and value to the company, their use must comply with the rules and
regulations of the governments which have granted trademark registration to
certain words, name or symbols. The following general rules should be
followed in all countries:
- - Always use trademarks in a distinctive manner, even in internal memos,
such as by capitalization or by placing the word or symbol in quotes
("MAGNETORQUE").
- - At the first use of the trademark in public documents such as ads, use
the registration or trademark notice for the country in which the document
will appear. The registration notice for the U.S. is "-Registered
Trademark-" ("P&H") and the notice for a trademark that has not been
registered is "-TM-" ("TORQUE-LOCK -TM-).
- - Only use the trademark to describe a product ("P&H Cranes").
Questions regarding trademark use, and any plans for the creation or
registration of new trademarks, should be directed to the Law Department.
5.4. Software of Others.
Other than software developed by HII's employees, HII licenses the use
of its computer software from outside companies. HII does not own this
software or its related documentation and, unless authorized by the software
developer, does not have the right to reproduce it. Generally, it is
necessary to purchase one software program for each workstation unless a
multiple use license agreement is entered into with the manufacturer.
HII employees shall not make, acquire, use, resell, or transfer
unauthorized copies of computer software. No software shall be installed on
HII hardware other than that licensed by HII or developed by its employees.
With regard to software for local area networks or multiple workstations,
employees shall use the software only in accordance with the applicable
license agreement. Backup copies are permitted if authorized in the software
documentation.
PART VI: PERSONAL ETHICS
6.1. Fraud, Bribery and Kickbacks.
6.1.1. Fraud. HII employees shall not employ or participate in dishonest
methods or schemes for the purpose of obtaining personal or business
advantage or reward, including methods involving fraud, deceit, or
overreaching, or methods which depart from fundamental standards of honesty
and fair play.
6.1.2. Bribes and Kickbacks. HII employees shall not in any way offer, give
solicit or receive any bribes, kickbacks or other illegal or improper
payments, transfers or receipts. No employee shall offer, give, solicit or
receive any money or anything else of value, directly or indirectly, for the
purpose of obtaining, retaining or directing business or bestowing or
receiving any kind of favored treatment or special concessions, including
commissions and finder's fees, to or from employees of other companies or
organizations (except for authorized commissions to HII sales agents in
accordance with the terms of a written agency agreement).
6.1.3. Gifts. HII employees and members of their immediate families shall
not accept, directly or indirectly, any service, payment, loan, discount
(except those offered to employees of HII generally), entertainment or travel
(except that which is customary and of nominal value), vacation or pleasure
trip, gift (other than one of nominal value which is customarily offered), or
gift or money in any amount from suppliers of materials or services to HII.
6.1.4. Government Employees and Politicians. Federal and state laws prohibit
giving a gratuity to a Government employee or politician. HII employees
shall not promise, offer or deliver to an officer or employee of the U.S.
Government or a politician gifts, favors or anything of value, including
meals and travel. The laws could be violated if anything of value is given to
a Government employee or politician even if there is no intent to influence
an official action or decision.
6.2. Inside Information.
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No employee, while in possession of material inside information
concerning HII (including acquisitions or divestitures contemplated by HII),
shall:
(i) purchase or sell any stock, bond or other security issued by HII;
(ii) purchase or sell any stock, bond or other security by any third
party to which the material inside information relates; or
(iii) reveal such material inside information to any person, including
friends and family members, unless that person needs to know such information
in order to carry out duties or obligations to HII. For purposes of this
paragraph, "material inside information" is any information which a
reasonable investor would consider important in deciding whether to buy,
sell, or hold a security and which has not been in the public domain for at
least forty-eight hours pursuant to appropriate disclosure. Improper use of
inside information by either an insider or a "tippee" constitutes a violation
of the Federal Securities laws and could result in the imposition of severe
penalties and imprisonment.
6.3. Travel and Expense Accounts.
HII shall reimburse ordinary and necessary business-related travel and
entertainment expenses in accordance with Company policy and in compliance
with applicable legal and taxing authorities. Each Operating and Business
Unit Controller is responsible for developing travel and expense reporting
procedures which adhere to the requirements of Company policy, and for
implementing a reporting system designed to detect violations.
Company policy regarding the following travel and entertainment expense
reporting categories is set forth in the HII Corporate Accounting Policy
Manual:
<TABLE>
<S> <C>
- - Permanent and Temporary Advances. - Air Travel.
- - Lodging and Meal Expenses. - Entertainment Expenses.
- - Rental Cars. - Direct Charges.
- - Credit Cards. - Miscellaneous Expenses.
- - Approval Requirements.
</TABLE>
6.4. Maintaining a Drug-Free Workplace.
HII regards drug abuse as a serious medical, business and social problem
which will not be tolerated. In order to ensure the health and safety of
employees, customers and the public and to ensure compliance with all
federal, state and local laws, the following guidelines will be strictly
enforced.
- - The possession, use, sale, distribution or manufacture of illegal drugs,
controlled substances, or the paraphernalia associated with such illegal
drugs or controlled substances for purposes other than their legally
permitted use, or the unauthorized use of controlled substances on HII
premises, include parking premises, or outside HII premises while on
company business, is absolutely prohibited. Violations will result in
disciplinary action including possible discharge. If appropriate,
violations will be reported to local law enforcement authorities.
- - Off-the-job illegal drug use which could adversely affect an employee's
job performance or which could jeopardize the safety of other employees,
customers, or the public is proper cause for administrative or
disciplinary action including discharge.
- - Employees who are convicted of illegal off-the-job drug activity will be
considered in violation of this policy and subject to disciplinary
action including discharge.
6.5. Maintaining an Alcohol-Free Workplace.
The use of alcoholic beverages on company property is prohibited.
Employees shall not report to work while under the influence of alcoholic
beverages. An employee will be considered to be "under the influence"
when consumption of any alcoholic beverage has impaired or is likely to
impair the employee's job performance.
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<PAGE>
Any employee who consumes any alcoholic beverage during the work day,
including during the lunch hour, shall not return to work but shall take the
balance of the work day off without pay or as a credit against accrued
vacation time. However, the use of alcohol in moderation by employees after
normal working hours while entertaining customers or in other social settings
involving company business is permitted.
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<PAGE>
TO BE SIGNED AND FILED DURING JANUARY, 1998
RETURN TO OPERATING UNIT HUMAN RESOURCES DEPARTMENT
Certificate of Compliance with Harnischfeger Worldwide
Business Conduct Policy -- Annual Certification
I hereby certify that I have reviewed a copy of the Harnischfeger Worldwide
Business Conduct Policy with my supervisor as of the following date. I
understand and agree to continue to comply with this Policy. I further
certify that I have brought to the attention of my supervisor or the Law
Department any and all violations of this Policy of which I have become aware
during the preceding 12-month period.
Signed:
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Print Name:
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Title:
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Date:
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13
<PAGE>
Harnischfeger Industries, Inc.
EMPLOYEE PROPRIETARY RIGHTS AND
CONFIDENTIALITY AGREEMENT
In consideration of my employment and, as applicable, my continued
employment, and the compensation paid to me by Harnischfeger Industries,
Inc., or any of its subsidiaries (direct or indirect), affiliates or
divisions and its successors and assigns (hereinafter jointly and severally
referred to as "Harnischfeger"), I hereby agree and warrant as follows:
(1) That for purposes of this Agreement;
(a) "Invention" means any discovery, improvement or idea (whether or not
described in writing or reduced to practice; and whether patentable
or not) made solely by me or jointly with others, while I am
employed at Harnischfeger: (i) relating to any of Harnischfeger's
existing or potential products, processes, manufacturing,
engineering, research, equipment, applications or other activities
or investigations; or (ii) relating to any work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(b) "Work of Authorship" means any computer program or system as well as
any literary, pictorial, sculptural, graphic or audiovisual work,
whether published or unpublished, and whether copyrightable or not,
in whatever form and in whatever media, originated solely by me or
jointly with others while I am employed at Harnischfeger: (i)
relating to any of Harnischfeger's existing or potential products,
processes, manufacturing, engineering, research, equipment,
applications or other business or technical activities or
investigations; or (ii) relating to ideas, work or investigations
conceived or carried on by me in connection with or because of my
employment by Harnischfeger.
(c) "Trade Secret" means all information possessed by or developed for
Harnischfeger, including any formula, pattern, compilation, program,
device, method, technique, process, unpublished invention or
unpublished Work of Authorship, to which all of the following apply:
(i) The information derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use;
(ii) The information is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances.
(d) "Confidential Information" means information, to the extent it is not
a Trade Secret as defined herein, which is possessed by or developed
for Harnischfeger and which relates to Harnischfeger's existing or
potential business or technology, which information or technology is
generally not known to the public and which information or technology
Harnischfeger seeks to protect from disclosure to its existing or
potential competitors or others, including, without limitation, for
example: nonpublic business plans, strategies, existing or proposed
bids, costs, technical and engineering developments, existing or
proposed research projects, financial or business projections,
marketing plans, investments, negotiation strategies, and
information stored or developed for use in or with computers.
Confidential information also includes information received by
Harnischfeger from others which Harnischfeger has an obligation to
treat as confidential.
1
<PAGE>
(2) That, in the even I, by myself or jointly with others, make an
invention, originate a Work of Authorship, create Confidential
Information or create a Trade Secret while employed at Harnischfeger, it
shall, without further payment, immediately become the property of
Harnischfeger throughout the world. In addition:
(a) I will disclose and communicate to Harnischfeger promptly and fully
all such inventions made, Works of Authorship originated and Trade
Secrets and Confidential Information created;
(b) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
execute patent applications, copyright applications, assignments,
and other documents relating to each Invention and Work of
Authorship necessary or proper to vest ownership in Harnischfeger
and to obtain, maintain and enforce Letters Patent, Certificates of
Copyright Registration, and other proprietary rights to the
Inventions and Works of Authorship throughout the world; and
(c) Whether during or after my employment by Harnischfeger and without
charge to Harnischfeger, but at its request and expense, I will
give affidavits and testimony as to facts within my knowledge in
connection with any such Inventions and Works of Authorship in any
administrative proceedings, arbitration, litigation or controversy
relating thereto.
(3) Except as required in the conduct of Harnischferger's business or as
expressly authorized in writing on behalf of Harnischfeger, I will not,
during my employment and for a period of five years after termination of
my employment, directly or indirectly use or disclose any Confidential
Information. This prohibition does not apply to Confidential Information
after it has become generally known. This prohibition also does not
prohibit my use of my general skills and know-how acquired during and
prior to my employment by Harnischferger, as long as such use does not
involve the use or disclosure of Confidential Information or Trade
Secrets.
(4) In addition to and regardless of my promise made in paragraph 3 hereof,
during my employment at Harnischfeger I will do what is reasonably
necessary to prevent unauthorized disclosure of Harnischfeger's Trade
Secrets and Confidential Information and, after termination of my
employment, I will not use or disclose Harnischfeger's Trade Secrets as
long as they remain, without misappropriation, Trade Secrets.
(5) Immediately upon termination of my employment, I will return to
Harnischfeger all Harnischfeger's papers, documents and things,
including information stored for use in or with computers and software
applicable to Harnischfeger's business (and all copies thereof), which
are in my possession or under my control, regardless whether such
papers, documents or things (or their copies) contain Confidential
Information of Trade Secrets.
(6) Any invention or Work of Authorship relating to Harnischfeger's business
made or created by me or disclosed by me to third parties within one
year following the termination of my employment at Harnischfeger shall
be deemed to be Harnischfeger's property throughout the world, unless
provided by me to have been conceived and made or created by me
following the termination of my employment with Harnischfeger.
(7) All inventions (i.e. discoveries, improvements or ideas) in the field of
Harnischfeger's business made by me prior to my employment at
Harnischfeger and therefore not coming under this Agreement are listed
and described on the reverse side hereof.
(8) To the extent that they exist, I will not disclose any of my previous
employer's confidential information or trade secrets to Harnischfeger. I
further represent and warrant to Harnischfeger that I have not
previously assumed any obligations inconsistent with those of this
Agreement and that, to the best of my knowledge, my employment at
Harnischfeger does not conflict with any prior obligations to third
parties.
(9) This Agreement shall remain in force in the event that my employment
status changes from being employed at one entity to being employed at
another entity within the group comprised of Harnischfeger Industries,
Inc. and its present or future director or indirect subsidiaries,
affiliates or divisions.
2
<PAGE>
(10) That my heirs, executors and administrators are bound by this Agreement
insofar as possible under its terms.
- -------------------------------------------------------------------------------
I hereby acknowledge that I enter into this Agreement voluntarily and that I
have this day received a copy of this Agreement.
Signed:
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Printed:
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Title:
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Date:
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3
<PAGE>
SCHEDULE C
NONCOMPETITION AGREEMENT
This agreement ("Contract") is made and entered into by Morris Material
Handling, Inc. (the "Company") and Martin L. Ditkof ("Executive") to be
effective on the date of the Closing of the Recapitalization of MMH Holdings,
Inc.
W I T N E S S E T H
WHEREAS, Executive is an executive officer of the Company and will be
offered the opportunity to be an owner of certain shares of MMH Holdings, Inc.
if the attached Employment Agreement and this Schedule C are acceptable to
Executive; and
WHEREAS, by virtue of Executive's relationship to the Company's
business, his knowledge of such business and its trade secrets, his relationship
with its customers, and his experience, Executive acknowledges that his
competition with the business or his solicitation of employees to the business
to leave the Company would be detrimental to the future prospects of the
business; and
WHEREAS, Executive and the Company are entering into an Employment
Agreement to be effective simultaneously with the effectiveness of this
Contract, under which the Executive will be provided certain benefits and rights
not available to employees of the Company in general; and
WHEREAS, Executive, by reason of his ownership of shares in MME
Holdings, Inc. and his continued employment with the Company, shall become privy
to additional trade secrets and proprietary information possessed by the
Company, and further shall gain additional advantages otherwise not available
should he compete against the Company or its "affiliates" (any person or entity
which directly or indirectly through one or more intermediaries owns or
controls, is owned or controlled by, or is under common ownership or control
with, the Company) in the future; and
WHEREAS, Executive acknowledges and agrees that based on the foregoing,
the following agreement is fair and reasonable;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree and promise as follows:
1. Subject to the terms and limitations contained in the Employment
Agreement, Executive agrees that he will not at any time during his employment
by the Company, or 24 months after such employment terminates, take or engage in
any of the following actions except with the written permission signed by an
officer of the Company (or its successor or assignee):
<PAGE>
(a) Directly, or indirectly, own, direct, manage, work for or
consult with, in any executive, managerial, sales, engineering or other
capacity, any hoist or industrial crane designer, manufacturer or distributor
that designs, manufactures, sells or distributes hoists or industrial cranes in
any state or country in which the Company or any affiliate of the Company
designs, manufactures, sells or distributes hoists or industrial cranes. This
provision shall not apply to the Executive's passive investment in a publicly
traded company in which Executive owns less than five percent (5%) of the
outstanding shares.
(b) Solicit or transact any business relating to hoists or
industrial cranes with any supplier, customer or target of the Company or the
Company's affiliates with which Executive had contact on behalf of the Company
or any affiliate in the 12 months prior to the termination of Executive's
employment with the Company or with respect to which Executive received
information from the Company in the 12 months prior to the termination of
Executive's employment with the Company.
(c) Solicit any non-clerical or non-secretarial employee of
the Company or the Company's affiliates to leave the employment of the Company
or such affiliate.
2. Executive acknowledges and agrees that the above are reasonable
limitations given all of the facts, that he has been encouraged to take legal
advice as to the effect of the above limitations, and that full and adequate
consideration for the above has been and is being paid to him by the Company.
3. Should Executive breach any of the above restrictions, the parties
agree that, in addition to actual damages, that the Company may sue Executive
for an injunction and such other equitable relief as available in a court of
competent jurisdiction including, but not limited to, seeking an order
restraining Executive from further breaches of the above restrictions.
4. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained above to be reasonable and
necessary for preserving and protecting the Company. Nevertheless, if any of the
restrictions are found by a court to be unreasonable, or overbroad as to
geographic area, time, or scope, or otherwise unenforceable or against public
policy, then the parties intend for the restrictions to be modified by such
court so as to be enforceable to the maximum extent allowable. Further, the
parties agree that this Contract is specifically subject to the severability
provisions contained in the Employment Agreement.
5. This Contract shall be governed by and construed in accordance with
the laws of the state of Wisconsin.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
- ----------------------------------- ------------------------------------
Executive
ATTEST: Morris Material Handling, Inc.
- ----------------------------------- By:
--------------------------------
Title:
-----------------------------
3
<PAGE>
DATED MARCH 30, 1998
MORRIS MECHANICAL HANDLING
-and-
M J MADDOCK
----------------
SERVICE AGREEMENT
---------------
<PAGE>
THIS AGREEMENT is made the 30th day of March, One thousand nine hundred and
ninety-eight
BETWEEN:-
(1) MORRIS MECHANICAL HANDLING whose registered office is at P.O. Box 7,
North Road, Loughborough LE11 1RL.
(2) MICHAEL JOHN MADDOCK of Ulverscroft Close, Ashby Road, Gilmorton,
Lutterworth LE17 5LY.
WHEREBY IT IS AGREED THAT:-
1. INTERPRETATION AND DEFINITONS
1.1 In this Agreement the following words, phrases and expressions shall
have the following meanings:-
"the Board" the Directors of the Company present at a
meeting of the Directors or at a duly convened
meeting of a Committee of the Directors
"the Commencement Date" the date of this agreement
"the Company" Morris Mechanical Handling Limited
"the Executive" Michael John Maddock
"the Group" the Company and its subsidiaries (as defined
in the Companies Act 1985 as amended by the
Companies Act 1989) and any associated company
(which expression shall mean any company which
is not a subsidiary of which not less than 20%
of its equity share capital is beneficially
owned by the Company) of the Company together
with MMH Holdings, Inc., a Delaware, U.S.A.
corporation.
1.2 Any reference to a statutory provision shall be deemed to include all
re-enactments and modifications of it or the provision referred to and any
regulations made under it or under the provision referred to.
<PAGE>
1.3 The headings in this Agreement have been inserted for convenience only.
They are not to affect its interpretation.
2. THE EXECUTIVE'S APPOINTMENT
2.1 The Company will employ the Executive and the Executive will serve the
Company on and subject to the terms and conditions of this Agreement.
2.2 The Executive's employment began on the Commencement Date. The
Executive's period of continuous employment (taking into account any
employment with a previous employer which counts towards that period) began
on 2nd January 1989.
2.3 The Executive's employment will continue from the Commencement Date and
thereafter unless and until it is terminated pursuant to clause 10 or by
either:-
2.3.1 the Company giving to the Executive not less than twelve
months written notice; or
2.3.2 The Executive giving to the Company not less than twelve
months written notice.
3. THE EXECUTIVE'S DUTIES AND OBLIGATIONS
3.1 The Executive is to act as Vice President -- Middle East/Asia Pacific
Region of Morris Mechanical Handling, Inc., reporting to the Chairman.
3.2 Whilst the Executive is employed by the Company he will:-
3.2.1 perform his duties with reasonable skill and care and to the
best of his ability
3.2.2 comply with all reasonable directions from time to time given
to him by the Board and at all times keep the Board properly
informed of matters which come to his attention which may
materially affect the business of the Company or any member
of the Group
3.2.3 devote the whole of his working time, abilities and attention
to his duties
3.2.4 work such hours as the Company may reasonably require whether
or not these are outside normal business hours
2
<PAGE>
3.2.5 at all times serve the Company and the Group well and
faithfully.
3.3 Whilst the Executive is employed by the Company he will not:-
3.3.1 do anything which may in the reasonable opinion of the Board
bring any member of the Group into disrepute or harm the
goodwill or commercial image of any member of the Group or
which is or is likely to be damaging or prejudicial to the
business and/or commercial interests of the Company or the
Group
3.3.2 be engaged or interested (except with the prior written
approval of the Board) in any other trade, profession,
business or occupation (including any public or private
activity which in the reasonable opinion of the Board may
interfere with the proper performance of his duties) or hold
any directorship or other office in any company or other body
whether incorporated or unincorporated.
3.4 Nothing contained in this Agreement shall preclude the Executive from
holding not more than 3% of the issued shares or other securities of any
class of a company which are quoted or dealt in on a recognized Stock
Exchange.
3.5 The initial location of the Executive is at North Road, Loughborough.
The Executive will however travel both within the UK and abroad as may be
necessary for the proper performance of his duties and will spend nights
away from the initial location and/or his home where that is necessary for
the performance of his duties. The Executive will not be required without
his consent to locate his office on a full time basis whether permanently or
temporarily to any place outside a radius of 50 miles from the initial
location.
3.6 There are no disciplinary rules on the date of this Agreement which are
specifically applicable to the Executive (other than the provisions of this
Agreement). The Executive shall be expected to behave at all times in a
manner appropriate to his position and responsibilities and to comply with
any staff rules in force from time to time. The Board may however introduce
and amend such disciplinary rules as it thinks fit.
3.7 If the Executive is dissatisfied with any disciplinary action taken
against him or has any grievance relating to his employment he may apply for
redress to the Chairman of the Company whose decision shall be final and
binding, subject to any recourse to law which the Executive may have.
3.8 Unless the Board prescribes otherwise, and save as expressly provided in
the Agreement there will be no specific terms or conditions relating to the
Executive's hours of work. The Executive shall work such hours as may be
3
<PAGE>
necessary or appropriate from time to time to carry out his duties properly
and effectively.
4. RENUMERATION AND EXPENSES
4.1 The Executive will receive a salary at the rate of (pound)80,900 per
annum. This will be reviewed by the Board (or by any Compensation or
Remuneration Committee established for that purpose) at least once a year.
4.2 The salary is payable by equal monthly installments in arrears on the
last day of each month (or such other day as the Board shall from time to
time decide). It will be deemed to accrue from day to day.
4.3 The salary includes all remuneration or fees to which the Executive
shall be entitled as a Director or officer of any member of the Group.
4.4 The Company or the relevant Group member will reimburse all reasonable
travelling, hotel, entertaining and other expenses properly incurred by the
Executive in the performance of his duties. The Executive will provide
whatever receipts or other supporting documentation may be required and will
comply with the Company's policy and rules relating to the incurring and
reimbursement of expenditure as may be in force from time to time.
4.5 The Executive will be entitled to receive a bonus calculated and paid in
accordance with the provisions of the management bonus scheme from time to
time maintained by the Company.
4.6 For each of 1998 and 1999, the Executive shall receive an additional
payment in the amount of (pound)56,250.
4.7 The Executive shall be eligible to receive an initial option grant with
respect to _____ "Equity Units" (as defined under the Company's Option Plan
in accordance with the general terms set forth in Schedule A).
5. BENEFITS
5.1 The Company will provide for the private and business use of the
Executive a suitable motor car in accordance with the policy of the Company
as determined by the Board from time to time.
5.2 The Company will pay the cost of insuring, taxing and maintaining the
car and will reimburse the Executive all the business and private running
expenses thereof. The Executive will ensure that the car is serviced in
accordance with the manufacturer's recommendations and that he complies at
all time with the
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<PAGE>
requirements and provisions of the policy of insurance in force in respect
of the car from time to time.
5.3 The car is to remain the property of the Company. On termination of this
Agreement the Executive is to return it in good condition (fair wear and
tear excepted) to the Company together with its keys and all documents
relating to it.
5.4 The Executive shall be entitled to benefits under such private health
plan as the Board may determine from time to time (on the National Scale
appropriate to the nearest hospital to the Executive's home) under its rules
from time to time in force for the benefit of the Executive his spouse and
his children who are resident in the United Kingdom and are under the age of
21 or who are more than that age but are engaged in a full time course of
education.
5.5 The Company will reimburse the Executive with all reasonable expenses
incurred by the Executive arising out of the Executive's use of his home
telephone.
6. PENSION
6.1 Subject to the terms of the Trust Deed, the Scheme rules and any other
scheme documentation from time to time in force the Executive will be
entitled to join and be a member of the pension scheme or schemes to be
established by the Company and the Company will procure that the benefits to
which the Executive is entitled pursuant to such scheme or schemes are equal
in value overall to the benefits which the Executive would have been
entitled to under the Trafalgar House Executive Pension Scheme ("the
Scheme") in respect of the Executive's service in the scheme to the
Commencement Date. If he does so he will make contributions to and will be
entitled to benefits under the Scheme in accordance with the Trust Deed and
rules relating to it for the time being in force.
6.2 A Contracting-Out Certificate issued under the Social Security Pension
Act 1975 is in force in respect of the Executive's employment.
6.3 Under the terms of the Scheme currently in force and applicable to the
Executive, the Executive is entitled to retire early with the prior written
consent of both the Company and the trustees of the Scheme. The Company
hereby expressly grants its consent to the Executive retiring on or at any
time after his 62nd birthday should he wish to do so. The Executive may in
his absolute discretion retire on or after his 62nd birthday but cannot be
compelled by the Company to do so. The Company also agrees to use all
reasonable endeavours to procure the consent of the trustees of the Scheme
to the Executive retiring on or at any time after his 62nd birthday should
he wish to do so. The Company agrees to secure the Executive's retirement on
or at any time after his 62nd birthday on the same basis as if the Executive
had retired at age 65 and there shall be no actuarial
5
<PAGE>
discounts applied to the Executive's entitlement for his choosing to take
early retirement. Insofar as it is required to do so in order for this
provision to be effective, the Company agrees to make such payments as are
necessary into the Scheme on behalf of the Executive to secure his early
retirement without discounting his pension or lump sum entitlement.
6.4 In the event that the Executive does choose to retire early, the
provisions relating to normal retirement age referred to elsewhere in this
Agreement shall be deemed altered to reflect the actual age at which the
Executive chooses to retire.
7. HOLIDAYS
7.1 The Executive will be entitled (in addition to normal pubic and Bank
holidays) to 25 working days' paid holiday each year. For these purposes the
holiday year. For these purposes the holiday year starts on the 1st January.
7.2 If the employment of the Executive is terminated during any calendar
year he will be entitled to accrued holiday pay of one day's salary for each
day of his accrued entitlement which he has not taken. These provisions will
not apply if this Agreement is terminated pursuant to clause 10.1 in which
event the Executive will have no claim for accrued holiday pay.
7.3 For the purposes of clause 7.2 holidays are deemed to accrue from day to
day and any holiday entitlement in respect of any holiday year not utilized
by the end of that year shall be forfeit.
7.4 All holidays are to be taken at times approved by the Board.
7.5 The Company may require the Executive to take any unused holiday during
any period of notice given by either party to terminate this agreement.
8. SICKNESS AND MEDICAL EXAMINATION
8.1 If the Executive is prevented by sickness or injury from properly
performing his duties under this Agreement:-
8.1.1 during the first six continuous months of such absence he
will be entitled to continue to receive the salary and
benefits set out herein at full rate. After such period
payment (other than payment of any Statutory Sick Pay to
which the Executive may be entitled) will cease and the
provisions of clause 8.3 will apply.
8.1.2 He will claim all state sickness benefits available to him
and account to the Company for these during the period in
which he receives sick pay.
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<PAGE>
8.2 Any salary paid to the Executive by virtue of clause 8.1.1 shall be
deemed to satisfy any entitlement of the Executive to receive Statutory Sick
Pay for the period to which the salary relates.
8.3 If the Executive continues for more than six continuous months to be
prevented by sickness or injury from properly performing his duties the
Executive will be entitled to such benefits as are available to him from
time to time under the rules of the permanent health insurance scheme of the
Company and the payment of salary or other benefits shall be at the
discretion of the Board. This clause takes effect subject to clause 10.
8.4 Salary paid by the Company to the Executive in respect of any period of
absence resulting from the negligence of a third party shall be recoverable
by the Company out of any damages he the is paid by or on behalf of that
third party.
8.5 The Board may at its discretion require the Executive to furnish
evidence satisfactory to it of any sickness or injury of the Executive. It
may also require him from time to time to undergo a medical examination by a
medical practitioner nominated by the Company. The Company will bear the
costs of any such examination and will be entitled to full disclosure of the
results.
9. CONFIDENTIALITY
9.1 By virtue of his senior position the Executive acknowledges that he will
acquire detailed knowledge of the commercial affairs and business
transactions of the Company and the Group including without limitation trade
secrets and confidential information about customers, suppliers, terms of
sale, terms of supply, plans for growth and expansion and technical and
product improvements and developments. The Executive is hereby made
expressly aware and agrees that all of such information ("the Confidential
Information") is the property of and confidential to the Company and the
Group.
9.2 The Executive shall keep secret and shall not at any time (either during
the continuance of this Agreement or after its termination howsoever
arising) divulge to any person or use of copy for his own or another's
benefit any of the Confidential Information. The Executive will use
reasonable endeavours to prevent the publication or disclosure of any such
information and will notify the Board forthwith of any instances of
disclosure of which he is aware.
9.3 The restrictions set out in clause 9.2 are not to apply to information:-
9.3.1 divulged by the Executive in the proper performance of his
duties
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<PAGE>
9.3.2 required by an order of the Board any Court of competent
jurisdiction to be disclosed by the Executive
9.3.3 within the public domain through no fault of the Executive.
10. TERMINATION
10.1 The company may (without prejudice to and in addition to any other
remedy and notwithstanding the provisions of clause 2.3) terminate this
Agreement (and Executive's employment) immediately and without notice or
payment in lieu of notice upon the death of Executive, the expiration of the
term hereof, or for "Cause". Cause shall exist if the Executive:-
10.1.1 becomes a patient within the meaning of the Mental Health Act
1983 or is otherwise absent from work through sickness or
disability for a period exceeding six months in any twelve
month period
10.1.2 is declared bankrupt by a court of competent jurisdiction,
applies for a receiving order or administration order, has a
receiving order or administration order made against him or
enters into any arrangement or composition with his creditors
or otherwise takes the benefit of any statutory provision for
the relief of insolvent debtors
10.1.3 without reasonable cause neglects refuses or fails to perform
all or any of his duties under this Agreement to an extent
which is material and continues to do so after having been
warned in writing by the Board about such neglect refusal or
failure
10.1.4 at any time and for whatever reason resigns from any
Directorship which he holds within the Group without the
consent of the Board or is disqualified from acting as a
Director.
10.2 A decision to terminate the Executive's employment pursuant to the
provisions of clause 10.1 shall be effective if taken or approved or
ratified by the Board and shall be communicated to the Executive in writing.
10.3 The employment of the Executive and this Agreement will come to an end
automatically on the last day of the month in which the Executive reaches
normal retirement age (currently age 65), provided, however, that the
Executive may elect, in his sole discretion, to retire and terminate his
Employment and this Agreement upon his attainment of age 62.
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10.4 Upon the termination of this Agreement under clause 10.1 or 10.3 the
Executive will be entitled to receive only the Accrued Benefits described in
clause 10.5.3(i). If Executive's employment is terminated during the term
hereof other than for Cause, death or the attainment of age 65, Executive
shall be entitled to receive all of the benefits described in clause 10.5.3.
10.5 The Executive's termination of this Agreement is governed under the
provisions set forth below.
10.5.1 Upon termination of this Agreement by Executive other than
for "Good Reason" (as hereinafter defined), Executive shall
be entitled to receive only the Accrued Benefits described in
clause 10.5.3(i).
10.5.2 Executive may terminate his employment under this Agreement
for Good Reason at any time during the term hereof unless
this Agreement has previously expired or been terminated by
reason of (i) the death of Executive, (ii) attainment by
Executive of age 65; (iii) termination of this Agreement by
the Company for Cause, or (iv) voluntary termination of this
Agreement by Executive other than for Good Reason.
Termination by Executive for "Good Reason" shall mean
termination by Executive of his employment hereunder because
of:-
(i) the failure by the Company to pay or cause to be paid the
base salary, benefits, and bonus required by this Agreement
and a continuation of such failure for 10 days after the
Company receives notice thereof; or
(ii) a material diminishment in the responsibilities and
duties assigned to Executive by the Company or any other
material breach by the Company of any of the terms of this
Agreement and the continuation of such breach for thirty days
after the Company shall have received written notice of such
breach, which notice shall mean a notice that shall indicate
the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination
under the provision so indicated.
10.5.3 Upon any termination by Executive of his employment under
this Agreement for Good Reason, the Company shall forthwith:-
(i) pay or cause to be paid to Executive in cash the
following accrued benefits ("Accrued Benefits"): (A) all
salary earned or accrued through the termination date; (B)
reimburse Executive for any and all monies advanced by the
Executive in connection with
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Executive's employment for reasonable and necessary expenses
incurred by Executive through the termination date; and (C)
pay all other amounts and benefits to which Executive may be
entitled under the terms of any benefit plan of the Company.
Payment of amounts other than those described in subsection
(C) hereof shall be made within 10 days after the termination
date. Payment of amounts under subsection (C) hereof shall be
pursuant to the terms of any such plans either by the Company
or a trust implementing such plan; and
(ii) pay or cause to be paid to Executive (a) for one year
after his termination, the annual base salary payable to
Executive hereunder immediately prior to such termination in
accordance with the Company's normal payroll practices, and
(b) a lump sum, payable upon termination, arrived at by
multiplying (pound)56,250 by a number equal to two minus "X",
where "X" equals the number of times Executive received the
additional amount payable pursuant to clause 4.6 hereof.
In addition, for purposes of the Company's medical, dental and life
insurance programs, Executive shall be considered and deemed for a
period of one year following such termination or until Executive
attains the age of 65 or until reasonably equivalent benefits are paid
or extended by a new employer, whichever first occurs, to be a
full-time employee of the Company and be entitled to all benefits,
rights and privileges thereunder. If at the end of such year, if
Executive has not attained the age of 65 or has not previously received
or is not then receiving equivalent benefits from a new employer, the
Company shall arrange, at its sole cost and expense (but not including
premiums therefor), to enable Executive to convert the coverage under
such polices to equivalent individual policies.
10.6 On the termination of the Executive's employment for any reason:-
10.6.1 the Executive will at the request of the Company immediately
resign from all directorships, offices and trusteeships
within the Group then held by him without compensation for
loss of office as such director, officer or trustee. The
Executive irrevocably authorizes the Company to appoint some
person in his name and on his behalf to sign any documents
and do any things necessary to effect such resignation should
he fail to do so himself.
10.6.2 the Company may deduct from any salary or wages due from it
to the Executive any monies which are due from wages due the
Executive to it or to the Group.
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10.6.3 the Executive will return forthwith to the Company all books,
papers, records, correspondence, notes, memoranda, sketches,
technical drawings, specifications, and other documents and
all other property belonging to the Company or any Group
Company, to the Company's Head Office or as the Board shall
otherwise direct.
10.7 Any provision of this Agreement which is expressed to have effect after
its termination will continue in force in accordance with its terms.
11. POST TERMINATION OBLIGATIONS
11.1 The Executive shall not, directly or indirectly, during the period of
twelve months immediately following the termination of this Agreement in any
Specified Capacity:-
11.1.1 solicit or endeavour to solicit orders from or entice away
from any Relevant Company as defined in clause 11.4.3 in
connection with any business falling within the definition of
"Specified Business" set out in clause 11.4.2 or deal with
any person, firm, company or organization who shall have been
a client or customer of any Relevant Company during the
twelve months preceding such termination; and
11.1.2 attempt to induce or persuade any person who was employed by
any Relevant Company at the date of the termination of this
agreement or at any time during the twelve months preceding
such termination to leave such employment.
11.2 The Executive shall not, directly or indirectly, during the period of
twelve months after the termination of this agreement within the Specified
Areas in any Specified Capacity carry on or be interested, engaged or
concerned in all or any of the Specified Businesses in competition with (i)
the Company or (ii) any member of the Group.
11.3 The restrictions in clauses 11.1 and 11.2
11.3.1 shall not apply to the Executive if this Agreement is
terminated by the Company in breach of contract or if an
industrial tribunal makes an award of compensation for unfair
dismissal against the Company in respect of the termination
of the Executive's employment; and
11.3.2 any period of notice which is worked by the Executive
following termination or notice of termination by the Company
shall be
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deducted from the twelve month period for which paragraphs
11.1 and 11.2 would otherwise apply; and
11.3.3 are considered by the parties to be reasonable in all the
circumstances and for the legitimate and necessary protection
of the Confidential Information customer and trade connection
of the Company and the Group. If, however, any restriction is
found by a Court to be void as going beyond what is
reasonable in all the circumstances the restrictions will
apply with such modifications as may be necessary to render
them valid and effective.
11.4 For the purposes of this clause:-
11.4.1 "Specified Capacity" means each of the following capacities:-
11.4.1.1 as principal whether solely or jointly with
any other person
11.4.1.2 as partner with any other person
11.4.1.3 as agent for any other person
11.4.1.4 as an employee of any other person
11.4.1.5 as an officer of any company or
11.4.1.6 as the owner of any interest in any shares or
other securities in any company (other than in
accordance with clause 3.4).
11.4.2 "Specified Business" means each of the following taken
separately:-
11.4.2.1 the design, manufacture, sale and distribution
of cranes, lifting equipment and associated
and component products and/or
11.4.2.2 each other business and/or activity of each
member of the Group with or in which the
Executive has been involved or had
responsibility for during the 12 months
immediately preceding the termination of this
agreement.
11.4.3 "Relevant Company" means (i) the Company; and (ii) any member
of the Group.
11.4.4 "Specified Areas" includes the United Kingdom and countries
forming part of the Middle East/Asia Pacific region.
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11.5 Each of the obligations contained in clause 11.1 above shall be a
separate and several obligation.
12. INVENTIONS
12.1 If at any time during the continuance of this Agreement the Executive
shall discover, make or conceive either by himself or jointly with any other
person or persons any invention, discovery, formula, design, process,
adaptation or improvement ("Intellectual Property") which relates to or is
connected with or capable of being worked or employed in connection with any
trade or business for the time being carried on by the Company and or the
Group he shall forthwith supply in writing full particulars concerning the
same to the Company.
12.2 All ("Intellectual Property") which is either made in the course of the
normal duties of the Executive or in the course of duties falling outside
his normal duties but specifically assigned to him shall upon the discovery
making or conception thereof belong to and vest in the Company absolutely
and beneficially together with all rights to apply for patent or other
protection thereby obtained. The Executive shall if so required by the
Company and at the expense of the Company take all such steps and execute
such documents as may be necessary fully and effectually to vest in the
Company or as it may direct the full benefit of the said Intellectual
Property and to give to the Company or its nominees such protection as it
may require in respect thereof in any part of the world whether by way of
patents or otherwise howsoever.
12.3 In the event of any dispute arising between the Company and the
Executive as to whether or not any invention communicated falls within the
scope of sub-clause 12.2 hereof application will be made jointly by the
Company and the Executive to the Comptroller General of Patents in
accordance with Section 8 of the Patents Act 1977 for determination of the
matter and his decision shall be final and binding.
12.4 The Executive acknowledges that inventions may reasonably be expected
to result from the carrying out of his normal duties and of any duties
specifically assigned to him within the meaning of Section 39(1)(a) of the
Patents Act 1977.
12.5 The Executive acknowledges that because of the nature of his duties and
the particular responsibilities arising from the nature of his duties he has
a special obligation to further the interests of the undertaking of the
Company and the Group within the meaning of Section 39(1)(a) of the Patents
Act 1977.
12.6 The Executive hereby irrevocably appoints the Company to be his
attorney in his name and on his behalf to execute such instrument or do such
things and generally to use his name for the purpose of giving to the
Company (or its nominee) the benefit of the provisions of this clause and in
favour of any third
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party a certificate in writing signed by any Director or Secretary of the
Company that any instrument or act falls within the authority hereby
conferred shall be conclusive evidence that such is the case. It is hereby
agreed between the parties that the provisions of this Clause 12 shall
survive in their entirety the termination of the Executive's employment for
whatsoever reason.
13. NOTICES
13.1 Any notice to be given under this Agreement to the Executive may be
given to him personally or sent to him by prepaid first class letter
addressed to him at his last known place of residence. Any notice to be
given to the Company may be served by leaving it at or sending it by prepaid
first class letter to its registered office for the time being.
13.2 Any notice served by post shall be deemed to have been served
forty-eight hours after it was posted and proof that the notice was properly
addressed, pre-paid and posted shall be sufficient evidence of service.
14. GOVERNING LAW
This agreement shall be interpreted and enforced in accordance with the laws
of England.
15. SUPERSESSION OF PREVIOUS AGREEMENTS
This Agreement supersedes and is in substitution for any subsisting
agreements between the Company (or any Group member) and the Executive
relating to his employment. All such subsisting agreements are terminated by
mutual consent with effect from the Commencement Date.
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IN WITNESS whereof the parties have executed this Agreement on the date set
out above.
EXECUTED as a Deed by
MORRIS MECHANICAL HANDLING LIMITED
in the presence of:- /s/ Steve Davis
Director
SIGNED as a DEED by the
said MICHAEL JOHN MADDOCK
in the presence of: /s/ Michael John Maddock
/s/ L. J. Belton
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Schedule A
Option Plan
Number of Shares Reserved: 1,186.0849 shares of common stock and
4,328.2500 shares of Series C preferred stock
in MMH Holdings, Inc. (the "Company"), with a
value of $8.1 million on the Closing Date
(such grant to be denominated in 8,100 units,
consisting of 0.1464 shares of common stock
and 0.5344 shares of Series C preferred stock
units and hereinafter referred to as "Equity
Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant")
shall be made with respect to the number of
Equity Units set forth in the Employment
Agreement. Additional option grants shall be
made as determined by the Board of Directors
or Compensation Committee of the Company. The
Initial Grant and future grants shall be from
a pool of 8,100 Equity Units set aside for
such grants.
Exercise Price: The exercise price of an Equity Unit shall be
equal to: (i) the fair market value of a share
of common stock on the date of grant
multiplied by the number of shares of common
stock covered by the Equity Unit, plus (ii)
the liquidation preference multiplied by the
number of shares of preferred stock covered by
the Equity Unit. The exercise price would have
been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not
previously exercised or terminated will expire
ten years from the date of grant.
Method of Exercise: Prior to an "initial public offering" of
Frasier or any subsidiary company, cash only;
provided, however, the Board of Directors or
Compensation Committee of the Company may
authorize cashless exercises. An option may
only be exercised with respect to whole Equity
Units (i.e., as to all the shares of common
stock and preferred stock covered by the
Equity Unit).
<PAGE>
Termination of Employment: Upon the occurrence of an "Employment-Related
Event," options, to the extent vested on the
date of the Employment-Related Event, shall be
exercisable for 90 days from such date. 80% of
all A Options and B Options and 100% of C
Options which are not vested on the date of
the Employment-Related Event shall be
forfeited.
Upon the occurrence of a Termination Event all
options (vested and nonvested) shall terminate
on the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of
on Exercise of Option: employment for any reason (Employment Related
Event or Termination Event) prior to an
"initial public offering" of the shares of the
Company, all shares of the Company held by
Executive shall be subject to a "call" by the
Company at the FMV on the date of the "call").
In the event that the Company is restricted
from purchasing such shares for cash under any
applicable financing or other agreements, the
Company may issue the Executive a note or such
other permissible security (which shall
contain commercially reasonable terms) in full
satisfaction of such call.
Tag-along Rights: The Executive will have the same tag-along
rights as set forth in paragraph 8 of the Term
Sheet for Equity Investment Stockholders
Agreement (attached as Exhibit E to the
Recapitalization Agreement among Harnischfeger
Corporation, the Sellers named therein and MHE
Investments, Inc., dated January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except
without consideration to a trust or
partnership the only beneficiaries or partners
(as the case may be) of which are immediate
family member of Executive; shares obtained
upon the exercise of options may be
transferred only in accordance with the laws
of descent and distribution.
Other than with respect to transfers of
options pursuant to the preceding sentence, no
third party shall have any direct or indirect
beneficial interest
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in the options or the shares obtained upon the
exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
ratably (25% a year) on each of the first
through fourth anniversaries of the date of
grant ("A Options"), provided the Executive is
in the employ of the Company on each such
date.
If there is a Change in Control (as defined in
Schedule D to the Employment Agreement) prior
to the fourth anniversary of the date of
grant, and the Executive is still in the
employ of the Company, all unvested A Options
shall vest.
B Options: 1/3 of the total number of Equity
Units subject to the Initial Grant shall vest
25% a year at the end of each of 1999, 2000,
2001, and 2002, subject to satisfaction of the
applicable EBITDA-based "Performance Hurdle"
for each such year ("B Options"). In the event
that the Performance Hurdle is not met for any
particular year, the applicable portion of the
B Options which did not vest will be carried
over to the next year. Thus, if on a
cumulative basis, the aggregate Performance
Hurdles for such two year period are met, any
portion that did not vest previously, shall
vest. For example, if the Performance Hurdle
is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000
equals or exceeds the sum of the Performance
Hurdles for 1999 and 2000) the unvested B
Options attributable to 1999 and 2000 will
vest in 2000. Any portion of B Options which
does not vest because of not meeting the
relevant Performance Hurdle in a particular
year or on a cumulative basis in a subsequent
year will be treated like C Options upon the
"Determination Date" (defined below) and will
vest if the relevant performance criterion for
C Options is satisfied.
For purposes of the B Options, Performance
Hurdle shall mean the precise EBITDA target
attached as Exhibit I for fiscal years
1999-2002, which in the event of any
acquisition will be increased by the pro
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forma projections used in approving any such
acquisitions.
The Board shall certify to Executive the
attainment or lack of attainment of the
applicable Performance Hurdles with respect to
any calendar year as soon as practicable
following the receipt of audited financial
statements of the Company.
If there is a Change in Control prior to the
end of fiscal year 2002, and the Executive is
still in the employ of the Company, unvested B
Options shall vest only if the criterion for
the vesting of C Options is met, as provided
in the next section.
C Options: 1/3 of the total number of Equity
Units subject to the Initial Grant, plus any B
Options which did not vest and have been
carried forward, shall vest if the Internal
Rate of Return earned by the Company exceeds
40% by the "Determination Date," ("C Options")
and the Executive is still in the employ of
the Company on the Determination Date.
The Determination Date regarding the
attainment of the Internal Rate of Return
shall be the closing date of a "Change of
Control".
Initial Public Offering After an initial public offering, and subject
to the approval of the Compensation Committee,
the Executive will be permitted to exercise
his vested options and sell his Equity Units.
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<PAGE>
DATED MARCH 30, 1998
MORRIS MECHANICAL HANDLING
-and-
K B NORRIDGE
----------------
SERVICE AGREEMENT
---------------
<PAGE>
THIS AGREEMENT is made the 30th day of March, One thousand nine hundred and
ninety-eight
BETWEEN:-
(1) MORRIS MECHANICAL HANDLING whose registered office is at P.O. Box 7,
North Road, Loughborough LE11 1RL.
(2) KENNETH BRUCE NORRIDGE of 28 Sanders Road, Quorn, Leicestershire.
WHEREBY IT IS AGREED THAT:-
1. INTERPRETATION AND DEFINITONS
1.1 In this Agreement the following words, phrases and expressions shall
have the following meanings:-
<TABLE>
<CAPTION>
<S> <C>
"the Board" the Directors of the Company present at a
meeting of the Directors or at a duly
convened meeting of a Committee of the
Directors
"the Commencement Date" the date of this agreement
"the Company" Morris Mechanical Handling
Limited
"the Executive" Kenneth Bruce Norridge
"the Group" the Company and its subsidiaries (as
defined in the Companies Act 1985 as
amended by the Companies Act 1989) and any
associated company (which expression shall
mean any company which is not a subsidiary
of which not less than 20% of its equity
share capital is beneficially owned by the
Company) of the Company together with MMH
Holdings, Inc., a Delaware, U.S.A.
corporation.
</TABLE>
1.2 Any reference to a statutory provision shall be deemed to include all
re-enactments and modifications of it or the provision referred to and any
regulations made under it or under the provision referred to.
<PAGE>
1.3 The headings in this Agreement have been inserted for convenience only.
They are not to affect its interpretation.
2. THE EXECUTIVE'S APPOINTMENT
2.1 The Company will employ the Executive and the Executive will serve the
Company on and subject to the terms and conditions of this Agreement.
2.2 The Executive's employment began on the Commencement Date. The
Executive's period of continuous employment (taking into account any
employment with a previous employer which counts towards that period) began
on 1st January 1979.
2.3 The Executive's employment will continue from the Commencement Date and
thereafter unless and until it is terminated pursuant to clause 10 or by
either:-
2.3.1 the Company giving to the Executive not less than twelve months
written notice; or
2.3.2 The Executive giving to the Company not less than twelve months
written notice.
3. THE EXECUTIVE'S DUTIES AND OBLIGATIONS
3.1 The Executive is to act as Vice President, Europe and Africa Region of
Morris Mechanical Handling, Inc., reporting to the Chairman.
3.2 Whilst the Executive is employed by the Company he will:-
3.2.1 perform his duties with reasonable skill and care and to the best
of his ability
3.2.2 comply with all reasonable directions from time to time given to
him by the Board and at all times keep the Board properly informed of
matters which come to his attention which may materially affect the
business of the Company or any member of the Group
3.2.3 devote the whole of his working time, abilities and attention to
his duties
3.2.4 work such hours as the Company may reasonably require whether or
not these are outside normal business hours
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3.2.5 at all times serve the Company and the Group well and faithfully.
3.3 Whilst the Executive is employed by the Company he will not:-
3.3.1 do anything which may in the reasonable opinion of the Board bring
any member of the Group into disrepute or harm the goodwill or
commercial image of any member of the Group or which is or is likely to
be damaging or prejudicial to the business and/or commercial interests
of the Company or the Group
3.3.2 be engaged or interested (except with the prior written approval
of the Board) in any other trade, profession, business or occupation
(including any public or private activity which in the reasonable
opinion of the Board may interfere with the proper performance of his
duties) or hold any directorship or other office in any company or other
body whether incorporated or unincorporated.
3.4 Nothing contained in this Agreement shall preclude the Executive from
holding not more than 3% of the issued shares or other securities of any
class of a company which are quoted or dealt in on a recognized Stock
Exchange.
3.5 The initial location of the Executive is at North Road, Loughborough.
The Executive will however travel both within the UK and abroad as may be
necessary for the proper performance of his duties and will spend nights
away from the initial location and/or his home where that is necessary for
the performance of his duties. The Executive will not be required without
his consent to locate his office on a full time basis whether permanently or
temporarily to any place outside a radius of 50 miles from the initial
location.
3.6 There are no disciplinary rules on the date of this Agreement which are
specifically applicable to the Executive (other than the provisions of this
Agreement). The Executive shall be expected to behave at all times in a
manner appropriate to his position and responsibilities and to comply with
any staff rules in force from time to time. The Board may however introduce
and amend such disciplinary rules as it thinks fit.
3.7 If the Executive is dissatisfied with any disciplinary action taken
against him or has any grievance relating to his employment he may apply for
redress to the Chairman of the Company whose decision shall be final and
binding, subject to any recourse to law which the Executive may have.
3.8 Unless the Board prescribes otherwise, and save as expressly
provided in the Agreement there will be no specific terms or conditions
relating to the Executive's hours of work. The Executive shall work
such hours as may be
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necessary or appropriate from time to time to carry out his duties
properly and effectively.
4. RENUMERATION AND EXPENSES
4.1 The Executive will receive a salary at the rate of L79,000 per
annum. This will be reviewed by the Board (or by any Compensation or
Remuneration Committee established for that purpose) at least once a year.
4.2 The salary is payable by equal monthly installments in arrears on the
last day of each month (or such other day as the Board shall from time to
time decide). It will be deemed to accrue from day to day.
4.3 The salary includes all remuneration or fees to which the Executive
shall be entitled as a Director or officer of any member of the Group.
4.4 The Company or the relevant Group member will reimburse all reasonable
travelling, hotel, entertaining and other expenses properly incurred by the
Executive in the performance of his duties. The Executive will provide
whatever receipts or other supporting documentation may be required and will
comply with the Company's policy and rules relating to the incurring and
reimbursement of expenditure as may be in force from time to time.
4.5 The Executive will be entitled to receive a bonus calculated and paid in
accordance with the provisions of the management bonus scheme from time to
time maintained by the Company.
4.6 For each of 1998 and 1999, the Executive shall receive an additional
payment in the amount of L56,250.
4.7 The Company will pay any monies to which the Executive is entitled
pursuant to this Agreement to such person as the Executive shall request in
writing (anywhere in the world).
4.8 The Executive shall be eligible to receive an initial option grant with
respect to _____ "Equity Units" (as defined under the Company's Option Plan
in accordance with the general terms set forth in Schedule A).
5. BENEFITS
5.1 The Company will provide for the private and business use of the
Executive a suitable motor car in accordance with the policy of the Company
as determined by the Board from time to time.
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5.2 The Company will pay the cost of insuring, taxing and maintaining the
car and will reimburse the Executive all the business and private running
expenses thereof. The Executive will ensure that the car is serviced in
accordance with the manufacturer's recommendations and that he complies at
all time with the requirements and provisions of the policy of insurance in
force in respect of the car from time to time.
5.3 The car is to remain the property of the Company. On termination of this
Agreement the Executive is to return it in good condition (fair wear and
tear excepted) to the Company together with its keys and all documents
relating to it.
5.4 The Executive shall be entitled to benefits under such private health
plan as the Board may determine from time to time (on the National Scale
appropriate to the nearest hospital to the Executive's home) under its rules
from time to time in force for the benefit of the Executive his spouse and
his children who are resident in the United Kingdom and are under the age of
21 or who are more than that age but are engaged in a full time course of
education.
5.5 The Company will reimburse the Executive with all reasonable expenses
incurred by the Executive arising out of the Executive's use of his home
telephone.
5.6 The Executive will be paid an allowance of L1,685 per month for
housing, utilities and related expenses (net of taxation and national
insurance which will be payable by the Company). Such sum will cease to be
payable if the Executive ceases to reside in the United Kingdom.
5.7 The Company will support an application for a new or extended work
permit on expiry of the Executive's current work permit.
5.8 The Company will pay the cost of all reasonable professional fees
charged in connection with the Executive taking advice in relation to
personal taxation and work permit matters not to exceed L2,500 per
annum.
6. PENSION
6.1 Subject to the terms of the Trust Deed, the Scheme rules and any other
scheme documentation from time to time in force the Executive will be
entitled to join and be a member of the pension scheme or schemes to be
established by the Company and the Company will procure that the benefits to
which the Executive is entitled pursuant to such scheme or schemes are equal
in value overall to the benefits which the Executive would have been
entitled to under the Trafalgar House Executive Pension Scheme ("the
Scheme") in respect of the Executive's service in the scheme to the
Commencement Date. If he does so he will make
5
<PAGE>
contributions to and will be entitled to benefits under the Scheme in
accordance with the Trust Deed and rules relating to it for the time being
in force.
6.2 A Contracting-Out Certificate issued under the Social Security Pension
Act 1975 is in force in respect of the Executive's employment.
7. HOLIDAYS
7.1 The Executive will be entitled (in addition to normal pubic and Bank
holidays) to 25 working days' paid holiday each year. For these purposes the
holiday year. For these purposes the holiday year starts on the 1st January.
7.2 If the employment of the Executive is terminated during any calendar
year he will be entitled to accrued holiday pay of one day's salary for each
day of his accrued entitlement which he has not taken. These provisions will
not apply if this Agreement is terminated pursuant to clause 10.1 in which
event the Executive will have no claim for accrued holiday pay.
7.3 For the purposes of clause 7.2 holidays are deemed to accrue from day to
day and any holiday entitlement in respect of any holiday year not utilized
by the end of that year shall be forfeit.
7.4 All holidays are to be taken at times approved by the Board.
7.5 The Company may require the Executive to take any unused holiday during
any period of notice given by either party to terminate this agreement.
8. SICKNESS AND MEDICAL EXAMINATION
8.1 If the Executive is prevented by sickness or injury from properly
performing his duties under this Agreement:-
8.1.1 during the first six continuous months of such absence he will be
entitled to continue to receive the salary and benefits set out herein
at full rate. After such period payment (other than payment of any
Statutory Sick Pay to which the Executive may be entitled) will cease
and the provisions of clause 8.3 will apply.
8.1.2 He will claim all state sickness benefits available to him and
account to the Company for these during the period in which he receives
sick pay.
8.2 Any salary paid to the Executive by virtue of clause 8.1.1 shall be
deemed to satisfy any entitlement of the Executive to receive Statutory Sick
Pay for the period to which the salary relates.
6
<PAGE>
8.3 If the Executive continues for more than six continuous months to be
prevented by sickness or injury from properly performing his duties the
Executive will be entitled to such benefits as are available to him from
time to time under the rules of the permanent health insurance scheme of the
Company and the payment of salary or other benefits shall be at the
discretion of the Board. This clause takes effect subject to clause 10.
8.4 Salary paid by the Company to the Executive in respect of any period of
absence resulting from the negligence of a third party shall be recoverable
by the Company out of any damages he the is paid by or on behalf of that
third party.
8.5 The Board may at its discretion require the Executive to furnish
evidence satisfactory to it of any sickness or injury of the Executive. It
may also require him from time to time to undergo a medical examination by a
medical practitioner nominated by the Company. The Company will bear the
costs of any such examination and will be entitled to full disclosure of the
results.
9. CONFIDENTIALITY
9.1 By virtue of his senior position the Executive acknowledges that he will
acquire detailed knowledge of the commercial affairs and business
transactions of the Company and the Group including without limitation trade
secrets and confidential information about customers, suppliers, terms of
sale, terms of supply, plans for growth and expansion and technical and
product improvements and developments. The Executive is hereby made
expressly aware and agrees that all of such information ("the Confidential
Information") is the property of and confidential to the Company and the
Group.
9.2 The Executive shall keep secret and shall not at any time (either during
the continuance of this Agreement or after its termination howsoever
arising) divulge to any person or use of copy for his own or another's
benefit any of the Confidential Information. The Executive will use
reasonable endeavours to prevent the publication or disclosure of any such
information and will notify the Board forthwith of any instances of
disclosure of which he is aware.
9.3 The restrictions set out in clause 9.2 are not to apply to information:-
9.3.1 divulged by the Executive in the proper performance of his duties
9.3.2 required by an order of the Board any Court of competent
jurisdiction to be disclosed by the Executive
9.3.3 within the public domain through no fault of the Executive.
7
<PAGE>
10. TERMINATION
10.1 The company may (without prejudice to and in addition to any other
remedy and notwithstanding the provisions of clause 2.3) terminate this
Agreement (and Executive's employment) immediately and without notice or
payment in lieu of notice upon the death of Executive, the expiration of the
term hereof, or for "Cause". Cause shall exist if the Executive:-
10.1.1 becomes a patient within the meaning of the Mental Health Act
1983 or is otherwise absent from work through sickness or disability for
a period exceeding six months in any twelve month period
10.1.2 is declared bankrupt by a court of competent jurisdiction,
applies for a receiving order or administration order, has a receiving
order or administration order made against him or enters into any
arrangement or composition with his creditors or otherwise takes the
benefit of any statutory provision for the relief of insolvent debtors
10.1.3 without reasonable cause neglects refuses or fails to perform all
or any of his duties under this Agreement to an extent which is material
and continues to do so after having been warned in writing by the Board
about such neglect refusal or failure
10.1.4 at any time and for whatever reason resigns from any Directorship
which he holds within the Group without the consent of the Board or is
disqualified from acting as a Director.
10.2 A decision to terminate the Executive's employment pursuant to the
provisions of clause 10.1 shall be effective if taken or approved or
ratified by the Board and shall be communicated to the Executive in writing.
10.3 The employment of the Executive and this Agreement will come to an end
automatically on the last day of the month in which the Executive reaches
normal retirement age. This is currently 65 years of age.
10.4 Upon the termination of this Agreement under clause 10.1 or 10.3 the
Executive will be entitled to receive only the Accrued Benefits described in
clause 10.5.3(i). If Executive's employment is terminated during the term
hereof other than for Cause, death or the attainment of age 65, Executive
shall be entitled to receive all of the benefits described in clause 10.5.3.
10.5 The Executive's termination of this Agreement is governed under the
provisions set forth below.
8
<PAGE>
10.5.1 Upon termination of this Agreement by Executive other than for
"Good Reason" (as hereinafter defined), Executive shall be entitled to
receive only the Accrued Benefits described in clause 10.5.3(i).
10.5.2 Executive may terminate his employment under this Agreement for
Good Reason at any time during the term hereof unless this Agreement has
previously expired or been terminated by reason of (i) the death of
Executive, (ii) attainment by Executive of age 65; (iii) termination of
this Agreement by the Company for Cause, or (iv) voluntary termination
of this Agreement by Executive other than for Good Reason. Termination
by Executive for "Good Reason" shall mean termination by Executive of
his employment hereunder because of:-
(i) the failure by the Company to pay or cause to be paid the base
salary, benefits, and bonus required by this Agreement and a
continuation of such failure for 10 days after the Company receives
notice thereof; or
(ii) a material diminishment in the responsibilities and duties
assigned to Executive by the Company or any other material breach by
the Company of any of the terms of this Agreement and the
continuation of such breach for thirty days after the Company shall
have received written notice of such breach, which notice shall mean
a notice that shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination under the provision so indicated.
10.5.3 Upon any termination by Executive of his employment under this
Agreement for Good Reason, the Company shall forthwith:-
(i) pay or cause to be paid to Executive in cash the following
accrued benefits ("Accrued Benefits"): (A) all salary earned or
accrued through the termination date; (B) reimburse Executive for
any and all monies advanced by the Executive in connection with
Executive's employment for reasonable and necessary expenses
incurred by Executive through the termination date; and (C) pay all
other amounts and benefits to which Executive may be entitled under
the terms of any benefit plan of the Company. Payment of amounts
other than those described in subsection (C) hereof shall be made
within 10 days after the termination date. Payment of amounts under
subsection (C) hereof shall be pursuant to the terms
9
<PAGE>
of any such plans either by the Company or a trust implementing such
plan; and
(ii) pay or cause to be paid to Executive (a) for one year after his
termination, the annual base salary payable to Executive hereunder
immediately prior to such termination in accordance with the
Company's normal payroll practices, and (b) a lump sum, payable upon
termination, arrived at by multiplying L56,250 by a number
equal to two minus "X", where "X" equals the number of times
Executive received the additional amount payable pursuant to clause
4.6 hereof.
In addition, for purposes of the Company's medical, dental and life
insurance programs, Executive shall be considered and deemed for a
period of one year following such termination or until Executive attains
the age of 65 or until reasonably equivalent benefits are paid or
extended by a new employer, whichever first occurs, to be a full-time
employee of the Company and be entitled to all benefits, rights and
privileges thereunder. If at the end of such year, if Executive has not
attained the age of 65 or has not previously received or is not then
receiving equivalent benefits from a new employer, the Company shall
arrange, at its sole cost and expense (but not including premiums
therefor), to enable Executive to convert the coverage under such
polices to equivalent individual policies.
10.6 On the termination of the Executive's employment for any reason:-
10.6.1 the Executive will at the request of the Company immediately
resign from all directorships within the Group then held by him. The
Executive irrevocably authorizes the Company to appoint some person in
his name and on his behalf to sign any documents and do any things
necessary to effect such resignation should he fail to do so himself.
10.6.2 the Company may deduct from any salary or wages due from it to
the Executive any monies which are due from the Executive to it or to
the Group.
10.6.3 the Executive will return forthwith to the Company all books,
papers, records, correspondence, notes, memoranda, sketches, technical
drawings, specifications, and other documents and all other property
belonging to the Company, to the company's Head Office or as the Board
shall otherwise direct.
10.7 Any provision of this Agreement which is expressed to have effect
after its termination will continue in force in accordance with its
terms.
10
<PAGE>
11. POST TERMINATION OBLIGATIONS
11.1 The Executive shall not, directly or indirectly, during the period of
twelve months immediately following the termination of this Agreement in any
Specified Capacity:-
11.1.1 solicit or endeavour to solicit orders from or entice away from
any Relevant Company as defined in clause 11.4.3 in connection with any
business falling within the definition of "Specified Business" set out
in clause 11.4.2 or deal with any person, firm, company or organization
who shall have been a client or customer of any Relevant Company during
the twelve months preceding such termination; and
11.1.2 attempt to induce or persuade any person who was employed by any
Relevant Company at the date of the termination of this agreement or at
any time during the twelve months preceding such termination to leave
such employment.
11.2 The Executive shall not, directly or indirectly, during the period of
twelve months after the termination of this agreement within the Specified
Areas in any Specified Capacity carry on or be interested, engaged or
concerned in all or any of the Specified Businesses in competition with (i)
the Company or (ii) any member of the Group.
11.3 The restrictions in clauses 11.1 and 11.2
11.3.1 shall not apply to the Executive if this Agreement is terminated
by the Company in breach of contract or if an industrial tribunal makes
an award of compensation for unfair dismissal against the Company in
respect of the termination of the Executive's employment; and
11.3.2 any period of notice which is worked by the Executive following
termination or notice of termination by the Company shall be deducted
from the twelve month period for which paragraphs 11.1 and 11.2 would
otherwise apply; and
11.3.3 are considered by the parties to be reasonable in all the
circumstances and for the legitimate and necessary protection of the
Confidential Information customer and trade connection of the Company
and the Group. If, however, any restriction is found by a Court to be
void as going beyond what is reasonable in all the
11
<PAGE>
circumstances the restrictions will apply with such modifications as may
be necessary to render them valid and effective.
11.4 For the purposes of this clause:-
11.4.1 "Specified Capacity" means each of the following capacities:-
11.4.1.1 as principal whether solely or jointly with any other
person
11.4.1.2 as partner with any other person
11.4.1.3 as agent for any other person
11.4.1.4 as an employee of any other person
11.4.1.5 as an officer of any company or
11.4.1.6 as the owner of any interest in any shares or other
securities in any company (other than in accordance with
clause 3.4).
11.4.2 "Specified Business" means each of the following taken
separately:-
11.4.2.1 the design, manufacture, sale and distribution of cranes,
lifting equipment and associated and component products and/or
11.4.2.2 each other business and/or activity of each member of the
Group with or in which the Executive has been involved or had
responsibility for during the 12 months immediately preceding the
termination of this agreement.
11.4.3 "Relevant Company" means (i) the Company; and (ii) any member of
the Group.
11.4.4 "Specified Areas" includes the United Kingdom, Europe and Africa.
11.5 Each of the obligations contained in clause 11.1 above shall be a
separate and several obligation.
12. INVENTIONS
12.1 If at any time during the continuance of this Agreement the Executive
shall discover, make or conceive either by himself or jointly with any other
person or persons any invention, discovery, formula, design, process,
adaptation or improvement ("Intellectual Property") which relates to or is
connected with or
12
<PAGE>
capable of being worked or employed in connection with any trade or business
for the time being carried on by the Company and or the Group he shall
forthwith supply in writing full particulars concerning the same to the
Company.
12.2 All ("Intellectual Property") which is either made in the course of the
normal duties of the Executive or in the course of duties falling outside
his normal duties but specifically assigned to him shall upon the discovery
making or conception thereof belong to and vest in the Company absolutely
and beneficially together with all rights to apply for patent or other
protection thereby obtained. The Executive shall if so required by the
Company and at the expense of the Company take all such steps and execute
such documents as may be necessary fully and effectually to vest in the
Company or as it may direct the full benefit of the said Intellectual
Property and to give to the Company or its nominees such protection as it
may require in respect thereof in any part of the world whether by way of
patents or otherwise howsoever.
12.3 In the event of any dispute arising between the Company and the
Executive as to whether or not any invention communicated falls within the
scope of sub-clause 12.2 hereof application will be made jointly by the
Company and the Executive to the Comptroller General of Patents in
accordance with Section 8 of the Patents Act 1977 for determination of the
matter and his decision shall be final and binding.
12.4 The Executive acknowledges that inventions may reasonably be expected
to result from the carrying out of his normal duties and of any duties
specifically assigned to him within the meaning of Section 39(1)(a) of the
Patents Act 1977.
12.5 The Executive acknowledges that because of the nature of his duties and
the particular responsibilities arising from the nature of his duties he has
a special obligation to further the interests of the undertaking of the
Company and the Group within the meaning of Section 39(1)(a) of the Patents
Act 1977.
12.6 The Executive hereby irrevocably appoints the Company to be his
attorney in his name and on his behalf to execute such instrument or do such
things and generally to use his name for the purpose of giving to the
Company (or its nominee) the benefit of the provisions of this clause and in
favour of any third party a certificate in writing signed by any Director or
Secretary of the Company that any instrument or act falls within the
authority hereby conferred shall be conclusive evidence that such is the
case. It is hereby agreed between the parties that the provisions of this
Clause 12 shall survive in their entirety the termination of the Executive's
employment for whatsoever reason.
13. PAYMENT
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<PAGE>
Subject to applicable law, any payment to which the Executive is entitled to
under the Agreement (including without limitation the bonus to which the is
entitled to be paid pursuant to clause 4.6 and the pension contributions
which the Company is to pay pursuant to clause 6.1) shall be paid to such
person as the Executive shall direct (anywhere in the world).
14. NOTICES
14.1 Any notice to be given under this Agreement to the Executive may be
given to him personally or sent to him by prepaid first class letter
addressed to him at his last known place of residence. Any notice to be
given to the Company may be served by leaving it at or sending it by prepaid
first class letter to its registered office for the time being.
14.2 Any notice served by post shall be deemed to have been served
forty-eight hours after it was posted and proof that the notice was properly
addressed, pre-paid and posted shall be sufficient evidence of service.
15. GOVERNING LAW
This agreement shall be interpreted and enforced in accordance with the laws
of England.
16. SUPERSESSION OF PREVIOUS AGREEMENTS
This Agreement supersedes and is in substitution for any subsisting
agreements between the Company (or any Group member) and the Executive
relating to his employment. All such subsisting agreements are terminated by
mutual consent with effect from the Commencement Date.
14
<PAGE>
IN WITNESS whereof the parties have executed this Agreement on the date
set out above.
EXECUTED as a Deed by
MORRIS MECHANICAL HANDLING LIMITED
in the presence of: /s/ Steve Davis
Director
SIGNED as a DEED by the
said KENNETH BRUCE NORRIDGE
in the presence of: /s/ Kenneth Bruce Norridge
15
<PAGE>
Schedule A
Option Plan
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Reserved: 1,186.0849 shares of common stock and 4,328.2500 shares of
Series C preferred stock in MMH Holdings, Inc. (the
"Company"), with a value of $8.1 million on the Closing Date
(such grant to be denominated in 8,100 units, consisting of
0.1464 shares of common stock and 0.5344 shares of Series C
preferred stock units and hereinafter referred to as "Equity
Units").
Amount of Initial Grant: An initial option grant (the "Initial Grant") shall be made
with respect to the number of Equity Units set forth in the
Employment Agreement. Additional option grants shall be
made as determined by the Board of Directors or Compensation
Committee of the Company. The Initial Grant and future
grants shall be from a pool of 8,100 Equity Units set aside
for such grants.
Exercise Price: The exercise price of an Equity Unit shall be equal to: (i)
the fair market value of a share of common stock on the date
of grant multiplied by the number of shares of common stock
covered by the Equity Unit, plus (ii) the liquidation
preference multiplied by the number of shares of preferred
stock covered by the Equity Unit. The exercise price would
have been $1,000 on the Closing Date.
Term: Options, or any portion thereof, not previously exercised or
terminated will expire ten years from the date of grant.
Method of Exercise: Prior to an "initial public offering" of Frasier or any
subsidiary company, cash only; provided, however, the Board
of Directors or Compensation Committee of the Company may
authorize cashless exercises. An option may only be
exercised with respect to whole Equity Units (i.e., as to
all the shares of common stock and preferred stock covered
by the Equity Unit).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Termination of Employment: Upon the occurrence of an "Employment-Related Event,"
options, to the extent vested on the date of the
Employment-Related Event, shall be exercisable for 90 days
from such date. 80% of all A Options and B Options and 100%
of C Options which are not vested on the date of the
Employment-Related Event shall be forfeited.
Upon the occurrence of a Termination Event all options (vested and
nonvested) shall terminate on the date of the Termination Event.
Call on Shares Acquired In the event of the Executive's termination of employment for any
on Exercise of Option: reason (Employment Related Event or Termination Event) prior to an
"initial public offering" of the shares of the Company, all shares of
the Company held by Executive shall be subject to a "call" by the
Company at the FMV on the date of the "call"). In the event that the
Company is restricted from purchasing such shares for cash under any
applicable financing or other agreements, the Company may issue the
Executive a note or such other permissible security (which shall
contain commercially reasonable terms) in full satisfaction of such call.
Tag-along Rights: The Executive will have the same tag-along rights as set forth in
paragraph 8 of the Term Sheet for Equity Investment Stockholders Agreement
(attached as Exhibit E to the Recapitalization Agreement among Harnischfeger
Corporation, the Sellers named therein and MHE Investments, Inc., dated
January 28, 1998).
Restrictions on Transfer: Options will be non-transferable, except without consideration to a trust or
partnership the only beneficiaries or partners (as the case may be) of which are
immediate family member of Executive; shares obtained upon the exercise of options
may be transferred only in accordance with the laws of descent and distribution.
Other than with respect to transfers of options pursuant to the preceding
sentence, no third party shall have any direct or indirect beneficial interest
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
in the options or the shares obtained upon the exercise thereof.
Vesting: A Options: 1/3 of the total number of Equity Units subject to the
Initial Grant shall vest ratably (25% a year) on each of the first
through fourth anniversaries of the date of grant ("A Options"),
provided the Executive is in the employ of the Company on each such
date.
If there is a Change in Control (as defined in Schedule D to the
Employment Agreement) prior to the fourth anniversary of the date of
grant, and the Executive is still in the employ of the Company, all
unvested A Options shall vest.
B Options: 1/3 of the total number of Equity Units subject to the
Initial Grant shall vest 25% a year at the end of each of 1999, 2000,
2001, and 2002, subject to satisfaction of the applicable
EBITDA-based "Performance Hurdle" for each such year ("B Options"). In
the event that the Performance Hurdle is not met for any particular
year, the applicable portion of the B Options which did not vest will be
carried over to the next year. Thus, if on a cumulative basis, the
aggregate Performance Hurdles for such two year period are met, any
portion that did not vest previously, shall vest. For example,
if the Performance Hurdle is not met in 1999, but on a cumulative basis
(i.e., the sum of EBITDA for 1999 and 2000 equals or exceeds the sum
of the Performance Hurdles for 1999 and 2000) the unvested B Options
attributable to 1999 and 2000 will vest in 2000. Any portion of B
Options which does not vest because of not meeting the relevant
Performance Hurdle in a particular year or on a cumulative basis in a
subsequent year will be treated like C Options upon the "Determination
Date" (defined below) and will vest if the relevant performance
criterion for C Options is satisfied.
For purposes of the B Options, Performance Hurdle shall mean the
precise EBITDA target attached as Exhibit I for fiscal years
1999-2002, which in the event of any acquisition will be increased by the
pro
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
forma projections used in approving any such acquisitions.
The Board shall certify to Executive the attainment or lack of attainment
of the applicable Performance Hurdles with respect to any calendar
year as soon as practicable following the receipt of audited
financial statements of the Company.
If there is a Change in Control prior to the end of fiscal year
2002, and the Executive is still in the employ of the Company, unvested
B Options shall vest only if the criterion for the vesting of C
Options is met, as provided in the next section.
C Options: 1/3 of the total number of Equity Units subject to the
Initial Grant, plus any B Options which did not vest and have been
carried forward, shall vest if the Internal Rate of Return earned by
the Company exceeds 40% by the "Determination Date," ("C Options")
and the Executive is still in the employ of the Company on the
Determination Date.
The Determination Date regarding the attainment of the Internal Rate of
Return shall be the closing date of a "Change of Control".
Initial Public Offering After an initial public offering, and subject to the approval of the
Compensation Committee, the Executive will be permitted to exercise
his vested options and sell his Equity Units.
</TABLE>
4
<PAGE>
Exhibit 10.19
FORM OF PROMISSORY NOTE
$250,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Michael S. Erwin, an individual
residing at _____________________ (the "Borrower"), HEREBY PROMISES TO PAY to
the order of Morris Material Handling, Inc. (the "Lender") on the dates set
forth herein the principal amount of TWO HUNDRED FIFTY THOUSAND U.S. DOLLARS
(US$250,000) in lawful money of the United States of America ("U.S. Dollars"
or "US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties to
this Note.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between
Borrower and Harnischfeger Corporation ("HarnCo"), effective September 19,
1997, which sets forth the terms of the Borrower's divestiture bonus from
HarnCo.
"Employment Agreement" means the Employment Agreement between the
Borrower and the Lender dated March 30, 1998 which sets forth the terms
of the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate per
annum in effect from time to time, which rate per annum shall at all
times be equal to the rate of interest published by the Secretary of the
Treasury, from time to time, in accordance with Section 1274(d) of the
Internal Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties to
this Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in
each case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security
agreement entered into by the Borrower for the benefit of the Lender, in
substantially the form of Exhibit A hereto, as such agreement may be
amended or modified from time to time.
"Termination Date" means the earlier of (a) March 30, 1999 or
(b) the date the Loan becomes due and payable hereunder pursuant to
Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the
computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note
shall have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and conditions
hereinafter set forth, to make a loan (the "Loan") to the Borrower on the
date hereof in the amount set forth above in U.S. Dollars and in same day
funds.
SECTION 2.2. Repayment. The Borrower shall repay the unpaid
principal amount of the Loan in two payments: (x) $200,000 upon Borrower's
receipt of payment under the Divestiture Bonus Agreement and (y) $50,000 on
March 30, 1999; provided, however, that both payments shall be due on the
Termination Date if such date is earlier than March 30, 1999 pursuant to
Section 2.4 or 5.1.
SECTION 2.3. Interest. The Borrower shall pay interest on the unpaid
principal amount of this Note from the date of this Note until this Note
shall be paid in full at a rate per annum equal at all times to the Federal
Short-Term Rate in effect from time to time, payable in arrears and in a lump
sum on the Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the next
succeeding Business Day following the Borrower's failure to be in the
Lender's employ as a result of a termination of employment for Cause or by
reason of the Borrower's death or a resignation of employment other than for
Good Reason, prepay the outstanding principal amount of the Loan and pay
accrued interest to the date of such prepayment on the entire principal
amount of the Loan outstanding as of such date; provided however that the
Borrower shall be considered to be in the Lender's "employ" during any period
of the Borrower's Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make each
payment hereunder not later than 3:00 P.M. (Milwaukee time) on the day when
due in U.S.
2
<PAGE>
Dollars to the Lender at its address referred to in Section 6.2 in same day
funds. All computations of interest shall be made by the Lender on the basis of
a year of 365 or 366 days, as the case may be, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment
under any Loan Document shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of
the Lender to make the Loan hereunder is subject to the conditions precedent
that the Lender shall have received on or before the date of such Loan the
following, dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests created
by the Security Agreement,
(b) the Lender shall have received such other approvals or documents
as the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall remain
unpaid, the Borrower will, unless the Lender shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments and governmental charges imposed upon the Borrower or upon
the property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days after
the occurrence of each Event of Default and each event which, with the giving
of notice or lapse of time, or both, would constitute an Event of Default,
continuing on the date of such statement, a
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<PAGE>
statement of the Borrower setting forth details of such Event of Default or
event and the action which the Borrower has taken and proposes to take with
respect thereto; and
(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may from
time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
this Note or any other amount under any other Loan Document, including, but
not limited to, any mandatory prepayments, within 30 days after the same
becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the
Borrower to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Borrower seeking to
adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation,
protection, relief, or composition of the Borrower or of his debts under any
law relating to bankruptcy, insolvency or relief of debtors, or seeking the
entry of an order for relief for the Borrower or for any substantial part of
his property and, in the case of any such proceeding instituted against the
Borrower (but not instituted by the Borrower), either such proceeding shall
remain undismissed or unstayed for a period of 30 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an
order for relief against the Borrower or for any substantial part of his
property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding on
the Borrower,
(f) The Security Agreement after delivery thereof pursuant to Section
3.1 shall for any reason (other than pursuant to the terms thereof) cease to
create a valid security interest in any of the collateral purported to be
covered thereby;
4
<PAGE>
(g) The Borrower shall die; or
(h) The Borrower shall be terminated for Cause or resign without Good
Reason;
then, and in any such event, the Lender may, by notice to the Borrower,
declare this Note, all interest thereon and all other amounts payable under
the Loan Documents to be forthwith due and payable, whereupon this Note, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, that in
the event of the death of the Borrower or in the event of an actual or deemed
entry of an order for relief with respect to the Borrower under the Federal
Bankruptcy Code, this Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived
by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any provision
of this Note, nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by
the Lender and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its address
as indicated in the recital of parties to this Note; and if to the Lender, at
its address at Chartwell Investment Inc., Attn: Michael Shein; or, as to each
party, at such other address and to such other individual as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
the exercise of any other right. The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon the
Borrower and his personal representatives, estate, heirs, devisees, legatees
and assigns, (b) inure to the benefit of the Borrower and his assigns and (c)
be binding upon and inure to the benefit of the Lender and its respective
successors and assigns, except that the Borrower shall not have the
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<PAGE>
right to assign his rights hereunder or any interest herein without the prior
written consent of the Lender.
SECTION 6.5. Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has caused
this Note to be executed by its officer thereunto duly authorized, in each
case, as of the date first above written.
-----------------------------
Michael S. Erwin, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
-----------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of_________________________________, a
holder of interests in Niles L.L.C., a Delaware limited liability company
(the "Company"), executing the foregoing Promissory Note and Pledge,
Assignment and Security Agreement, hereunto subscribes her name in evidence
of her agreement and consent to the pledge of interests of the Company
referred to in the foregoing Promissory Note and Pledge, Assignment and
Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
----------------------------
Name:
-----------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30, 1998,
made by the individual identified on the signature page hereof (the
"Pledgor"), residing at the address indicated for the Pledgor on the
signature page hereof, to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee,
(the "Note"), any terms defined therein and not otherwise defined herein
being used herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles,
L.L.C. set forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security
interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Pledgee to make the loans under the Note, the Pledgor hereby agrees with
the Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers
and pledges to the Pledgee, and hereby grants to the Pledgee a security
interest in, all of the Pledgor's right, title and interest in, to and under
the following, in each case, as to each type of property described below,
whether now owned or hereafter acquired, wherever located and whether now or
hereafter existing (the "Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such Pledged Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 1 and (ii) cash) and, to
the extent not otherwise included, all payments under insurance (whether or
not the Pledgee is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss damage to or otherwise with respect to
any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the
payment of all obligations of the Pledgor now or hereafter existing under the
Loan Documents (all such obligations of the Pledgor being the "Obligations").
Without limiting the generality of the foregoing, this Agreement secures the
payment of all amounts that constitute part of the Obligations and would be
owed by the Pledgor to the Pledgee under the Note but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Pledgee of any
of the rights hereunder shall not release the Pledgor from any of its duties
or obligations under the contracts and agreements included in the Collateral,
and (c) the Pledgee shall have no obligation or liability under the contracts
and agreements included in the Collateral by reason of this Agreement, nor
shall the Pledgee be obligated to perform any of the obligations or duties of
the Pledgor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time
in its discretion and without notice to the Pledgor, to transfer to or to
register in the name of the Pledgee (as Pledgee hereunder) or any of its
nominees any or all of the Collateral. In addition, the Pledgee shall have
the right at any time to exchange instruments representing or evidencing the
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on
the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Pledgee relating to this
Agreement.
(c) This Agreement has been duly executed and delivered by the Pledgor
and is a valid and binding obligation of the Pledgor, enforceable against the
Pledgor in accordance with its terms.
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(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time
to time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Pledgee may reasonably
request, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby or to enable the Pledgee
to exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Pledgor
will: (i) deliver and pledge to the Pledgee promptly upon receipt thereof all
instruments or certificates representing or evidencing any of the collateral
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Pledgee; and (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Pledgee may request, in order to perfect and preserve
the pledge, assignment and security interest granted or purported to be
granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified in
Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of
Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral of the Pledgor
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received, receivable
or
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otherwise distributed in respect of, or in exchange for, any Security
Collateral.
(B) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms of
this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the Pledgee,
be segregated from the other property or funds of the Pledgor and be
forthwith delivered to the Pledgee as Collateral in the same form as so
received (with any necessary endorsement) and all such property which
consists of cash shall bear interest at The Federal Short-Term Rate (as
defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights that it is entitled to exercise pursuant
to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from exercising
the consensual rights that it would otherwise be entitled to exercise
pursuant to Section 7(a)(i) shall, upon notice to the Pledgor by the
Pledgee, cease, and all such rights shall thereupon become vested in the
Pledgee, which shall thereupon have the sole right to exercise or refrain
from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) he Pledgor shall not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of,
or grant any option with respect to , any of the collateral or (ii) create or
permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
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<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Pledgee's discretion, to take
any action and to execute any instrument that the Pledgee may deem necessary
or advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding
that the Pledgee may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of the Pledgee with respect
to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Pledgee
incurred in connection therewith shall be payable by the Pledgor under
Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Pledgee shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Pledgee shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Pledgee accords its
own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and
be continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to
the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of
the Pledgee, be held by the Pledgee as Collateral for, and then or at any
time thereafter be applied in whole or in part by the Pledgee against, all or
any part of the Obligations in such order as the Pledgee shall elect. Any
surplus of such cash or cash
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proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by the Pledgor herefrom,
shall in any event be effective unless the same shall be in writing and
signed by the Pledgee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed,
telecopied, telegraphed, telexed, cabled or delivered to it, if to the
Pledgor, at its address specified in the Notes, or, as to either party, at
such other address as shall be designated by such party in a written notice
to the other party. all such notices and other communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create
a continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the
Obligations and all other amounts payable under the Loan Documents and (ii)
the Termination Date, (b) be binding upon the Pledgor, its successors and
assigns and (c) inure to the benefit of, and be enforceable by, the Pledgee
and its successors, transferees and assigns.
SECTION 16. Release and Termination. The security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Pledgor upon the latter of (a) the payment in full of the Obligations and all
other amounts payable under the Loan Documents and (b) the Termination Date.
Upon such documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.
Unless otherwise defined herein, terms used in Article 8 or Article 9 of the
Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first
above written.
--------------------------------
Michael S. Erwin as Pledgor
Address:
------------------------
--------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
-----------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ________________, a holder of interests in Niles
L.L.C., a Delaware limited liability company (the "Company"), executing the
foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory Note
and Pledge, Assignment and Security Agreement, and to all other provisions
thereof.
Effective as of March 30, 1998.
------------------------------
Name:
-------------------------
<PAGE>
Exhibit 10.20
FORM OF PROMISSORY NOTE
$110,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, David D. Smith, an individual
residing at _____________________ (the "Borrower"), HEREBY PROMISES TO PAY to
the order of Morris Material Handling, Inc. (the "Lender") on the dates set
forth herein the principal amount of ONE HUNDRED TEN THOUSAND U.S. DOLLARS
(US$110,000) in lawful money of the United States of America ("U.S. Dollars"
or "US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties
to this Note.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between
Borrower and Harnischfeger Corporation ("HarnCo"), effective September
19, 1997, which sets forth the terms of the Borrower's divestiture bonus
from HarnCo.
"Employment Agreement" means the Employment Agreement between
the Borrower and the Lender dated March 30, 1998 which sets forth the
terms of the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate
per annum in effect from time to time, which rate per annum shall at all
times be equal to the rate of interest published by the Secretary of the
Treasury, from time to time, in accordance with Section 1274(d) of the
Internal Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Lender" has the meaning specified in the recital of parties
to this Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement,
in each case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security
agreement entered into by the Borrower for the benefit of the Lender, in
substantially the form of Exhibit A hereto, as such agreement may be
amended or modified from time to time.
"Termination Date" means the earlier of (a) the date the
second payment is due (i) when Borrower receives payment of previously
deferred amounts from the Harnischfeger Rabbi Trust, or (ii) on March
30, 1999 or (b) the date the Loan becomes due and payable hereunder
pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the
computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note
shall have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and
conditions hereinafter set forth, to make a loan (the "Loan") to the Borrower
on the date hereof in the amount set forth above in U.S. Dollars and in same
day funds.
SECTION 2.2. Repayment. The Borrower shall repay the unpaid
principal amount of the Loan in two payments: (x) $70,000 upon Borrower's
receipt of payment under the Divestiture Bonus Agreement and (y) $40,000 (i)
when Borrower receives payment of previously deferred amounts from the
Harnischfeger Rabbi Trust, or (ii) on March 30, 1999; provided, however, that
both payments shall be due on the Termination Date if such date is earlier
than March 30, 1999 pursuant to Section 2.4 or 5.1.
SECTION 2.3. Interest. The Borrower shall pay interest on the
unpaid principal amount of this Note from the date of this Note until this
Note shall be paid in full at a rate per annum equal at all times to the
Federal Short-Term Rate in effect from time to time, payable in arrears and
in a lump sum on the Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the
next succeeding Business Day following the Borrower's failure to be in the
Lender's employ as a result of a termination of employment for Cause or by
reason of the Borrower's death or a resignation of employment other than for
Good Reason, prepay the outstanding principal amount of the Loan and pay
accrued interest to the date of such prepayment on the entire principal
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<PAGE>
amount of the Loan outstanding as of such date; provided however that the
Borrower shall be considered to be in the Lender's "employ" during any period
of the Borrower's Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make
each payment hereunder not later than 3:00 P.M. (Milwaukee time) on the day
when due in U.S. Dollars to the Lender at its address referred to in Section
6.2 in same day funds. All computations of interest shall be made by the
Lender on the basis of a year of 365 or 366 days, as the case may be, in each
case for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment
under any Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation
of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of
the Lender to make the Loan hereunder is subject to the conditions precedent
that the Lender shall have received on or before the date of such Loan the
following, dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests
created by the Security Agreement,
(b) the Lender shall have received such other approvals or documents
as the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall
remain unpaid, the Borrower will, unless the Lender shall otherwise consent
in writing:
(a) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments and governmental charges imposed upon the Borrower or upon
the property of the Borrower except to the extent contested in good faith.
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<PAGE>
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days
after the occurrence of each Event of Default and each event which, with the
giving of notice or lapse of time, or both, would constitute an Event of
Default, continuing on the date of such statement, a statement of the
Borrower setting forth details of such Event of Default or event and the
action which the Borrower has taken and proposes to take with respect
thereto; and
(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may from
time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest
on, this Note or any other amount under any other Loan Document, including,
but not limited to, any mandatory prepayments, within 30 days after the same
becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the
Borrower to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower
seeking to adjudicate the Borrower a bankrupt or insolvent, or seeking
liquidation, protection, relief, or composition of the Borrower or of his
debts under any law relating to bankruptcy, insolvency or relief of debtors,
or seeking the entry of an order for relief for the Borrower or for any
substantial part of his property and, in the case of any such proceeding
instituted against the Borrower (but not instituted by the Borrower), either
such proceeding shall remain undismissed or unstayed for a period of 30 days,
or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against the Borrower or for any
substantial part of his property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect;
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<PAGE>
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding on
the Borrower,
(f) The Security Agreement after delivery thereof pursuant to
Section 3.1 shall for any reason (other than pursuant to the terms thereof)
cease to create a valid security interest in any of the collateral purported
to be covered thereby;
(g) The Borrower shall die; or
(h) The Borrower shall be terminated for Cause or resign without
Good Reason;
then, and in any such event, the Lender may, by notice to the Borrower,
declare this Note, all interest thereon and all other amounts payable under
the Loan Documents to be forthwith due and payable, whereupon this Note, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, that in
the event of the death of the Borrower or in the event of an actual or deemed
entry of an order for relief with respect to the Borrower under the Federal
Bankruptcy Code, this Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived
by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any
provision of this Note, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
SECTION 6.2. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its address
as indicated in the recital of parties to this Note; and if to the Lender, at
its address at Chartwell Investment Inc., Attn: Michael Shein; or, as to each
party, at such other address and to such other individual as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or
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<PAGE>
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon
the Borrower and his personal representatives, estate, heirs, devisees,
legatees and assigns, (b) inure to the benefit of the Borrower and his
assigns and (c) be binding upon and inure to the benefit of the Lender and
its respective successors and assigns, except that the Borrower shall not
have the right to assign his rights hereunder or any interest herein without
the prior written consent of the Lender.
SECTION 6.5. Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has
caused this Note to be executed by its officer thereunto duly authorized, in
each case, as of the date first above written.
------------------------------
David D. Smith, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
-----------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ____________________, a holder of interests
in Niles L.L.C., a Delaware limited liability company (the "Company"),
executing the foregoing Promissory Note and Pledge, Assignment and Security
Agreement, hereunto subscribes her name in evidence of her agreement and
consent to the pledge of interests of the Company referred to in the
foregoing Promissory Note and Pledge, Assignment and Security Agreement, and
to all other provisions thereof.
Effective as of March 30, 1998.
-------------------------------
Name:
--------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30,
1998, made by the individual identified on the signature page hereof (the
"Pledgor"), residing at the address indicated for the Pledgor on the
signature page hereof, to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the
Pledgee, (the "Note"), any terms defined therein and not otherwise defined
herein being used herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles,
L.L.C. set forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security
interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Pledgee to make the loans under the Note, the Pledgor hereby
agrees with the Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns,
transfers and pledges to the Pledgee, and hereby grants to the Pledgee a
security interest in, all of the Pledgor's right, title and interest in, to
and under the following, in each case, as to each type of property described
below, whether now owned or hereafter acquired, wherever located and whether
now or hereafter existing (the "Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued
by the limited liability company indicated therein (collectively
referred to herein as the "Pledged Units", and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such Pledged Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement
(the "Bonus Agreement") between the Pledgor and Harnischfeger
Corporation ("Harnco"), dated September 5, 1997;
(c) the proceeds from any payments of previously deferred amounts
Pledgor receives from the Harnischfeger Rabbi Trust; and
(d) all proceeds of any and all of the foregoing Collateral
(including, without limitation, (i) proceeds which constitute property
of the types described in clauses (a) through (d) of this Section 1 and
(ii) cash) and, to the extent not otherwise included, all
<PAGE>
payments under insurance (whether or not the Pledgee is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of
loss damage to or otherwise with respect to any of the foregoing
Collateral.
SECTION 2. Security for Obligations. This Agreement secures the
payment of all obligations of the Pledgor now or hereafter existing under the
Loan Documents (all such obligations of the Pledgor being the "Obligations").
Without limiting the generality of the foregoing, this Agreement secures the
payment of all amounts that constitute part of the Obligations and would be
owed by the Pledgor to the Pledgee under the Note but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Pledgor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Pledgee of any of the rights hereunder shall not release the Pledgor from any
of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Pledgee shall have no obligation or liability
under the contracts and agreements included in the Collateral by reason of
this Agreement, nor shall the Pledgee be obligated to perform any of the
obligations or duties of the Pledgor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or
instruments representing or evidencing the Collateral are being delivered to
and will be held by or on behalf of the Pledgee pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have the right, at
any time in its discretion and without notice to the Pledgor, to transfer to
or to register in the name of the Pledgee (as Pledgee hereunder) or any of
its nominees any or all of the Collateral. In addition, the Pledgee shall
have the right at any time to exchange instruments representing or evidencing
the Collateral for certificates or instruments of smaller or larger
denominations.
SECTION 5. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) The residence of the Pledgor is located at the address
specified on the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interests created by this
Agreement. No effective financing statement or other document similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Pledgee relating
to this Agreement.
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(c) This Agreement has been duly executed and delivered by the
Pledgor and is a valid and binding obligation of the Pledgor, enforceable
against the Pledgor in accordance with its terms.
(d) The execution and delivery by the Pledgor of this Agreement
and the performance of its obligations thereunder are within the Pledgor's
authority and capacity and do not contravene any law, regulation, order or
contractual restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from
time to time, at the expense of the Pledgee, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Pledgee may
reasonably request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or to enable the
Pledgee to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
the Pledgor will: (i) deliver and pledge to the Pledgee promptly upon receipt
thereof all instruments or certificates representing or evidencing any of the
collateral duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the
Pledgee; and (ii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Pledgee may request, in order to perfect
and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified in
Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral of the
Pledgor or any part thereof for any purpose not inconsistent with the
terms of this Agreement or the other Loan Documents.
(ii) Any and all
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(A) dividends and interest paid or payable
including cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral.
(B) dividends and other distributions paid or
payable in cash in respect of any Collateral in
connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in
respect of principal of or in exchange for, any
Collateral, and
(D) cash dividends paid or payable in violation of
the terms of this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the
Pledgee, be segregated from the other property or funds of the Pledgor
and be forthwith delivered to the Pledgee as Collateral in the same form
as so received (with any necessary endorsement) and all such property
which consists of cash shall bear interest at The Federal Short-Term
Rate (as defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note, all rights of the Pledgor to exercise or
refrain from exercising the consensual rights that it would otherwise be
entitled to exercise pursuant to Section 7(a)(i) shall, upon notice to the
Pledgor by the Pledgee, cease, and all such rights shall thereupon become
vested in the Pledgee, which shall thereupon have the sole right to exercise
or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of,
or grant any option with respect to , any of the collateral or (ii) create or
permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Pledgee's discretion, to take
any action and to execute any instrument that the Pledgee may deem necessary
or advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any
proceeding that the Pledgee may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of the
Pledgee with respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform
any agreement contained herein, the Pledgee may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Pledgee
incurred in connection therewith shall be payable by the Pledgor under
Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the
Pledgee hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Pledgee shall have no duty as
to any Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Pledgee shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Pledgee accords its
own property.
SECTION 12. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title
to the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash
proceeds received by the Pledgee in respect to any sale of, collection from,
or other realization upon all or any part of the Collateral may, in the
discretion of the Pledgee, be held by the Pledgee as Collateral for, and then
or at any time thereafter be applied in whole or in part by the Pledgee
against, all or any part of the Obligations in such order as the Pledgee
shall elect. Any surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall
comply with all provisions of the Assigned Agreements and with applicable
law, including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Pledgee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed,
telecopied, telegraphed, telexed, cabled or delivered to it, if to the
Pledgor, at its address specified in the Notes, or, as to either party, at
such other address as shall be designated by such party in a written notice
to the other party. all such notices and other communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until the later of (i) the payment in full of the
Obligations and all other amounts payable under the Loan Documents and (ii)
the Termination Date, (b) be binding upon the Pledgor, its successors and
assigns and (c) inure to the benefit of, and be enforceable by, the Pledgee
and its successors, transferees and assigns.
SECTION 16. Release and Termination. The security interest
granted hereby shall terminate and all rights to the Collateral shall revert
to the Pledgor upon the latter of (a) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (b) the
Termination Date. Upon such documents as the Pledgor shall reasonably
request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. Unless otherwise defined herein, terms used in Article 8 or Article 9
of the Code are used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered
this Agreement, and the Pledgee has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.
---------------------------------------
David D. Smith as Pledgor
Address:
------------------------------
---------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
--------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ___________________________________, a holder
of interests in Niles L.L.C., a Delaware limited liability company (the
"Company"), executing the foregoing Promissory Note and Pledge, Assignment
and Security Agreement, hereunto subscribes her name in evidence of her
agreement and consent to the pledge of interests of the Company referred to
in the foregoing Promissory Note and Pledge, Assignment and Security
Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
-------------------------------------
Name:
-------------------------------
<PAGE>
Exhibit 10.21
FORM OF PROMISSORY NOTE
$50,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Martin L. Ditkof, an individual
residing at _____________________ (the "Borrower"), HEREBY PROMISES TO PAY to
the order of Morris Material Handling, Inc. (the "Lender") on the Termination
Date (as defined below) the principal amount of FIFTY THOUSAND U.S. DOLLARS
(US$50,000) in lawful money of the United States of America ("U.S. Dollars" or
"US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties to this
Note.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between Borrower and
Harnischfeger Corporation ("HarnCo"), effective September 19, 1997, which
sets forth the terms of the Borrower's divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between the
Borrower and the Lender dated March 30, 1998 which sets forth the terms of
the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times be
equal to the rate of interest published by the Secretary of the Treasury,
from time to time, in accordance with Section 1274(d) of the Internal
Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties to this
Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in each
case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security agreement
entered into by the Borrower for the benefit of the Lender, in substantially
the form of Exhibit A hereto, as such agreement may be amended or modified
from time to time.
"Termination Date" means the earlier of (a) Borrower's receipt of
payment under the Divestiture Bonus Agreement and (b) the date the Loan
becomes due and payable hereunder pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note shall
have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and conditions
hereinafter set forth, to make a loan (the "Loan") to the Borrower on the date
hereof in the amount set forth above in U.S.
Dollars and in same day funds.
SECTION 2.2. Repayment. The Borrower shall repay the aggregate unpaid
principal amount of the Loan in a lump sum on the Termination Date.
SECTION 2.3. Interest. The Borrower shall pay interest on the unpaid
principal amount of this Note from the date of this Note until this Note shall
be paid in full at a rate per annum equal at all times to the Federal Short-Term
Rate in effect from time to time, payable in arrears and in a lump sum on the
Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the next
succeeding Business Day following the Borrower's failure to be in the Lender's
employ as a result of a termination of employment for Cause or by reason of the
Borrower's death or a resignation of employment other than for Good Reason,
prepay the outstanding principal amount of the Loan and pay accrued interest to
the date of such prepayment on the entire principal amount of the Loan
outstanding as of such date; provided however that the Borrower shall be
considered to be in the Lender's "employ" during any period of the Borrower's
Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make each payment
hereunder not later than 3:00 P.M. (Milwaukee time) on the day when due in U.S.
Dollars to the Lender at its address referred to in Section 6.2 in same day
funds. All computations of interest shall be made by the Lender on the basis of
a year of 365 or 366 days, as
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the case may be, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment under any
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of the Lender
to make the Loan hereunder is subject to the conditions precedent that the
Lender shall have received on or before the date of such Loan the following,
dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests
created by the Security Agreement,
(b) the Lender shall have received such other approvals or documents as
the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall remain
unpaid, the Borrower will, unless the Lender shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days after
the occurrence of each Event of Default and each event which, with the
giving of notice or lapse of time, or both, would constitute an Event
of Default, continuing on the date of such statement, a statement of
the Borrower setting forth details of such Event of Default or event
and the action which the Borrower has taken and proposes to take with
respect thereto; and
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<PAGE>
(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may
from time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
this Note or any other amount under any other Loan Document, including, but not
limited to, any mandatory prepayments, within 30 days after the same becomes due
and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term, covenant
or agreement contained in any Loan Document on the part of the Borrower to be
performed or observed if such failure shall remain unremedied for 30 days after
written notice thereof shall have been given to the Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Borrower seeking to
adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation,
protection, relief, or composition of the Borrower or of his debts under any law
relating to bankruptcy, insolvency or relief of debtors, or seeking the entry of
an order for relief for the Borrower or for any substantial part of his property
and, in the case of any such proceeding instituted against the Borrower (but not
instituted by the Borrower), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against the Borrower or for any substantial part of his property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding on
the Borrower,
(f) The Security Agreement after delivery thereof pursuant to Section
3.1 shall for any reason (other than pursuant to the terms thereof) cease to
create a valid security interest in any of the collateral purported to be
covered thereby;
(g) The Borrower shall die; or
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<PAGE>
(h) The Borrower shall be terminated for Cause or resign without Good
Reason;
then, and in any such event, the Lender may, by notice to the Borrower,
declare this Note, all interest thereon and all other amounts payable under the
Loan Documents to be forthwith due and payable, whereupon this Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that in the event of the
death of the Borrower or in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, this
Note, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any provision of
this Note, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address as indicated in the recital of
parties to this Note; and if to the Lender, at its address at Chartwell
Investment Inc., Attn: Michael Shein; or, as to each party, at such other
address and to such other individual as shall be designated by such party in a
written notice to the other party. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided in the Loan Documents are cumulative and not
exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon the
Borrower and his personal representatives, estate, heirs, devisees, legatees and
assigns, (b) inure to the benefit of the Borrower and his assigns and (c) be
binding upon and inure to the benefit of the Lender and its respective
successors and assigns, except that the Borrower shall not have the right to
assign his rights hereunder or any interest herein without the prior written
consent of the Lender.
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SECTION 6.5. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has caused this
Note to be executed by its officer thereunto duly authorized, in each case, as
of the date first above written.
-----------------------------------
Martin L. Ditkof, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
---------------------------
Name:
Title:
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Form of Spousal Consent
The undersigned, spouse of ___________________, a holder of interests in
Niles L.L.C., a Delaware limited liability company (the "Company"), executing
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory
Note and Pledge, Assignment and Security Agreement, and to all other
provisions thereof.
Effective as of March 30, 1998.
---------------------------------
Name:
----------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of _______, 1998, made
by the individual identified on the signature page hereof (the "Pledgor"),
residing at the address indicated for the Pledgor on the signature page hereof,
to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee, (the
"Note"), any terms defined therein and not otherwise defined herein being used
herein are as therein defined.
(2) The Pledgor is the owner of the equity set forth on Part I of Schedule I
hereto and issued by the limited liability company indicated therein.
[(3) The Pledgor has entered into a Agreement relating to the equity listed
on Part I of Schedule I (said agreement, as amended or modified from time to
time, being the "Unit Agreement").]
(4) The Note requires that the Pledgor shall grant the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loans under the Note, the Pledgor hereby agrees with the
Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers and
pledges to the Pledgee, and hereby grants to the Pledgee a security interest in,
all of the Pledgor's right, title and interest in, to and under the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired, wherever located and whether now or hereafter existing (the
"Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a)
<PAGE>
through (c) of this Section 1 and (ii) cash) and, to the extent not
otherwise included, all payments under insurance (whether or not the Pledgee
is the loss payee thereof), or any indemnity, warranty or guaranty, payable
by reason of loss damage to or otherwise with respect to any of the
foregoing Collateral.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor now or hereafter existing under the Loan
Documents (all such obligations of the Pledgor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Pledgee under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Pledgee of any of the
rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Pledgee shall have no obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Pledgee be obligated to perform any of the obligations or duties of the Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on
the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Pledgee relating to this
Agreement.
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(c) This Agreement has been duly executed and delivered by the Pledgor
and is a valid and binding obligation of the Pledgor, enforceable against
the Pledgor in accordance with its terms.
(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time to
time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Pledgee may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Pledgee to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) deliver
and pledge to the Pledgee promptly upon receipt thereof all instruments or
certificates representing or evidencing any of the collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Pledgee; and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Pledgee may
request, in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified
in Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral of the Pledgor
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents.
(ii) Any and all
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(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral.
(B) dividends and other distributions paid or payable in cash
in respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms
of this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the
Pledgee, be segregated from the other property or funds of the Pledgor
and be forthwith delivered to the Pledgee as Collateral in the same
form as so received (with any necessary endorsement) and all such
property which consists of cash shall bear interest at The Federal
Short-Term Rate (as defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from
exercising the consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall, upon notice to the Pledgor
by the Pledgee, cease, and all such rights shall thereupon become
vested in the Pledgee, which shall thereupon have the sole right to
exercise or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to , any of the collateral or (ii) create or permit to exist
any lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of
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<PAGE>
each issuer of any Pledged Shares or Pledged Options which is purchased by
Pledgor with the proceeds of the Note.
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument that the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding
that the Pledgee may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Pledgee with
respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Pledgee shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Pledgee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to
the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part
5
<PAGE>
of the Collateral may, in the discretion of the Pledgee, be held by the
Pledgee as Collateral for, and then or at any time thereafter be applied in
whole or in part by the Pledgee against, all or any part of the Obligations
in such order as the Pledgee shall elect. Any surplus of such cash or cash
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgor, at its address specified in the
Notes, or, as to either party, at such other address as shall be designated by
such party in a written notice to the other party. all such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Pledgee and its successors,
transferees and assigns.
SECTION 16. Release and Termination. The security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Pledgor
upon the latter of (a) the payment in full of the Obligations and all other
amounts payable under the Loan Documents and (b) the Termination Date. Upon such
documents as the Pledgor shall reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. Unless
otherwise defined herein, terms used in Article 8 or Article 9 of the Code are
used herein as therein defined.
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IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
--------------------------------------
Martin L. Ditkof as Pledgor
Address:
------------------------------
--------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
-----------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of __________________, a holder of interests in
Niles L.L.C., a Delaware limited liability company (the "Company"), executing
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory
Note and Pledge, Assignment and Security Agreement, and to all other provisions
thereof.
Effective as of March 30, 1998.
------------------------------------
Name:
-------------------------------
<PAGE>
Exhibit 10.22
FORM OF PROMISSORY NOTE
$70,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Richard J. Niespodziani, an individual
residing at _____________________ (the "Borrower"), HEREBY PROMISES TO PAY to
the order of Morris Material Handling, Inc. (the "Lender") on the Termination
Date (as defined below) the principal amount of SEVENTY THOUSAND U.S. DOLLARS
(US$70,000) in lawful money of the United States of America ("U.S. Dollars" or
"US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties to this
Note.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between Borrower and
Harnischfeger Corporation ("HarnCo"), effective September 19, 1997, which
sets forth the terms of the Borrower's divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between the
Borrower and the Lender dated March 30, 1998 which sets forth the terms of
the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times be
equal to the rate of interest published by the Secretary of the Treasury,
from time to time, in accordance with Section 1274(d) of the Internal
Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties to this
Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in each
case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security agreement
entered into by the Borrower for the benefit of the Lender, in substantially
the form of Exhibit A hereto, as such agreement may be amended or modified
from time to time.
"Termination Date" means the earlier of (a) Borrower's receipt of
payment under the Divestiture Bonus Agreement and (b) the date the Loan
becomes due and payable hereunder pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note shall
have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and conditions
hereinafter set forth, to make a loan (the "Loan") to the Borrower on the date
hereof in the amount set forth above in U.S.
Dollars and in same day funds.
SECTION 2.2. Repayment. The Borrower shall repay the aggregate unpaid
principal amount of the Loan in a lump sum on the Termination Date.
SECTION 2.3. Interest. The Borrower shall pay interest on the unpaid
principal amount of this Note from the date of this Note until this Note shall
be paid in full at a rate per annum equal at all times to the Federal Short-Term
Rate in effect from time to time, payable in arrears and in a lump sum on the
Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the next
succeeding Business Day following the Borrower's failure to be in the Lender's
employ as a result of a termination of employment for Cause or by reason of the
Borrower's death or a resignation of employment other than for Good Reason,
prepay the outstanding principal amount of the Loan and pay accrued interest to
the date of such prepayment on the entire principal amount of the Loan
outstanding as of such date; provided however that the Borrower shall be
considered to be in the Lender's "employ" during any period of the Borrower's
Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make each payment
hereunder not later than 3:00 P.M. (Milwaukee time) on the day when due in U.S.
Dollars to the Lender at its address referred to in Section 6.2 in same day
funds. All computations of interest shall be made by the Lender on the basis of
a year of 365 or 366 days, as
2
<PAGE>
the case may be, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment under any
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of the Lender
to make the Loan hereunder is subject to the conditions precedent that the
Lender shall have received on or before the date of such Loan the following,
dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests
created by the Security Agreement,
(b) the Lender shall have received such other approvals or documents as
the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall remain
unpaid, the Borrower will, unless the Lender shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days after
the occurrence of each Event of Default and each event which, with the
giving of notice or lapse of time, or both, would constitute an Event
of Default, continuing on the date of such statement, a statement of
the Borrower setting forth details of such Event of Default or event
and the action which the Borrower has taken and proposes to take with
respect thereto; and
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<PAGE>
(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may
from time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
this Note or any other amount under any other Loan Document, including, but
not limited to, any mandatory prepayments, within 30 days after the same
becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the
Borrower to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Borrower seeking to
adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation,
protection, relief, or composition of the Borrower or of his debts under any
law relating to bankruptcy, insolvency or relief of debtors, or seeking the
entry of an order for relief for the Borrower or for any substantial part of
his property and, in the case of any such proceeding instituted against the
Borrower (but not instituted by the Borrower), either such proceeding shall
remain undismissed or unstayed for a period of 30 days, or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against the Borrower or for any substantial part of
his property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding
on the Borrower,
(f) The Security Agreement after delivery thereof pursuant to Section
3.1 shall for any reason (other than pursuant to the terms thereof) cease to
create a valid security interest in any of the collateral purported to be
covered thereby;
(g) The Borrower shall die; or
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<PAGE>
(h) The Borrower shall be terminated for Cause or resign without Good
Reason;
then, and in any such event, the Lender may, by notice to the Borrower, declare
this Note, all interest thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon this Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that in the event of the
death of the Borrower or in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, this
Note, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any provision of
this Note, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address as indicated in the recital of
parties to this Note; and if to the Lender, at its address at Chartwell
Investment Inc., Attn: Michael Shein; or, as to each party, at such other
address and to such other individual as shall be designated by such party in a
written notice to the other party. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided in the Loan Documents are cumulative and not
exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon the
Borrower and his personal representatives, estate, heirs, devisees, legatees and
assigns, (b) inure to the benefit of the Borrower and his assigns and (c) be
binding upon and inure to the benefit of the Lender and its respective
successors and assigns, except that the Borrower shall not have the right to
assign his rights hereunder or any interest herein without the prior written
consent of the Lender.
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<PAGE>
SECTION 6.5. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has caused this
Note to be executed by its officer thereunto duly authorized, in each case, as
of the date first above written.
-----------------------------------
Richard J. Niespodziani, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
---------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of __________________, a holder of interests in
Niles L.L.C., a Delaware limited liability company (the "Company"), executing
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory
Note and Pledge, Assignment and Security Agreement, and to all other
provisions thereof.
Effective as of March 30, 1998.
--------------------------------
Name:
---------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30, 1998, made
by the individual identified on the signature page hereof (the "Pledgor"),
residing at the address indicated for the Pledgor on the signature page hereof,
to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee, (the
"Note"), any terms defined therein and not otherwise defined herein being used
herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles, L.L.C. set
forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loans under the Note, the Pledgor hereby agrees with the
Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers and
pledges to the Pledgee, and hereby grants to the Pledgee a security interest in,
all of the Pledgor's right, title and interest in, to and under the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired, wherever located and whether now or hereafter existing (the
"Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 1 and (ii) cash) and,
to the extent not otherwise included, all payments under insurance (whether
or not the Pledgee is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss damage to or otherwise with respect to
any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor now or hereafter existing under the Loan
Documents (all such obligations of the Pledgor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Pledgee under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Pledgee of any of the
rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Pledgee shall have no obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Pledgee be obligated to perform any of the obligations or duties of the Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on
the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Pledgee relating to this
Agreement.
(c) This Agreement has been duly executed and delivered by the Pledgor
and is a valid and binding obligation of the Pledgor, enforceable against
the Pledgor in accordance with its terms.
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(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time to
time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Pledgee may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Pledgee to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) deliver
and pledge to the Pledgee promptly upon receipt thereof all instruments or
certificates representing or evidencing any of the collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Pledgee; and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Pledgee may
request, in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified
in Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral of the Pledgor
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received,
receivable or
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otherwise distributed in respect of, or in exchange for, any
Security Collateral.
(B) dividends and other distributions paid or payable in cash
in respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms
of this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the
Pledgee, be segregated from the other property or funds of the Pledgor
and be forthwith delivered to the Pledgee as Collateral in the same
form as so received (with any necessary endorsement) and all such
property which consists of cash shall bear interest at The Federal
Short-Term Rate (as defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from
exercising the consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall, upon notice to the Pledgor
by the Pledgee, cease, and all such rights shall thereupon become
vested in the Pledgee, which shall thereupon have the sole right to
exercise or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to , any of the collateral or (ii) create or permit to exist
any lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument that the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding
that the Pledgee may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Pledgee with
respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Pledgee shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Pledgee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to
the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of
the Pledgee, be held by the Pledgee as Collateral for, and then or at any
time thereafter be applied in whole or in part by the Pledgee against, all
or any part of the Obligations in such order as the Pledgee shall elect. Any
surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgor, at its address specified in the
Notes, or, as to either party, at such other address as shall be designated by
such party in a written notice to the other party. all such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Pledgee and its successors,
transferees and assigns.
SECTION 16. Release and Termination. The security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Pledgor
upon the latter of (a) the payment in full of the Obligations and all other
amounts payable under the Loan Documents and (b) the Termination Date. Upon such
documents as the Pledgor shall reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. Unless
otherwise defined herein, terms used in Article 8 or Article 9 of the Code are
used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
--------------------------------------
Richard J. Niespodziani as Pledgor
Address:
---------------------------------------
---------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
--------------------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of _________________________, a holder of interests
in Niles L.L.C., a Delaware limited liability company (the "Company"),
executing the foregoing Promissory Note and Pledge, Assignment and Security
Agreement, hereunto subscribes her name in evidence of her agreement and
consent to the pledge of interests of the Company referred to in the foregoing
Promissory Note and Pledge, Assignment and Security Agreement, and to all
other provisions thereof.
Effective as of March 30, 1998.
-----------------------------------
Name:
------------------------------
<PAGE>
Exhibit 10.23
FORM OF PROMISSORY NOTE
$70,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Peter A. Kerrick, an
individual residing at _____________________ (the "Borrower"), HEREBY
PROMISES TO PAY to the order of Morris Material Handling, Inc. (the "Lender")
on the Termination Date (as defined below) the principal amount of SEVENTY
THOUSAND U.S. DOLLARS (US$70,000) in lawful money of the United States of
America ("U.S. Dollars" or "US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties
to this Note.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between
Borrower and Harnischfeger Corporation ("HarnCo"), effective
September 19, 1997, which sets forth the terms of the Borrower's
divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between
the Borrower and the Lender dated March 30, 1998 which sets forth
the terms of the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate
per annum in effect from time to time, which rate per annum shall at
all times be equal to the rate of interest published by the Secretary
of the Treasury, from time to time, in accordance with Section
1274(d) of the Internal Revenue Code, as the monthly Federal
short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Lender" has the meaning specified in the recital of parties to
this Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in
each case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security
agreement entered into by the Borrower for the benefit of the Lender,
in substantially the form of Exhibit A hereto, as such agreement
may be amended or modified from time to time.
"Termination Date" means the earlier of (a) Borrower's receipt
of payment under the Divestiture Bonus Agreement and (b) the date the
Loan becomes due and payable hereunder pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the
computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding."
SECTION 1.3. Other Terms. All other terms not defined in this
Note shall have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and
conditions hereinafter set forth, to make a loan (the "Loan") to the Borrower
on the date hereof in the amount set forth above in U.S. Dollars and in same
day funds.
SECTION 2.2. Repayment. The Borrower shall repay the aggregate
unpaid principal amount of the Loan in a lump sum on the Termination Date.
SECTION 2.3. Interest. The Borrower shall pay interest on the
unpaid principal amount of this Note from the date of this Note until this
Note shall be paid in full at a rate per annum equal at all times to the
Federal Short-Term Rate in effect from time to time, payable in arrears and
in a lump sum on the Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the
next succeeding Business Day following the Borrower's failure to be in the
Lender's employ as a result of a termination of employment for Cause or by
reason of the Borrower's death or a resignation of employment other than for
Good Reason, prepay the outstanding principal amount of the Loan and pay
accrued interest to the date of such prepayment on the entire principal
amount of the Loan outstanding as of such date; provided however that the
Borrower shall be considered to be in the Lender's "employ" during any period
of the Borrower's Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make
each payment hereunder not later than 3:00 P.M. (Milwaukee time) on the day
when due in U.S. Dollars to the Lender at its address referred to in Section
6.2 in same day funds. All computations of interest shall be made by the
Lender on the basis of a year of 365 or 366 days, as
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<PAGE>
the case may be, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment
under any Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation
of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of
the Lender to make the Loan hereunder is subject to the conditions precedent
that the Lender shall have received on or before the date of such Loan the
following, dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests created
by the Security Agreement,
(b) the Lender shall have received such other approvals or documents
as the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall
remain unpaid, the Borrower will, unless the Lender shall otherwise consent
in writing:
(a) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments and governmental charges imposed upon the Borrower or upon
the property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days
after the occurrence of each Event of Default and each event which, with the
giving of notice or lapse of time, or both, would constitute an Event of
Default, continuing on the date of such statement, a statement of the
Borrower setting forth details of such Event of Default or event and the
action which the Borrower has taken and proposes to take with respect
thereto; and
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<PAGE>
(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may from
time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest
on, this Note or any other amount under any other Loan Document, including,
but not limited to, any mandatory prepayments, within 30 days after the same
becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the
Borrower to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower
seeking to adjudicate the Borrower a bankrupt or insolvent, or seeking
liquidation, protection, relief, or composition of the Borrower or of his
debts under any law relating to bankruptcy, insolvency or relief of debtors,
or seeking the entry of an order for relief for the Borrower or for any
substantial part of his property and, in the case of any such proceeding
instituted against the Borrower (but not instituted by the Borrower), either
such proceeding shall remain undismissed or unstayed for a period of 30 days,
or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against the Borrower or for any
substantial part of his property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding on
the Borrower,
(f) The Security Agreement after delivery thereof pursuant to
Section 3.1 shall for any reason (other than pursuant to the terms thereof)
cease to create a valid security interest in any of the collateral purported
to be covered thereby;
(g) The Borrower shall die; or
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<PAGE>
(h) The Borrower shall be terminated for Cause or resign without
Good Reason;
then, and in any such event, the Lender may, by notice to the Borrower,
declare this Note, all interest thereon and all other amounts payable under
the Loan Documents to be forthwith due and payable, whereupon this Note, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, that in
the event of the death of the Borrower or in the event of an actual or deemed
entry of an order for relief with respect to the Borrower under the Federal
Bankruptcy Code, this Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived
by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any
provision of this Note, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
SECTION 6.2. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its address
as indicated in the recital of parties to this Note; and if to the Lender, at
its address at Chartwell Investment Inc., Attn: Michael Shein; or, as to each
party, at such other address and to such other individual as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
the exercise of any other right. The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon
the Borrower and his personal representatives, estate, heirs, devisees,
legatees and assigns, (b) inure to the benefit of the Borrower and his
assigns and (c) be binding upon and inure to the benefit of the Lender and
its respective successors and assigns, except that the Borrower shall not
have the right to assign his rights hereunder or any interest herein without
the prior written consent of the Lender.
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<PAGE>
SECTION 6.5. Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has
caused this Note to be executed by its officer thereunto duly authorized, in
each case, as of the date first above written.
------------------------------------------------
Peter A. Kerrick, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
-------------------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of_______________________________________, a
holder of interests in Niles L.L.C., a Delaware limited liability company
(the "Company"), executing the foregoing Promissory Note and Pledge,
Assignment and Security Agreement, hereunto subscribes her name in evidence
of her agreement and consent to the pledge of interests of the Company
referred to in the foregoing Promissory Note and Pledge, Assignment and
Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
-------------------------------------
Name:
--------------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30,
1998, made by the individual identified on the signature page hereof (the
"Pledgor"), residing at the address indicated for the Pledgor on the
signature page hereof, to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the
Pledgee, (the "Note"), any terms defined therein and not otherwise defined
herein being used herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles,
L.L.C. set forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security
interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Pledgee to make the loans under the Note, the Pledgor hereby
agrees with the Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns,
transfers and pledges to the Pledgee, and hereby grants to the Pledgee a
security interest in, all of the Pledgor's right, title and interest in, to
and under the following, in each case, as to each type of property described
below, whether now owned or hereafter acquired, wherever located and whether
now or hereafter existing (the "Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued
by the limited liability company indicated therein (collectively referred
to herein as the "Pledged Units", and all dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral
(including, without limitation, (i) proceeds which constitute property of
the types described in clauses (a) through (c) of this Section 1 and (ii)
cash) and, to the extent not otherwise included, all payments under
insurance (whether or not the Pledgee is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss damage to or
otherwise with respect to any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures
the payment of all obligations of the Pledgor now or hereafter existing under
the Loan Documents (all such obligations of the Pledgor being the
"Obligations"). Without limiting the generality of the foregoing, this
Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed by the Pledgor to the Pledgee under the Note
but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Pledgor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Pledgee of any of the rights hereunder shall not release the Pledgor from any
of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Pledgee shall have no obligation or liability
under the contracts and agreements included in the Collateral by reason of
this Agreement, nor shall the Pledgee be obligated to perform any of the
obligations or duties of the Pledgor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or
instruments representing or evidencing the Collateral are being delivered to
and will be held by or on behalf of the Pledgee pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have the right, at
any time in its discretion and without notice to the Pledgor, to transfer to
or to register in the name of the Pledgee (as Pledgee hereunder) or any of
its nominees any or all of the Collateral. In addition, the Pledgee shall
have the right at any time to exchange instruments representing or evidencing
the Collateral for certificates or instruments of smaller or larger
denominations.
SECTION 5. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) The residence of the Pledgor is located at the address
specified on the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interests created by this
Agreement. No effective financing statement or other document similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Pledgee relating
to this Agreement.
(c) This Agreement has been duly executed and delivered by the
Pledgor and is a valid and binding obligation of the Pledgor, enforceable
against the Pledgor in accordance with its terms.
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(d) The execution and delivery by the Pledgor of this Agreement
and the performance of its obligations thereunder are within the Pledgor's
authority and capacity and do not contravene any law, regulation, order or
contractual restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that
from time to time, at the expense of the Pledgee, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Pledgee may
reasonably request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or to enable the
Pledgee to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
the Pledgor will: (i) deliver and pledge to the Pledgee promptly upon receipt
thereof all instruments or certificates representing or evidencing any of the
collateral duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the
Pledgee; and (ii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Pledgee may request, in order to perfect
and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified in
Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral of the
Pledgor or any part thereof for any purpose not inconsistent with the
terms of this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including
cash in respect of, and instruments and other property
received, receivable or
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otherwise distributed in respect of, or in exchange for,
any Security Collateral.
(B) dividends and other distributions paid or payable
in cash in respect of any Collateral in connection with a
partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus,
(C) cash paid, payable or otherwise distributed in
respect of principal of or in exchange for, any Collateral,
and
(D) cash dividends paid or payable in violation of
the terms of this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the Pledgee,
be segregated from the other property or funds of the Pledgor and be
forthwith delivered to the Pledgee as Collateral in the same form as so
received (with any necessary endorsement) and all such property which
consists of cash shall bear interest at The Federal Short-Term Rate (as
defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from
exercising the consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall, upon notice to the Pledgor by
the Pledgee, cease, and all such rights shall thereupon become vested in
the Pledgee, which shall thereupon have the sole right to exercise or
refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall
not (i) sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to , any of the collateral or (ii)
create or permit to exist any lien, security interest, option or other charge
or encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor
hereby irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with
full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Pledgee's discretion, to take
any action and to execute any instrument that the Pledgee may deem necessary
or advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection with clause (a) above,
and
(c) to file any claims or take any action or institute any
proceeding that the Pledgee may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of the
Pledgee with respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to
perform any agreement contained herein, the Pledgee may itself perform, or
cause performance of, such agreement, and the reasonable expenses of the
Pledgee incurred in connection therewith shall be payable by the Pledgor
under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the
Pledgee hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Pledgee shall have no duty as
to any Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Pledgee shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Pledgee accords its
own property.
SECTION 12. Remedies. If any Event of Default shall have
occurred and be continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title
to the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash
proceeds received by the Pledgee in respect to any sale of, collection from,
or other realization upon all or any part of the Collateral may, in the
discretion of the Pledgee, be held by the Pledgee as Collateral for, and then
or at any time thereafter be applied in whole or in part by the Pledgee
against, all or any part of the Obligations in such order as the Pledgee
shall elect. Any surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall
comply with all provisions of the Assigned Agreements and with applicable
law, including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Pledgee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed,
telecopied, telegraphed, telexed, cabled or delivered to it, if to the
Pledgor, at its address specified in the Notes, or, as to either party, at
such other address as shall be designated by such party in a written notice
to the other party. all such notices and other communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until the later of (i) the payment in full of the
Obligations and all other amounts payable under the Loan Documents and (ii)
the Termination Date, (b) be binding upon the Pledgor, its successors and
assigns and (c) inure to the benefit of, and be enforceable by, the Pledgee
and its successors, transferees and assigns.
SECTION 16. Release and Termination. The security interest
granted hereby shall terminate and all rights to the Collateral shall revert
to the Pledgor upon the latter of (a) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (b) the
Termination Date. Upon such documents as the Pledgor shall reasonably
request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. Unless otherwise defined herein, terms used in Article 8 or Article 9
of the Code are used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered
this Agreement, and the Pledgee has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.
------------------------------------------------
Peter A. Kerrick as Pledgor
Address:
----------------------------------------
------------------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
---------------------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ___________________________________, a
holder of interests in Niles L.L.C., a Delaware limited liability company
(the "Company"), executing the foregoing Promissory Note and Pledge,
Assignment and Security Agreement, hereunto subscribes her name in evidence
of her agreement and consent to the pledge of interests of the Company
referred to in the foregoing Promissory Note and Pledge, Assignment and
Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
---------------------------------
Name:
----------------------------
<PAGE>
Exhibit 10.24
FORM OF PROMISSORY NOTE
$100,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Edward J. Doolan, an individual
residing at (the "Borrower"), HEREBY PROMISES TO PAY to
the order of Morris Material Handling, Inc. (the "Lender") on the Termination
Date (as defined below) the principal amount of ONE HUNDRED THOUSAND U.S.
DOLLARS (US$100,000) in lawful money of the United States of America ("U.S.
Dollars" or "US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties to this
Note.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between Borrower and
Harnischfeger Corporation ("HarnCo"), effective September 19, 1997, which
sets forth the terms of the Borrower's divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between the
Borrower and the Lender dated March 30, 1998 which sets forth the terms of
the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times be
equal to the rate of interest published by the Secretary of the Treasury,
from time to time, in accordance with Section 1274(d) of the Internal
Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties to this
Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in each
case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security agreement
entered into by the Borrower for the benefit of the Lender, in substantially
the form of Exhibit A hereto, as such agreement may be amended or modified
from time to time.
"Termination Date" means the earlier of (a) the date the second payment
is due (i) when Borrower receives payment of previously deferred amounts
from the Harnischfeger Rabbi Trust, or (ii) on March 30, 1999 or (b) the
date the Loan becomes due and payable hereunder pursuant to Section 2.4 or
5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note shall
have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and conditions
hereinafter set forth, to make a loan (the "Loan") to the Borrower on the date
hereof in the amount set forth above in U.S. Dollars and in same day funds.
SECTION 2.2. Repayment. The Borrower shall repay the unpaid principal amount
of the Loan in two payments: (x) $70,000 upon Borrower's receipt of payment
under the Divestiture Bonus Agreement and (y) $30,000 (i) when Borrower receives
payment of previously deferred amounts from the Harnischfeger Rabbi Trust, or
(ii) on March 30, 1999; provided, however, that both payments shall be due on
the Termination Date if such date is earlier than March 30, 1999 pursuant to
Section 2.4 or 5.1.
SECTION 2.3. Interest. The Borrower shall pay interest on the unpaid
principal amount of this Note from the date of this Note until this Note shall
be paid in full at a rate per annum equal at all times to the Federal Short-Term
Rate in effect from time to time, payable in arrears and in a lump sum on the
Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the next
succeeding Business Day following the Borrower's failure to be in the Lender's
employ as a result of a termination of employment for Cause or by reason of the
Borrower's death or a resignation of employment other than for Good Reason,
prepay the outstanding principal amount of the Loan and pay accrued interest to
the date of such prepayment on the entire principal
2
<PAGE>
amount of the Loan outstanding as of such date; provided however that the
Borrower shall be considered to be in the Lender's "employ" during any period
of the Borrower's Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make each payment
hereunder not later than 3:00 P.M. (Milwaukee time) on the day when due in U.S.
Dollars to the Lender at its address referred to in Section 6.2 in same day
funds. All computations of interest shall be made by the Lender on the basis of
a year of 365 or 366 days, as the case may be, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment under any
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of the Lender
to make the Loan hereunder is subject to the conditions precedent that the
Lender shall have received on or before the date of such Loan the following,
dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the Uniform
Commercial Code of all jurisdictions that the Lender may deem necessary or
desirable in order to perfect the security interests created by the Security
Agreement,
(b) the Lender shall have received such other approvals or documents as the
Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall remain
unpaid, the Borrower will, unless the Lender shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower except to the extent contested in good faith.
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(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days after the
occurrence of each Event of Default and each event which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default,
continuing on the date of such statement, a statement of the Borrower
setting forth details of such Event of Default or event and the action which
the Borrower has taken and proposes to take with respect thereto; and
(ii) such other information respecting the condition or operations,
financial or otherwise, of the Borrower as the Lender may from time to time
reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on, this
Note or any other amount under any other Loan Document, including, but not
limited to, any mandatory prepayments, within 30 days after the same becomes due
and payable;
(b) The Borrower shall fail to perform or observe (i) any term, covenant or
agreement contained in Section 4.1 or (ii) any other term, covenant or agreement
contained in any Loan Document on the part of the Borrower to be performed or
observed if such failure shall remain unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Borrower seeking to
adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation,
protection, relief, or composition of the Borrower or of his debts under any law
relating to bankruptcy, insolvency or relief of debtors, or seeking the entry of
an order for relief for the Borrower or for any substantial part of his property
and, in the case of any such proceeding instituted against the Borrower (but not
instituted by the Borrower), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against the Borrower or for any substantial part of his property) shall occur;
(d) Any judgment or order for the payment of money in excess of $100,000
shall be rendered against the Borrower and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order or (ii)
there shall be any period of 10 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
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<PAGE>
(e) Any provision of the Security Agreement after delivery thereof pursuant
to Section 3.1 shall for any reason cease to be valid and binding on the
Borrower,
(f) The Security Agreement after delivery thereof pursuant to Section 3.1
shall for any reason (other than pursuant to the terms thereof) cease to create
a valid security interest in any of the collateral purported to be covered
thereby;
(g) The Borrower shall die; or
(h) The Borrower shall be terminated for Cause or resign without Good
Reason;
then, and in any such event, the Lender may, by notice to the Borrower, declare
this Note, all interest thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon this Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that in the event of the
death of the Borrower or in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, this
Note, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any provision of
this Note, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address as indicated in the recital of
parties to this Note; and if to the Lender, at its address at Chartwell
Investment Inc., Attn: Michael Shein; or, as to each party, at such other
address and to such other individual as shall be designated by such party in a
written notice to the other party. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or
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<PAGE>
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon the
Borrower and his personal representatives, estate, heirs, devisees, legatees and
assigns, (b) inure to the benefit of the Borrower and his assigns and (c) be
binding upon and inure to the benefit of the Lender and its respective
successors and assigns, except that the Borrower shall not have the right to
assign his rights hereunder or any interest herein without the prior written
consent of the Lender.
SECTION 6.5. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has caused this
Note to be executed by its officer thereunto duly authorized, in each case, as
of the date first above written.
-------------------------------------
Edward J. Doolan, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
----------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ____________________, a holder of interests in
Niles L.L.C., a Delaware limited liability company (the "Company"), executing
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory
Note and Pledge, Assignment and Security Agreement, and to all other
provisions thereof.
Effective as of March 30, 1998.
--------------------------------------
Name:
---------------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30, 1998, made
by the individual identified on the signature page hereof (the "Pledgor"),
residing at the address indicated for the Pledgor on the signature page hereof,
to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee, (the
"Note"), any terms defined therein and not otherwise defined herein being used
herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles, L.L.C. set
forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loans under the Note, the Pledgor hereby agrees with the
Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers and
pledges to the Pledgee, and hereby grants to the Pledgee a security interest in,
all of the Pledgor's right, title and interest in, to and under the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired, wherever located and whether now or hereafter existing (the
"Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 1 and (ii) cash) and,
to the extent not otherwise included, all payments under insurance (whether
or not the Pledgee is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss damage to or otherwise with respect to
any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor now or hereafter existing under the Loan
Documents (all such obligations of the Pledgor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Pledgee under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Pledgee of any of the
rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Pledgee shall have no obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Pledgee be obligated to perform any of the obligations or duties of the Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on the
signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral free and
clear of any lien, security interest, option or other charge or encumbrance,
except for the security interests created by this Agreement. No effective
financing statement or other document similar in effect covering all or any part
of the Collateral is on file in any recording office, except such as may have
been filed in favor of the Pledgee relating to this Agreement.
(c) This Agreement has been duly executed and delivered by the Pledgor and
is a valid and binding obligation of the Pledgor, enforceable against the
Pledgor in accordance with its terms.
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(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority and
capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time to
time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Pledgee may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Pledgee to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) deliver
and pledge to the Pledgee promptly upon receipt thereof all instruments or
certificates representing or evidencing any of the collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Pledgee; and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Pledgee may
request, in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more financing
or continuation statements, and amendments thereto, relating to all or any part
of the Collateral without the signature of the Pledgor where permitted by law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Pledgee may reasonably request,
all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior written
notice of any change in his residence from the residence specified in Section
5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Collateral of the Pledgor or any
part thereof for any purpose not inconsistent with the terms of this
Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received, receivable or
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otherwise distributed in respect of, or in exchange for, any Security
Collateral.
(B) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms of
this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the Pledgee,
be segregated from the other property or funds of the Pledgor and be
forthwith delivered to the Pledgee as Collateral in the same form as so
received (with any necessary endorsement) and all such property which
consists of cash shall bear interest at The Federal Short-Term Rate (as
defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights that it is entitled to exercise
pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of Default
as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from exercising
the consensual rights that it would otherwise be entitled to exercise
pursuant to Section 7(a)(i) shall, upon notice to the Pledgor by the
Pledgee, cease, and all such rights shall thereupon become vested in the
Pledgee, which shall thereupon have the sole right to exercise or refrain
from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to , any of the collateral or (ii) create or permit to exist
any lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional equity or
other securities of each issuer of any Pledged Shares or Pledged Options which
is purchased by Pledgor with the proceeds of the Note.
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<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument that the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding that
the Pledgee may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Pledgee with respect to any
of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Pledgee shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Pledgee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to the
Collateral and Pledgor shall take all action reasonably requested by Pledgee to
effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Pledgee, be held by the Pledgee as Collateral for, and then or at any time
thereafter be applied in whole or in part by the Pledgee against, all or any
part of the Obligations in such order as the Pledgee shall elect. Any surplus of
such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgor, at its address specified in the
Notes, or, as to either party, at such other address as shall be designated by
such party in a written notice to the other party. all such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Pledgee and its successors,
transferees and assigns.
SECTION 16. Release and Termination. The security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Pledgor
upon the latter of (a) the payment in full of the Obligations and all other
amounts payable under the Loan Documents and (b) the Termination Date. Upon such
documents as the Pledgor shall reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. Unless
otherwise defined herein, terms used in Article 8 or Article 9 of the Code are
used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
--------------------------------------
Edward J. Doolan as Pledgor
Address:
------------------------------
--------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
-----------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ____________________, a holder of interests in
Niles L.L.C., a Delaware limited liability company (the "Company"), executing
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
hereunto subscribes her name in evidence of her agreement and consent to the
pledge of interests of the Company referred to in the foregoing Promissory
Note and Pledge, Assignment and Security Agreement, and to all other
provisions thereof.
Effective as of March 30, 1998.
--------------------------------------
Name:
---------------------------------
<PAGE>
Exhibit 10.25
FORM OF PROMISSORY NOTE
$125,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Michael Maddock, an individual residing
at _____________________ (the "Borrower"), HEREBY PROMISES TO PAY to the order
of Morris Material Handling, Inc. (the "Lender") on the Termination Date (as
defined below) the principal amount of ONE HUNDRED TWENTY-FIVE THOUSAND U.S.
DOLLARS (US$125,000) in lawful money of the United States of America ("U.S.
Dollars" or "US$") and in same day funds or by certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties to this
Note.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between Borrower and
Harnischfeger Corporation ("HarnCo"), effective September 19, 1997, which
sets forth the terms of the Borrower's divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between the
Borrower and the Lender dated March 30, 1998 which sets forth the terms of
the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times be
equal to the rate of interest published by the Secretary of the Treasury,
from time to time, in accordance with Section 1274(d) of the Internal
Revenue Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties to this
Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement, in each
case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security agreement
entered into by the Borrower for the benefit of the Lender, in substantially
the form of Exhibit A hereto, as such agreement may be amended or modified
from time to time.
"Termination Date" means the earlier of (a) Borrower's receipt of
payment under the Divestiture Bonus Agreement and (b) the date the Loan
becomes due and payable hereunder pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
SECTION 1.3. Other Terms. All other terms not defined in this Note shall
have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and conditions
hereinafter set forth, to make a loan (the "Loan") to the Borrower on the date
hereof in the amount set forth above in U.S. Dollars and in same day funds.
SECTION 2.2. Repayment. The Borrower shall repay the aggregate unpaid
principal amount of the Loan in a lump sum on the Termination Date.
SECTION 2.3. Interest. The Borrower shall pay interest on the unpaid
principal amount of this Note from the date of this Note until this Note shall
be paid in full at a rate per annum equal at all times to the Federal Short-Term
Rate in effect from time to time, payable in arrears and in a lump sum on the
Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the next
succeeding Business Day following the Borrower's failure to be in the Lender's
employ as a result of a termination of employment for Cause or by reason of the
Borrower's death or a resignation of employment other than for Good Reason,
prepay the outstanding principal amount of the Loan and pay accrued interest to
the date of such prepayment on the entire principal amount of the Loan
outstanding as of such date; provided however that the Borrower shall be
considered to be in the Lender's "employ" during any period of the Borrower's
Disability.
SECTION 2.5. Payments and Computations. The Borrower shall make each payment
hereunder not later than 3:00 P.M. (Milwaukee time) on the day when due in U.S.
Dollars to the Lender at its address referred to in Section 6.2 in same day
funds. All computations of interest shall be made by the Lender on the basis of
a year of 365 or 366 days, as
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<PAGE>
the case may be, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any payment under any
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation of the Lender
to make the Loan hereunder is subject to the conditions precedent that the
Lender shall have received on or before the date of such Loan the following,
dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing under the
Uniform Commercial Code of all jurisdictions that the Lender may deem
necessary or desirable in order to perfect the security interests
created by the Security Agreement,
(b) the Lender shall have received such other approvals or documents as
the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall remain
unpaid, the Borrower will, unless the Lender shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five days after
the occurrence of each Event of Default and each event which, with the
giving of notice or lapse of time, or both, would constitute an Event
of Default, continuing on the date of such statement, a statement of
the Borrower setting forth details of such Event of Default or event
and the action which the Borrower has taken and proposes to take with
respect thereto; and
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(ii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may
from time to time reasonably request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
this Note or any other amount under any other Loan Document, including, but
not limited to, any mandatory prepayments, within 30 days after the same
becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the
Borrower to be performed or observed if such failure shall remain unremedied
for 30 days after written notice thereof shall have been given to the
Borrower by the Lender;
(c) The Borrower shall admit in writing his inability to pay his debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Borrower seeking to
adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation,
protection, relief, or composition of the Borrower or of his debts under any
law relating to bankruptcy, insolvency or relief of debtors, or seeking the
entry of an order for relief for the Borrower or for any substantial part of
his property and, in the case of any such proceeding instituted against the
Borrower (but not instituted by the Borrower), either such proceeding shall
remain undismissed or unstayed for a period of 30 days, or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against the Borrower or for any substantial part of
his property) shall occur;
(d) Any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery thereof
pursuant to Section 3.1 shall for any reason cease to be valid and binding
on the Borrower,
(f) The Security Agreement after delivery thereof pursuant to Section
3.1 shall for any reason (other than pursuant to the terms thereof) cease to
create a valid security interest in any of the collateral purported to be
covered thereby;
(g) The Borrower shall die; or
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<PAGE>
(h) The Borrower shall be terminated for Cause or resign without Good
Reason;
then, and in any such event, the Lender may, by notice to the Borrower, declare
this Note, all interest thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon this Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that in the event of the
death of the Borrower or in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, this
Note, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any provision of
this Note, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address as indicated in the recital of
parties to this Note; and if to the Lender, at its address at Chartwell
Investment Inc., Attn: Michael Shein; or, as to each party, at such other
address and to such other individual as shall be designated by such party in a
written notice to the other party. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided in the Loan Documents are cumulative and not
exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding upon the
Borrower and his personal representatives, estate, heirs, devisees, legatees and
assigns, (b) inure to the benefit of the Borrower and his assigns and (c) be
binding upon and inure to the benefit of the Lender and its respective
successors and assigns, except that the Borrower shall not have the right to
assign his rights hereunder or any interest herein without the prior written
consent of the Lender.
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<PAGE>
SECTION 6.5. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender has caused this
Note to be executed by its officer thereunto duly authorized, in each case, as
of the date first above written.
-----------------------------------
Michael Maddock, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
---------------------------
Name:
Title:
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<PAGE>
Form of Spousal Consent
The undersigned, spouse of , a holder of interests in Niles L.L.C., a
Delaware limited liability company (the "Company"), executing the foregoing
Promissory Note and Pledge, Assignment and Security Agreement, hereunto
subscribes her name in evidence of her agreement and consent to the pledge of
interests of the Company referred to in the foregoing Promissory Note and
Pledge, Assignment and Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
--------------------------------
Name:
----------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30, 1998, made
by the individual identified on the signature page hereof (the "Pledgor"),
residing at the address indicated for the Pledgor on the signature page hereof,
to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee, (the
"Note"), any terms defined therein and not otherwise defined herein being used
herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles, L.L.C. set
forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loans under the Note, the Pledgor hereby agrees with the
Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers and
pledges to the Pledgee, and hereby grants to the Pledgee a security interest in,
all of the Pledgor's right, title and interest in, to and under the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired, wherever located and whether now or hereafter existing (the
"Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 1 and (ii) cash) and,
to the extent not otherwise included, all payments under insurance (whether
or not the Pledgee is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss damage to or otherwise with respect to
any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor now or hereafter existing under the Loan
Documents (all such obligations of the Pledgor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Pledgee under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Pledgee of any of the
rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Pledgee shall have no obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Pledgee be obligated to perform any of the obligations or duties of the Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on
the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Pledgee relating to this
Agreement.
(c) This Agreement has been duly executed and delivered by the Pledgor
and is a valid and binding obligation of the Pledgor, enforceable against
the Pledgor in accordance with its terms.
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(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time to
time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Pledgee may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Pledgee to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) deliver
and pledge to the Pledgee promptly upon receipt thereof all instruments or
certificates representing or evidencing any of the collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Pledgee; and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Pledgee may
request, in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified
in Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral of the Pledgor
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received,
receivable or
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otherwise distributed in respect of, or in exchange for, any
Security Collateral.
(B) dividends and other distributions paid or payable in cash
in respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms
of this Loan Documents, shall be, and shall be forthwith delivered
to the Pledgee to hold as, Collateral and shall, if received in
trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor and be forthwith delivered to the
Pledgee as Collateral in the same form as so received (with any
necessary endorsement) and all such property which consists of
cash shall bear interest at The Federal Short-Term Rate (as
defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from
exercising the consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall, upon notice to the Pledgor
by the Pledgee, cease, and all such rights shall thereupon become
vested in the Pledgee, which shall thereupon have the sole right to
exercise or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to , any of the collateral or (ii) create or permit to exist
any lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument that the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding
that the Pledgee may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Pledgee with
respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Pledgee shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Pledgee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to
the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of
the Pledgee, be held by the Pledgee as Collateral for, and then or at any
time thereafter be applied in whole or in part by the Pledgee against, all
or any part of the Obligations in such order as the Pledgee shall elect. Any
surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgor, at its address specified in the
Notes, or, as to either party, at such other address as shall be designated by
such party in a written notice to the other party. all such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Pledgee and its successors,
transferees and assigns.
SECTION 16. Release and Termination. The security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Pledgor
upon the latter of (a) the payment in full of the Obligations and all other
amounts payable under the Loan Documents and (b) the Termination Date. Upon such
documents as the Pledgor shall reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. Unless
otherwise defined herein, terms used in Article 8 or Article 9 of the Code are
used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
--------------------------------------
Michael Maddock as Pledgor
Address:
------------------------------
--------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
-----------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of , a holder of interests in Niles L.L.C., a
Delaware limited liability company (the "Company"), executing the foregoing
Promissory Note and Pledge, Assignment and Security Agreement, hereunto
subscribes her name in evidence of her agreement and consent to the pledge of
interests of the Company referred to in the foregoing Promissory Note and
Pledge, Assignment and Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
-------------------------------
Name:
---------------------------
<PAGE>
Exhibit 10.26
FORM OF PROMISSORY NOTE
$125,000 Dated: March 30, 1998
FOR VALUE RECEIVED, the undersigned, Bruce Norridge, an
individual residing at _____________________ (the "Borrower"), HEREBY PROMISES
TO PAY to the order of Morris Material Handling, Inc. (the "Lender") on the
Termination Date (as defined below) the principal amount of ONE HUNDRED
TWENTY-FIVE THOUSAND U.S. DOLLARS (US$125,000) in lawful money of the United
States of America ("U.S. Dollars" or "US$") and in same day funds or by
certified check.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Note, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Board" means the Board of Directors of the Lender.
"Borrower" has the meaning specified in the recital of parties
to this Note.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Milwaukee, Wisconsin.
"Divestiture Bonus Agreement" means the agreement between
Borrower and Harnischfeger Corporation ("HarnCo"), effective September 19, 1997,
which sets forth the terms of the Borrower's divestiture bonus from HarnCo.
"Employment Agreement" means the Employment Agreement between
the Borrower and the Lender dated March 30, 1998 which sets forth the terms of
the Borrower's employment with the Lender.
"Federal Short-Term Rate" means a fluctuating interest rate
per annum in effect from time to time, which rate per annum shall at all times
be equal to the rate of interest published by the Secretary of the Treasury,
from time to time, in accordance with Section 1274(d) of the Internal Revenue
Code, as the monthly Federal short-term rate.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lender" has the meaning specified in the recital of parties
to this Note.
<PAGE>
"Loan Documents" means this Note and the Security Agreement,
in each case as amended or modified from time to time.
"Security Agreement" means a pledge, assignment and security
agreement entered into by the Borrower for the benefit of the Lender, in
substantially the form of Exhibit A hereto, as such agreement may be amended or
modified from time to time.
"Termination Date" means the earlier of (a) Borrower's receipt
of payment under the Divestiture Bonus Agreement and (b) the date the Loan
becomes due and payable hereunder pursuant to Section 2.4 or 5.1.
SECTION 1.2. Computation of Time Periods. In this Note in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.3. Other Terms. All other terms not defined in this
Note shall have the meaning assigned such terms in the Employment Agreement.
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1. The Loan. The Lender agrees, on the terms and
conditions hereinafter set forth, to make a loan (the "Loan") to the Borrower on
the date hereof in the amount set forth above in U.S. Dollars and in same day
funds.
SECTION 2.2. Repayment. The Borrower shall repay the aggregate
unpaid principal amount of the Loan in a lump sum on the Termination Date.
SECTION 2.3. Interest. The Borrower shall pay interest on the
unpaid principal amount of this Note from the date of this Note until this Note
shall be paid in full at a rate per annum equal at all times to the Federal
Short-Term Rate in effect from time to time, payable in arrears and in a lump
sum on the Termination Date.
SECTION 2.4. Mandatory Prepayments. The Borrower shall, on the
next succeeding Business Day following the Borrower's failure to be in the
Lender's employ as a result of a termination of employment for Cause or by
reason of the Borrower's death or a resignation of employment other than for
Good Reason, prepay the outstanding principal amount of the Loan and pay accrued
interest to the date of such prepayment on the entire principal amount of the
Loan outstanding as of such date; provided however that the Borrower shall be
considered to be in the Lender's "employ" during any period of the Borrower's
Disability.
SECTION 2.5. Payments and Computations. The Borrower shall
make each payment hereunder not later than 3:00 P.M. (Milwaukee time) on the day
when due in U.S. Dollars to the Lender at its address referred to in Section 6.2
in same day funds. All computations of interest shall be made by the Lender on
the basis of a year of 365 or 366 days, as
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<PAGE>
the case may be, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable.
SECTION 2.6. Payment on Non-Business Days. Whenever any
payment under any Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.1. Conditions Precedent to the Loan. The obligation
of the Lender to make the Loan hereunder is subject to the conditions precedent
that the Lender shall have received on or before the date of such Loan the
following, dated such day, in form and substance satisfactory to the Lender:
(a) The Security Agreement, together with:
(i) financing statements, in proper form for filing
under the Uniform Commercial Code of all jurisdictions that the Lender
may deem necessary or desirable in order to perfect the security
interests created by the Security Agreement,
(b) the Lender shall have received such other approvals or
documents as the Lender may reasonably request.
ARTICLE IV.
COVENANTS OF THE BORROWER
SECTION 4.1. Affirmative Covenants. So long as this Note shall
remain unpaid, the Borrower will, unless the Lender shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower except to the extent contested in good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) as soon as possible and in any event within five
days after the occurrence of each Event of Default and each
event which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default, continuing on the
date of such statement, a statement of the Borrower setting
forth details of such Event of Default or event and the action
which the Borrower has taken and proposes to take with respect
thereto; and
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<PAGE>
(ii) such other information respecting the
condition or operations, financial or otherwise, of the
Borrower as the Lender may from time to time reasonably
request.
ARTICLE V.
EVENTS OF DEFAULT
SECTION 5.1. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or
interest on, this Note or any other amount under any other Loan Document,
including, but not limited to, any mandatory prepayments, within 30 days after
the same becomes due and payable;
(b) The Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 4.1 or (ii) any other term,
covenant or agreement contained in any Loan Document on the part of the Borrower
to be performed or observed if such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to the Borrower by the
Lender;
(c) The Borrower shall admit in writing his inability to pay
his debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower
seeking to adjudicate the Borrower a bankrupt or insolvent, or seeking
liquidation, protection, relief, or composition of the Borrower or of his debts
under any law relating to bankruptcy, insolvency or relief of debtors, or
seeking the entry of an order for relief for the Borrower or for any substantial
part of his property and, in the case of any such proceeding instituted against
the Borrower (but not instituted by the Borrower), either such proceeding shall
remain undismissed or unstayed for a period of 30 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against the Borrower or for any substantial part of his property)
shall occur;
(d) Any judgment or order for the payment of money in excess
of $100,000 shall be rendered against the Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(e) Any provision of the Security Agreement after delivery
thereof pursuant to Section 3.1 shall for any reason cease to be valid and
binding on the Borrower,
(f) The Security Agreement after delivery thereof pursuant to
Section 3.1 shall for any reason (other than pursuant to the terms thereof)
cease to create a valid security interest in any of the collateral purported to
be covered thereby;
(g) The Borrower shall die; or
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<PAGE>
(h) The Borrower shall be terminated for Cause or resign
without Good Reason;
then, and in any such event, the Lender may, by notice to the Borrower, declare
this Note, all interest thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon this Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that in the event of the
death of the Borrower or in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, this
Note, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. Amendments, Etc. No amendment or waiver of any
provision of this Note, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 6.2. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to the Borrower, at its address as indicated in
the recital of parties to this Note; and if to the Lender, at its address at
Chartwell Investment Inc., Attn: Michael Shein; or, as to each party, at such
other address and to such other individual as shall be designated by such party
in a written notice to the other party. All such notices and communications
shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective
when deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 6.3. No Waiver; Remedies. No failure on the part of
the Lender to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
SECTION 6.4. Binding Effect. This Note shall (a) be binding
upon the Borrower and his personal representatives, estate, heirs, devisees,
legatees and assigns, (b) inure to the benefit of the Borrower and his assigns
and (c) be binding upon and inure to the benefit of the Lender and its
respective successors and assigns, except that the Borrower shall not have the
right to assign his rights hereunder or any interest herein without the prior
written consent of the Lender.
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<PAGE>
SECTION 6.5. Governing Law. This Note shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrower has executed and the Lender
has caused this Note to be executed by its officer thereunto duly authorized, in
each case, as of the date first above written.
-----------------------------------
Bruce Norridge, as Borrower
CONSENTED TO AND ACKNOWLEDGED:
MORRIS MATERIAL HANDLING, INC.
as Lender
By:
---------------------------------
Name:
Title:
6
<PAGE>
Form of Spousal Consent
The undersigned, spouse of ________________________, a holder
of interests in Niles L.L.C., a Delaware limited liability company
(the "Company"), executing the foregoing Promissory Note and Pledge, Assignment
and Security Agreement, hereunto subscribes her name in evidence of her
agreement and consent to the pledge of interests of the Company referred to in
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
and to all other provisions thereof.
Effective as of March 30, 1998.
---------------------------------
Name:
---------------------------
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March 30, 1998, made
by the individual identified on the signature page hereof (the "Pledgor"),
residing at the address indicated for the Pledgor on the signature page hereof,
to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the Pledgee, (the
"Note"), any terms defined therein and not otherwise defined herein being used
herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in Niles, L.L.C. set
forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loans under the Note, the Pledgor hereby agrees with the
Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns, transfers and
pledges to the Pledgee, and hereby grants to the Pledgee a security interest in,
all of the Pledgor's right, title and interest in, to and under the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired, wherever located and whether now or hereafter existing (the
"Collateral")
(a) the equity set forth in Part I of Schedule I hereto and issued by
the limited liability company indicated therein (collectively referred to
herein as the "Pledged Units", and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged
Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement (the
"Bonus Agreement") between the Pledgor and Harnischfeger Corporation
("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral (including,
without limitation, (i) proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 1 and (ii) cash) and,
to the extent not otherwise included, all payments under insurance (whether
or not the Pledgee is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss damage to or otherwise with respect to
any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor now or hereafter existing under the Loan
Documents (all such obligations of the Pledgor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Pledgee under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Pledgee of any of the
rights hereunder shall not release the Pledgor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Pledgee shall have no obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Pledgee be obligated to perform any of the obligations or duties of the Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral are being delivered to and will be
held by or on behalf of the Pledgee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The residence of the Pledgor is located at the address specified on
the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, security interest, option or other charge or
encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Pledgee relating to this
Agreement.
(c) This Agreement has been duly executed and delivered by the Pledgor
and is a valid and binding obligation of the Pledgor, enforceable against
the Pledgor in accordance with its terms.
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<PAGE>
(d) The execution and delivery by the Pledgor of this Agreement and the
performance of its obligations thereunder are within the Pledgor's authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that from time to
time, at the expense of the Pledgee, the Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Pledgee may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby or to enable the Pledgee to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will: (i) deliver
and pledge to the Pledgee promptly upon receipt thereof all instruments or
certificates representing or evidencing any of the collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Pledgee; and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Pledgee may
request, in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or more
financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days' prior
written notice of any change in his residence from the residence specified
in Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral of the Pledgor
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable including cash in
respect of, and instruments and other property received,
receivable or
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<PAGE>
otherwise distributed in respect of, or in exchange for, any
Security Collateral.
(B) dividends and other distributions paid or payable in cash
in respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise distributed in respect of
principal of or in exchange for, any Collateral, and
(D) cash dividends paid or payable in violation of the terms
of this Loan Documents, shall be, and shall be forthwith delivered
to the Pledgee to hold as, Collateral and shall, if received in
trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor and be forthwith delivered to the
Pledgee as Collateral in the same form as so received (with any
necessary endorsement) and all such property which consists of
cash shall bear interest at The Federal Short-Term Rate (as
defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any Event of
Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain from
exercising the consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall, upon notice to the Pledgor
by the Pledgee, cease, and all such rights shall thereupon become
vested in the Pledgee, which shall thereupon have the sole right to
exercise or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to , any of the collateral or (ii) create or permit to exist
any lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it shall pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional
equity or other securities of each issuer of any Pledged Shares or Pledged
Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument that the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceeding
that the Pledgee may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Pledgee with
respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor under Section 13.
SECTION 11. The Pledgee's Duties. The powers conferred on the Pledgee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Pledgee shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Pledgee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take title to
the Collateral and Pledgor shall take all action reasonably requested by
Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash proceeds
received by the Pledgee in respect to any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of
the Pledgee, be held by the Pledgee as Collateral for, and then or at any
time thereafter be applied in whole or in part by the Pledgee against, all
or any part of the Obligations in such order as the Pledgee shall elect. Any
surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee shall comply
with all provisions of the Assigned Agreements and with applicable law,
including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgor, at its address specified in the
Notes, or, as to either party, at such other address as shall be designated by
such party in a written notice to the other party. all such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answer back or delivered to the cable company,
respectively.
SECTION 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the payment in full of the Obligations
and all other amounts payable under the Loan Documents and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Pledgee and its successors,
transferees and assigns.
SECTION 16. Release and Termination. The security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Pledgor
upon the latter of (a) the payment in full of the Obligations and all other
amounts payable under the Loan Documents and (b) the Termination Date. Upon such
documents as the Pledgor shall reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. Unless
otherwise defined herein, terms used in Article 8 or Article 9 of the Code are
used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Agreement, and the Pledgee has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
--------------------------------------
Michael Maddock as Pledgor
Address:
------------------------------
--------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By:
-----------------------------------
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of , a holder of interests in Niles L.L.C., a
Delaware limited liability company (the "Company"), executing the foregoing
Promissory Note and Pledge, Assignment and Security Agreement, hereunto
subscribes her name in evidence of her agreement and consent to the pledge of
interests of the Company referred to in the foregoing Promissory Note and
Pledge, Assignment and Security Agreement, and to all other provisions thereof.
Effective as of March 30, 1998.
-------------------------------
Name:
---------------------------
<PAGE>
Exhibit A
EXHIBIT A TO PROMISSORY NOTE
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT, dated as of March
30, 1998, made by the individual identified on the signature page hereof (the
"Pledgor"), residing at the address indicated for the Pledgor on the signature
page hereof, to Morris Material Handling, Inc. (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor has made a Promissory Note to the order of the
Pledgee, (the "Note"), any terms defined therein and not otherwise defined
herein being used herein are as therein defined.
(2) The Pledgor is the owner of the percentage interest in
Niles, L.L.C. set forth in the Equity Purchase Agreement dated March 30, 1998.
(3) The Note requires that the Pledgor shall grant the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Pledgee to make the loans under the Note, the Pledgor hereby
agrees with the Pledgee as follows:
SECTION 1. Grant of Security. The Pledgor hereby assigns,
transfers and pledges to the Pledgee, and hereby grants to the Pledgee a
security interest in, all of the Pledgor's right, title and interest in, to and
under the following, in each case, as to each type of property described below,
whether now owned or hereafter acquired, wherever located and whether now or
hereafter existing (the "Collateral")
(a) the equity set forth in Part I of Schedule I hereto and
issued by the limited liability company indicated therein (collectively
referred to herein as the "Pledged Units", and all dividends, cash,
instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
such Pledged Units:
(b) the proceeds, if any, from the Divestiture Bonus Agreement
(the "Bonus Agreement") between the Pledgor and Harnischfeger
Corporation ("Harnco"), dated September 5, 1997;
(c) all proceeds of any and all of the foregoing Collateral
(including, without limitation, (i) proceeds which constitute property
of the types described in clauses (a) through (c) of this Section 1 and
(ii) cash) and, to the extent not otherwise included, all payments
under insurance (whether or not the Pledgee is the loss payee thereof),
or any indemnity, warranty or guaranty, payable by reason of loss
damage to or otherwise with respect to any of the foregoing Collateral.
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures
the payment of all obligations of the Pledgor now or hereafter existing under
the Loan Documents (all such obligations of the Pledgor being the
"Obligations"). Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts that constitute part of the Obligations and
would be owed by the Pledgor to the Pledgee under the Note but for the fact that
they are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Pledgor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Pledgor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Pledgee of any of the rights hereunder shall not release the Pledgor from any of
its duties or obligations under the contracts and agreements included in the
Collateral, and (c) the Pledgee shall have no obligation or liability under the
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall the Pledgee be obligated to perform any of the obligations or duties
of the Pledgor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
SECTION 4. Delivery of Collateral. All certificates or
instruments representing or evidencing the Collateral are being delivered to and
will be held by or on behalf of the Pledgee pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Pledgee (as Pledgee hereunder) or any of its nominees any or
all of the Collateral. In addition, the Pledgee shall have the right at any time
to exchange instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) The residence of the Pledgor is located at the address
specified on the signature page of this Agreement.
(b) The Pledgor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance, except for the security interests created by this Agreement. No
effective financing statement or other document similar in effect covering all
or any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of the Pledgee relating to this Agreement.
(c) This Agreement has been duly executed and delivered by the
Pledgor and is a valid and binding obligation of the Pledgor, enforceable
against the Pledgor in accordance with its terms.
2
<PAGE>
(d) The execution and delivery by the Pledgor of this
Agreement and the performance of its obligations thereunder are within the
Pledgor's authority and capacity and do not contravene any law, regulation,
order or contractual restriction binding on or affecting the Pledgor.
SECTION 6. Further Assurances. (a) The Pledgor agrees that
from time to time, at the expense of the Pledgee, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Pledgee may reasonably
request, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby or to enable the Pledgee to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Pledgor will:
(i) deliver and pledge to the Pledgee promptly upon receipt thereof all
instruments or certificates representing or evidencing any of the collateral
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Pledgee; and (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Pledgee may request, in order to perfect and preserve the
pledge, assignment and security interest granted or purported to be granted
hereby.
(b) The Pledgor hereby authorizes the Pledgee to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Pledgor will furnish to the Pledgee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Pledgee may
reasonably request, all in reasonable detail.
(d) The Pledgor will give the Pledgee not less than 30 days'
prior written notice of any change in his residence from the residence specified
in Section 5(a) hereof (or any subsequent location).
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Collateral of
the Pledgor or any part thereof for any purpose not inconsistent with
the terms of this Agreement or the other Loan Documents.
(ii) Any and all
(A) dividends and interest paid or payable
including cash in respect of, and instruments and
other property received, receivable or
3
<PAGE>
otherwise distributed in respect of, or
in exchange for, any Security Collateral.
(B) dividends and other distributions paid
or payable in cash in respect of any Collateral in
connection with a partial or total liquidation or
dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus,
(C) cash paid, payable or otherwise
distributed in respect of principal of or in exchange
for, any Collateral, and
(D) cash dividends paid or payable in
violation of the terms of this Loan Documents,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Collateral and shall, if received in trust for the benefit of the
Pledgee, be segregated from the other property or funds of the Pledgor
and be forthwith delivered to the Pledgee as Collateral in the same
form as so received (with any necessary endorsement) and all such
property which consists of cash shall bear interest at The Federal
Short-Term Rate (as defined in the Note).
(iii) the Pledgee shall execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above.
(b) Upon the occurrence and during the continuance of any
Event of Default as defined in the Note:
(i) All rights of the Pledgor to exercise or refrain
from exercising the consensual rights that it would otherwise be
entitled to exercise pursuant to Section 7(a)(i) shall, upon notice to
the Pledgor by the Pledgee, cease, and all such rights shall thereupon
become vested in the Pledgee, which shall thereupon have the sole right
to exercise or refrain from exercising such consensual rights.
SECTION 8. Transfers and Other Liens. (a) The Pledgor shall
not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of,
or grant any option with respect to , any of the collateral or (ii) create or
permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
(b) The Pledgor agrees that it shall pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional equity or other securities of each issuer of any Pledged Shares or
Pledged Options which is purchased by Pledgor with the proceeds of the Note.
4
<PAGE>
SECTION 9. Pledgee Appointed Attorney-in-Fact. The Pledgor
hereby irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with
full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Pledgee's discretion, to take any
action and to execute any instrument that the Pledgee may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral.
(b) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection with clause (a) above,
and
(c) to file any claims or take any action or institute any
proceeding that the Pledgee may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Pledgee with
respect to any of the Collateral.
SECTION 10. Pledgee May Perform. If the Pledgor fails to
perform any agreement contained herein, the Pledgee may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Pledgee
incurred in connection therewith shall be payable by the Pledgor under Section
13.
SECTION 11. The Pledgee's Duties. The powers conferred on the
Pledgee hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Pledgee shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Pledgee shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Pledgee accords its own
property.
SECTION 12. Remedies. If any Event of Default shall have
occurred and be continuing:
(a) Pledgee shall, by Notice to Pledgor, be entitled to take
title to the Collateral and Pledgor shall take all action reasonably requested
by Pledgee to effectuate such transfer.
(b) Any cash held by the Pledgee as Collateral and all cash
proceeds received by the Pledgee in respect to any sale of, collection from, or
other realization upon all or any part of the Collateral may, in the discretion
of the Pledgee, be held by the Pledgee as Collateral for, and then or at any
time thereafter be applied in whole or in part by the Pledgee against, all or
any part of the Obligations in such order as the Pledgee shall elect. Any
surplus of such cash or cash
5
<PAGE>
proceeds held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
In exercising the remedies provided for herein, the Pledgee
shall comply with all provisions of the Assigned Agreements and with applicable
law, including without limitation the securities laws.
SECTION 13. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Pledgee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Pledgor, at its address specified
in the Notes, or, as to either party, at such other address as shall be
designated by such party in a written notice to the other party. all such
notices and other communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answer back or delivered
to the cable company, respectively.
SECTION 15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain in
full force and effect until the later of (i) the payment in full of the
Obligations and all other amounts payable under the Loan Documents and (ii) the
Termination Date, (b) be binding upon the Pledgor, its successors and assigns
and (c) inure to the benefit of, and be enforceable by, the Pledgee and its
successors, transferees and assigns.
SECTION 16. Release and Termination. The security interest
granted hereby shall terminate and all rights to the Collateral shall revert to
the Pledgor upon the latter of (a) the payment in full of the Obligations and
all other amounts payable under the Loan Documents and (b) the Termination Date.
Upon such documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 17. Governing Law; Terms. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. Unless otherwise defined herein, terms used in Article 8 or Article 9 of
the Code are used herein as therein defined.
6
<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and
delivered this Agreement, and the Pledgee has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
--------------------------------------
Bruce Norridge as Pledgor
Address:_______________________________
---------------------------------------
MORRIS MATERIAL HANDLING, INC.
as Pledgee
By: ________________________________
Title:
7
<PAGE>
Form of Spousal Consent
The undersigned, spouse of _____________________________, a holder of
interests in Niles L.L.C., a Delaware limited liability company
(the "Company"), executing the foregoing Promissory Note and Pledge, Assignment
and Security Agreement, hereunto subscribes her name in evidence of her
agreement and consent to the pledge of interests of the Company referred to in
the foregoing Promissory Note and Pledge, Assignment and Security Agreement,
and to all other provisions thereof.
Effective as of March 30, 1998.
--------------------------------
Name:
---------------------------
<PAGE>
Exhibit 12
MMH Holdings, Inc.
Statement of Computation of Financial Ratios
(in thousands, except for ratios)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, For the Six Months Ended April 30,
--------------------------------------------------- -----------------------------------
Pro Forma Pro Forma
1993 1994 1995 1996 1997 1997 1997 1998 1998
--------------------------------------------------- -----------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1):
Income (loss) before income taxes and
minority interest N/A N/A $21,901 $29,934 $34,745 $9,758 $15,989 $6,077 $(3,098)
Add:
Interest Expense N/A N/A 200 245 792 26,641 228 4,151 13,601
Rental Expense N/A N/A 786 1,109 1,456 1,456 728 728 728
Earnings (loss) adjusted for fixed
charges N/A N/A 22,887 31,288 36,993 37,855 16,945 10,956 11,231
Fixed Charges
Interest Expense N/A N/A 200 245 792 26,641 228 4,151 13,601
Rental Expense N/A N/A 786 1,109 1,456 1,456 728 728 728
Preferred Dividend Requirements N/A N/A - - - 19,100 - 927 10,432
Total fixed charges N/A N/A 986 1,354 2,248 47,197 956 6,806 24,761
Ratio of earnings to fixed charges
and preferred dividends N/A N/A 23.21 23.11 16.46 17.72 2.25 -
Deficiency of earnings to fixed
charges and preferred dividends N/A N/A - - - $(9,342) - - $(13,530)
</TABLE>
- ----------
(1) For purposes of calculating the ratio of earnings to fixed charges and
preferred dividends, earnings are defined as net income before income
taxes and minority interest plus interest expense (including amortization
of debt issuance costs), and the portion of rental expense that is
representative of the interest factor (deemed to be one third of annual
rent expense). Preferred dividends, for purposes of the ratio, reflect
earnings before tax required to pay preferred stock dividends and assume
that such dividends are paid in kind.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of MMH Holdings, Inc. of our report dated
December 30, 1997, except as to Note 13 which is as of March 30, 1998, relating
to the combined financial statements of the Material Handling Equipment Business
of Harnischfeger Industries, Inc., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended October 31, 1997 appearing in Part II of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included the schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Financial
Information for MMH Holdings, Inc. and Morris Material Handling, Inc.. These
statements should be read in conjunction with the audited combined financial
statements and notes thereto of the Material Handling Equipment Business of
Harnischfeger Industries, Inc. ("HII") for each of the three years in the period
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1998
<PERIOD-START> NOV-01-1997 NOV-01-1997
<PERIOD-END> APR-30-1998 JAN-31-1998
<CASH> 2,825 0
<SECURITIES> 0 0
<RECEIVABLES> 80,192 0
<ALLOWANCES> 1,401 0
<INVENTORY> 35,338 0
<CURRENT-ASSETS> 4,093 0
<PP&E> 64,437 0
<DEPRECIATION> (24,993) 0
<TOTAL-ASSETS> 289,696 0
<CURRENT-LIABILITIES> 63,908 0
<BONDS> 254,696 0
89,443 0
0 0
<COMMON> 0 0
<OTHER-SE> (121,152) 0
<TOTAL-LIABILITY-AND-EQUITY> 289,845 0
<SALES> 157,249 80,761
<TOTAL-REVENUES> 157,172 81,208
<CGS> 115,172 58,519
<TOTAL-COSTS> 29,514 15,154
<OTHER-EXPENSES> 3,061<F1> 2,264<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,151) (3,306)
<INCOME-PRETAX> 6,077 1,965
<INCOME-TAX> (2,446) (454)
<INCOME-CONTINUING> 3,669 1,530
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,669 1,530
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>As a result of the Recapitalization, the Company experienced a series of
non-recurring employee benefit costs. These costs included severance costs
associated with restructuring the Company's United Kingdom manufacturing
operation and incentives to certain members of management. The Company's former
parent, not the Company, is responsible for making those incentive payments.
The severance costs were approximately $0.7 million and the incentives to
management were approximately $1.2 million.
Parent management fees allocated by HII (prior to the Recapitalization) which
represented an allocation of HII's corporate expenses were $1.2 million and
$1.4 million for the First Half 1998 and First Half 1997, respectively.
<F2>The Company experienced significant non-recurring employee benefit costs
relating to severance costs associated with restructuring the Company's United
Kingdom manufacturing operation and incentives to certain members of management
to remain with the Company after the Recapitalization. These costs, Totaling
$1.8 million, were incurred in the Second Quarter 1998. There was no
corresponding amount incurred in Second Quarter 1997.
Parent management fees allocated by HII (prior to Recapitalization) which
represented an allocation of HII's corporate expenses were $0.5 million and
$0.8 for the Second Quarter 1998 and Second Quarter 1997, respectively.
</FN>
</TABLE>
