As filed with the Securities and Exchange Commission on June 26, 1998.
Registration No. 333-52527
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MORRIS MATERIAL HANDLING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 6719 39-1924039
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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(FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS" ON THE NEXT PAGE)
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
MORRIS MATERIAL HANDLING, 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)
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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
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Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement becomes effective.
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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. |_|
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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.
<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
State or other Primary Standard I.R.S. Employer
jurisdiction of Industrial Classification Identification
Name incorporation Code Number Number
---- ------------- ----------- ------
<S> <C> <C> <C>
3016117 Nova Scotia ULC......................... Nova Scotia 6719 Not Applicable
Birmingham Crane & Hoist, Inc................... Alabama 3536 63-0932648
Butters Engineering Services Limited............ Scotland 3536 Not Applicable
CMH Material Handling, LLC...................... South Carolina 3536 39-1836554
EPH Material Handling, LLC...................... Pennsylvania 3536 39-1836620
Harnischfeger Distribution & Service, LLC....... Wisconsin 6719 39-1836557
HPH Material Handling, LLC...................... Wisconsin 3536 39-1836624
Hydramach ULC................................... Nova Scotia 9999 Not Applicable
Invercoe Engineering Limited.................... Scotland 3536 Not Applicable
Kaverit Steel and Crane ULC..................... Nova Scotia 3536 Not Applicable
Lowfile Limited................................. United Kingdom 6719 Not Applicable
Material Handling Equipment Nevada
Corporation................................... Nevada 6719 88-0376697
Merwin, LLC..................................... Delaware 6719 Not Applicable
MHE Canada ULC.................................. Nova Scotia 6719 Not Applicable
MHE Technologies, Inc. ......................... Delaware 9999 52-2058706
MMH (Holdings) Limited.......................... United Kingdom 6719 Not Applicable
MMH International Limited....................... United Kingdom 6719 Not Applicable
Mondel ULC...................................... Nova Scotia 3536 Not Applicable
Morris Material Handling Limited................ United Kingdom 6719 Not Applicable
Morris Material Handling, LLC................... Delaware 3536 39-1909984
Morris Material Handling Mexico, S.A. de C.V. .. Mexico 3536 Not Applicable
Morris Mechanical Handling, Inc. ............... Delaware 3536 94-3203134
Morris Mechanical Handling Limited.............. United Kingdom 3536 Not Applicable
MPH Crane, Inc. ................................ Ohio 3536 31-1075991
NPH Material Handling, Inc. .................... Michigan 3536 39-1836621
PHME Service, Inc. ............................. Delaware 6719 39-1836623
PHMH Holding Company............................ Delaware 6719 52-2013056
RedCrown, ULC................................... United Kingdom 6719 Not Applicable
SPH Crane & Hoist, Inc. ........................ Delaware 3536 75-2752978
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 26, 1998
Offer to Exchange
all outstanding
9 1/2% Senior Notes Due 2008
($200,000,000 aggregate principal amount outstanding)
for
9 1/2% Senior Notes Due 2008
which have been registered under the Securities Act of 1933
of
Morris Material Handling, Inc.
----------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON , 1998, unless extended
Morris Material Handling, Inc., a Delaware corporation (the "Company"),
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 principal amount of its 9 1/2% Senior Notes Due 2008 (the "New
Notes"), 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 principal amount of its
outstanding 9 1/2% Senior Notes Due 2008 (the "Old Notes"), of which
$200,000,000 aggregate principal amount is outstanding. The New Notes and the
Old Notes are together referred to herein as the "Notes."
The Company will accept for exchange any and all Old Notes 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 Old Notes for New
Notes will be made (i) with respect to all Old Notes 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 Old Notes 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 Old Notes 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 Old Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be waived
by the Company. See "The Exchange Offer." The Company has agreed to pay the
expenses of the Exchange Offer.
For a discussion of certain risks associated with an investment in the New
Notes, see "Risk Factors," beginning on page 12 of this Prospectus.
(Continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _____________
<PAGE>
The New Notes will be obligations of the Company governed by the Indenture
pursuant to which the Old Notes were issued (the "Indenture"). The form and
terms of the New Notes are identical in all material respects to the form and
terms of the Old Notes except (i) that the New Notes have been registered under
the Securities Act, (ii) that the New Notes are not entitled to certain
registration rights which are applicable to the Old Notes under a registration
rights agreement (the "Registration Rights Agreement") between the Company and
CIBC Oppenheimer Corp. and Goldman, Sachs & Co., the initial purchasers of the
Old Notes (the "Initial Purchasers") and (iii) for certain contingent interest
rate provisions. See "The Exchange Offer."
The New Notes will bear interest from March 30, 1998, the date of issuance
of the Old Notes. Interest on the New Notes will be payable semi-annually on
each April 1 and October 1, commencing October 1, 1998, at a rate of 9 1/2% per
annum. The New Notes will be issued only in registered form in minimum
denominations of $1,000 and integral multiples thereof. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from March 30, 1998 to the date of the issuance of the New Notes.
The New Notes will be 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 herein, 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 New 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 (as defined herein) of one or more Public Equity Offerings
(as defined herein); provided, that at least $130.0 million of the principal
amount of the Notes originally issued remains 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. See "Description
of the New Notes--Optional Redemption."
Upon a Change of Control (as defined herein), the Company will be required
to make an offer to purchase all outstanding New Notes at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase. See "Description of the New Notes--Change of
Control Offer." In addition, the Company will be obligated in certain instances
to make an offer to purchase the New Notes at a purchase price 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. See "Description of
the New Notes--Certain Covenants--Limitation on Certain Asset Sales."
The New Notes will be senior unsecured obligations of the Company and will
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. The New Notes will be
unconditionally guaranteed (the "Guarantees") on a senior unsecured basis by
substantially all of the Company's subsidiaries (the "Guarantors"). Each
Guarantee will rank pari passu in right of payment with all existing and future
unsubordinated obligations of such Guarantor. As of January 31, 1998, after
giving pro forma effect to Transactions (as defined herein), the Company
(including its subsidiaries) would have had $259.3 million of Indebtedness (as
defined herein) outstanding, of which $55.0 million would have been borrowings
under the New Credit Facility (as defined herein), and $0.7 million would have
been Indebtedness of the Company's subsidiaries other than the Guarantors in
respect of which the New Notes are effectively subordinated. Borrowings under
the New Credit Facility are secured by certain of the Company's and its
subsidiaries' assets, including substantially all of their assets located in the
United States and the United Kingdom. In addition, obligations incurred under
the Surety Arrangement (as defined herein) will be secured by certain of the
Company's assets. Accordingly, while the New Notes will rank pari passu in right
of payment with the borrowings under the New Credit Facility and obligations
under the Surety Arrangement, the New Notes will be effectively subordinated to
the obligations outstanding under the New Credit Facility and the Surety
Arrangement to the extent of the value of the assets securing such borrowings.
See "Description of the New Credit Facility," "Description of the Surety
Arrangement" and "Description of the New Notes."
ii
<PAGE>
Old Notes initially sold to qualified institutional buyers were initially
represented by a global certificate in fully registered form, 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 Notes were shown on, and transfers thereof were effected
only through, records maintained by DTC and its participants. Except as
described herein, New Notes exchanged for Old Notes represented by the global
certificate will be represented by one or more global certificates of New Notes
in fully registered form, registered in the name of the nominee of DTC. New
Notes in global form will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity in such New Notes will therefore settle in
immediately available funds. See "Book-Entry, Deliver and Form." New Notes
issued to non-qualified institutional buyers in exchange for Old Notes 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, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes 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 Old Notes directly from the Company
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of the Company 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 New Notes 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 New Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Each broker-dealer that receives New
Notes 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 Notes.
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 New Notes received in exchange for Old Notes only
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus available to any broker-dealer for use 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 Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers. See "The
Exchange Offer" and "Plan of Distribution."
The Company 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 THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES 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 Notes. If a market for the New
Notes should develop, the New Notes could trade at a discount from their
principal amount. The Company does not intend to list the New Notes on a
national securities exchange or to apply for quotation of the New Notes through
the National Association of Securities Dealers Automated Quotation System. There
can be no assurance that an active public market for the New Notes will develop.
iii
<PAGE>
This Prospectus includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), 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
the Company or any of the transactions described herein, including the timing,
financing, strategies and effects of such transactions, are forward-looking
statements. Although the Company 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." The
Company does not intend to update these forward-looking statements.
AVAILABLE INFORMATION
The Company 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 New Notes 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 the Company 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 are not necessarily complete. 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 the Company 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.
The Company 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 Notes 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.
iv
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
A number of the Guarantors are corporations organized under the laws of
foreign jurisdictions, including the United Kingdom, Nova Scotia (Canada) and
Mexico (the "Foreign Guarantors"). Certain of the Foreign Guarantors' directors
and executive officers are neither citizens nor residents of the United States.
All or a substantial portion of the assets of the Foreign Guarantors and of such
persons are located outside the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce in the United States or in courts in foreign
jurisdictions judgments obtained against such persons or against the Foreign
Guarantors in United States courts predicated upon the civil liability
provisions of United States securities laws. In addition, it may be difficult
for investors to enforce, in original actions brought in courts in jurisdictions
located outside the United States, liabilities predicated upon the United States
securities laws. The Foreign Guarantors have appointed LEXIS Document Services,
Inc., 150 East 58th Street, 25th Floor, New York, New York 10155, as their agent
to receive service of process in any suit, action or proceeding arising out of
or relating to the Notes and the Guarantees brought under the securities laws of
the United States of America or any State of the United States in any federal or
state court located in the State of New York and have submitted to such
jurisdiction.
v
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TABLE OF CONTENTS
Page
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Available Information...................................................... iv
Enforceability of Civil Liabilities........................................ v
Prospectus Summary......................................................... 1
Risk Factors............................................................... 12
The Exchange Offer......................................................... 20
The Transactions........................................................... 27
Use of Proceeds............................................................ 30
Capitalization............................................................. 31
Unaudited Pro Forma Combined Financial Information......................... 32
Selected Historical and Pro Forma Combined Financial Data.................. 40
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 42
Business................................................................... 48
Management................................................................. 59
Security Ownership of Certain Beneficial Owners and Management............. 66
Certain Relationships and Related Transactions............................. 67
Description of the New Credit Facility..................................... 71
Description of the Surety Arrangement...................................... 72
The Unit Offering.......................................................... 73
Description of the New Notes............................................... 75
Exchange Offer; Registration Rights........................................ 107
Book-Entry, Delivery and Form.............................................. 109
Certain U.S. Federal Income Tax Consequences............................... 112
Plan of Distribution....................................................... 114
Experts.................................................................... 115
Legal Matters.............................................................. 115
Index to Financial Statements.............................................. F-1
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). For
purposes of this Prospectus, unless the context requires otherwise, references
to the "Company" are to Morris Material Handling, Inc., 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. 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. Management
believes that this growth 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 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
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1
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strategy for a longer period of time, the aftermarket business accounted for 51%
of net sales and 72% of gross profit.
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.
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.
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.
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2
<PAGE>
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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 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, including Morris Mechanical Handling
Ltd.'s ("Morris Ltd.") operations in the United Kingdom and South Africa, 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 expand the range of its product and service offerings.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Transactions
On March 30, 1998, in conjunction with the recapitalization (the
"Recapitalization") of MMH Holdings, Inc. ("Holdings"), the direct owner of all
of the capital stock of Morris Material Handling, Inc., the Company sold
$200,000,000 aggregate principal amount of its Old Notes (the "Offering"). In
the Recapitalization, MHE Investments, Inc. ("MHE Investments"), a newly formed
affiliate of Chartwell Investments Inc., together with certain institutional
investors and HarnCo, invested new and continuing equity capital of $126.0
million in Holdings (the "Equity Investment").
The proceeds of the Equity Investment, together with approximately $55.0
million of aggregate borrowings by the Company under a senior secured credit
facility (the "New Credit Facility") entered into in connection with the
consummation of the Recapitalization (the "Recapitalization Closing") and
approximately $200.0 million in aggregate proceeds from the Offering (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 $23.5 million of fees and
expenses. See "Use of Proceeds." The Recapitalization consideration consisted of
(i) $336.0 million in cash that will be paid to HarnCo (subject to potential
post-Recapitalization Closing adjustments as to which an additional $5.0 million
was provided to HarnCo at the Recapitalization Closing) and (ii) $12.0 million
of continuing equity capital that was retained by HarnCo.
The Recapitalization was effectuated pursuant to an agreement (the
"Recapitalization Agreement") among MHE Investments, HarnCo and certain of
HarnCo's affiliates (together with HarnCo, the "HarnCo Parties"). In the
Recapitalization, (i) MHE Investments acquired approximately 88.2% of the voting
power of Holdings, (ii) the Company acquired, directly or indirectly, all of the
equity interests of the entities engaged in the MHE Business that were
previously owned by the HarnCo Parties and (iii) HarnCo received the cash
Recapitalization consideration.
MHE Investments owns approximately 72.6% of the common stock of Holdings
(the "Holdings Common Stock") and approximately $28.9 million liquidation
preference of the 12 1/2% Series C Junior Exchangeable Voting Preferred Stock of
Holdings (the "Series C Junior Voting Preferred Stock") and HarnCo owns
approximately 20.8% of the Holdings Common Stock 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"). The remaining equity
interests, consisting of non-voting stock representing approximately 6.6% of the
Holdings Common Stock and approximately $57.7 million liquidation preference of
the 12% Series A Senior Exchangeable Preferred Stock of Holdings (the "Series A
Senior Preferred Stock"), are held by institutional investors. See "The
Transactions," "Capitalization" and "The Unit Offering."
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 12 months after the Recapitalization Closing. 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 on substantially similar terms and
conditions to those historically provided. See "Certain Relationships and
Related Transactions."
----------
The Company's principal executive offices are located at 4915 South Howell
Avenue, 2nd Floor, Milwaukee, Wisconsin 53207, telephone number (414) 486-6100.
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4
<PAGE>
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Summary of Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $200,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of the Company governed by the
Indenture. The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except (i) that the New Notes
have been registered under the Securities Act, (ii) that the New Notes are not
entitled to certain registration rights which are applicable to the Old Notes
under the Registration Rights Agreement and (iii) for certain contingent
interest rate provisions. The Old Notes and the New Notes are together referred
to herein as the "Notes." See "Description of the New Notes."
The Exchange Offer...................... $1,000 principal amount of New
Notes will be issued in exchange
for each $1,000 principal amount of
Old Notes validly tendered pursuant
to the Exchange Offer. As of the
date hereof, $200,000,000 in
aggregate principal amount of Old
Notes is outstanding. The exchange
of New Notes for Old Notes will be
made (i) with respect to all Old
Notes 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 Notes validly tendered and not
withdrawn on or prior to the
Expiration Date, within two
business days following the
Expiration Date. The Old Notes were
originally issued in a private
placement. As a condition to the
purchase of the Old Notes, the
Initial Purchasers required that
the Company and the Guarantors make
a registered offer to exchange the
Old Notes for other securities
substantially similar to the Old
Notes. The Exchange Offer is being
made to satisfy this contractual
obligation of the Company and the
Guarantors.
Resale.................................. Based on an interpretation by the
staff of the Commission set forth
in no-action letters issued to
unrelated third parties, the
Company believes that New Notes
issued pursuant to the Exchange
Offer in exchange for Old Notes 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
New Notes 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 New Notes. 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 New
Notes for its own account in
exchange for Old Notes, where such
Old Notes 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 New Notes. 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
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
requirements of the Securities Act
in connection with a secondary
resale transaction. Therefore, each
holder of Old Notes 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 Old Notes 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 New Notes
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 Interest on the New
Notes and the Old Notes................. The New Notes will bear interest
from March 30, 1998, the date of
issuance of the Old Notes. Holders
of Old Notes whose Old Notes are
accepted for exchange will be
deemed to have waived the right to
receive any payment in respect of
interest on such Old Notes accrued
from March 30, 1998 until the date
of the issuance of the New Notes.
See "The Exchange Offer--Interest
on the New Notes."
Conditions to the Exchange Offer........ The Company will not be obligated
to consummate the Exchange Offer if
the New Notes 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 the Company. 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.
Procedure for Tendering Old Notes....... Each holder of Old Notes 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 Old Notes (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 Old
Notes 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
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
behalf, such beneficial holder
must, prior to completing and
executing the Letter of Transmittal
and delivering his Old Notes,
either make appropriate
arrangements to register ownership
of the Old Notes 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 Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes (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 Old Notes
according to the guaranteed
delivery procedures set forth in
"The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights....................... Tenders of Old Notes 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 Notes
and Delivery of New Notes............... Subject to certain conditions (as
summarized above in "Conditions to
the Exchange Offer" and described
more fully in "The Exchange Offer--
Conditions"), the Company will
accept for exchange any and all Old
Notes 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 New Notes
issued pursuant to the Exchange
Offer will be delivered promptly
following each of the Early
Exchange Date and the Expiration
Date. See "The Exchange
Offer--Terms of the Exchange
Offer."
Certain Tax Considerations.............. The exchange pursuant to the
Exchange Offer will generally not
be a taxable event for federal
income tax purposes. See "Certain
U.S. Federal Income Tax
Consequences."
Exchange Agent.......................... United States Trust Company of New
York, the Trustee under the
Indenture, 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......................... The Company will not receive any
proceeds from the exchange of the
New Notes for the Old Notes
pursuant to the Exchange Offer. The
net proceeds from the sale of the
Old Notes, together with the
borrowings under the New Credit
Facility, were used (i) to
repurchase shares of the Company
held by Holdings, the proceeds of
which, together with the Equity
Investment, were used 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."
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7
<PAGE>
- --------------------------------------------------------------------------------
Summary Description of the New Notes
Issuer ................................. Morris Material Handling, Inc.
Securities Offered ..................... $200,000,000 principal amount of 9
1/2% Senior Notes due 2008.
Maturity Date .......................... April 1, 2008.
Interest Payment Dates ................. Interest will accrue on the New
Notes from March 30, 1998, the date
of issuance of the Old Notes (the
"Issue Date"), and will be payable
semiannually on each April 1 and
October 1, commencing October 1,
1998.
Ranking ................................ The New Notes will be senior
unsecured obligations of the
Company and will 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. As of
January 31, 1998, after giving pro
forma effect to the Offering, the
application of the net proceeds
therefrom and the Transactions, the
Company (including its
subsidiaries) would have had $259.3
million of Indebtedness
outstanding, of which $55.0 million
would have been borrowings under
the New Credit Facility, and $0.7
million would have been
Indebtedness of the Company's
subsidiaries other than the
Guarantors in respect of which the
Notes are effectively subordinated.
Borrowings under the New Credit
Facility are secured by
substantially all of the assets of
the Company and its subsidiaries
located in the United States and
the United Kingdom and certain of
the Company's subsidiaries' present
and future assets located in
Canada. In addition, obligations
incurred under the Surety
Arrangement will be secured by
certain assets of the Company.
Accordingly, the New Notes will be
effectively subordinated to the
obligations outstanding under the
New Credit Facility and the Surety
Arrangement to the extent of the
value of the assets securing such
borrowings. See "Risk
Factors--Substantial Leverage;
Ability to Service Debt,"
"--Effective Subordination of the
New Notes and the Guarantees" and
"--Restrictive Covenants."
Guarantees ............................. The New Notes will be
unconditionally guaranteed on a
senior unsecured basis, jointly and
severally, by substantially all of
the Company's subsidiaries. Each
Guarantee will rank pari passu in
right of payment with all existing
and future unsubordinated
obligations of such Guarantor. See
"Description of the
Notes--Guarantees."
Optional Redemption .................... The New Notes will be 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 herein, 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
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 of
the Company or Holdings; provided,
that at least $130.0 million
aggregate principal amount of the
Notes originally issued remain
outstanding immediately
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
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. See
"Description of the New
Notes--Optional Redemption."
Change of Control ...................... Upon a Change of Control, the
Company will be required to make an
offer to purchase all outstanding
New Notes at a price equal to 101%
of the principal amount thereof,
plus accrued and unpaid interest
thereon to the purchase date. See
"Description of the New
Notes--Change of Control Offer."
Certain Covenants ...................... The Indenture contains covenants
that, among other things, restrict
the ability of the Company and its
Restricted Subsidiaries (as defined
herein) 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. See "Description of the
New Notes--Certain Covenants."
Asset Sales Proceeds ................... The Company will be obligated in
certain instances to make offers to
purchase the New 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. See
"Description of the New
Notes--Certain
Covenants--Limitation on Certain
Asset Sales."
For more complete information regarding the New Notes, including the
definitions of certain capitalized terms used above, see "Description of the New
Notes."
Risk Factors
Prospective purchasers of the New Notes 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 New
Notes.
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9
<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 three months ended January 31, 1998 and 1997
have been derived from the unaudited combined 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 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 as of and for the three
months ended January 31, 1998 and for the year ended October 31, 1997 have been
prepared to reflect the consummation of the Transactions. The unaudited pro
forma combined balance sheet data have been prepared as if such transactions had
occurred as of January 31, 1998 and the unaudited combined statements of
operations have been prepared as if such transactions had occurred on November
1, 1996. The summary pro forma combined financial data are not necessarily
indicative of the financial position or results of operations of the Company had
the transactions reflected therein actually been consummated on the dates
assumed and are not necessarily indicative of the financial position or results
of operations that may be expected for any future period.
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 Combined
Financial Statements of the Company and notes thereto appearing elsewhere
herein.
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10
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical and Pro Forma Combined Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Fiscal Year Ended October 31, January 31,
------------------------------------------------------------------ -----------------------------------
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 $ 79,982 $ 76,483 $ 76,483
Gross profit .......... N/A N/A 56,765 76,176 92,556 92,556 19,190 19,830 19,830
Operating expenses(b) N/A N/A 35,043 46,160 57,019 56,157 12,642 14,873 15,270
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income ...... $ 4,781 $ 10,437 21,722 30,016 35,537 36,399 6,548 4,957 4,560
Net income/(loss) ..... N/A N/A $ 13,476 $ 18,446 $ 20,853 $ 5,943 $ 4,011 $ 2,139 (1,603)
======== ======== ======== ======== ======== ======== ======== ======== ========
Other data:
EBITDA(c) ............. $ 9,341 $ 15,075 $ 28,045 $ 38,220 $ 45,859 $ 43,859 $ 8,925 $ 7,538 $ 6,464
Depreciation and
amortization(d) ..... 2,588 2,981 3,800 5,292 6,736 8,536 1,548 1,659 2,109
Capital expenditures .. 1,419 3,935 3,725 6,752 6,498 6,498 1,744 816 816
Cash interest expense . 24,703 6,234
Ratio of earnings to
fixed charges (e) ... N/A N/A 23.21x 23.11x 16.46x 1.35x 21.58x 4.40x --
Adjusted data:
Ratio of EBITDA to cash
interest expense .... 1.78x 1.70x(f)
Ratio of pro forma debt
to EBITDA ........... 5.91x 6.19x(f)
</TABLE>
<TABLE>
<CAPTION>
As of October 31, As of January 31,
------------------------------------------------------ -----------------------------------
Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital....... N/A N/A $ 17,483 $ 34,523 $ 51,243 $ 37,432 $ 61,552 $ 60,584
Total assets.......... $ 66,667 $126,566 151,168 189,058 199,600 193,633 200,379 290,144
Total debt............ N/A N/A 4,704 2,044 6,088 3,348 4,289 259,289
</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 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) Operating expenses are shown net of other income.
(c) EBITDA is defined as operating income before depreciation, amortization,
the allocation of certain HII corporate overhead charges (the "HII
Management Fee") and charges related to certain depreciation expenses for
HarnCo assets. For fiscal 1997 and the three months ended January 31,
1998, the HII Management Fee was $2,862 and $677, respectively, and the
charges related to certain depreciation expenses for HarnCo assets were
$724 and $245, respectively. Pro forma EBITDA represents operating income
before depreciation, amortization and the charges related to certain
depreciation expenses for HarnCo assets. EBITDA is not a calculation based
on generally accepted accounting principles. EBITDA should not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of the Company or as an alternative
to operating cash flows as a measure of liquidity.
(d) Pro forma includes $1,800 and $450 of amortization of debt issuance costs
for fiscal 1997 and the three months ended January 31, 1998, respectively.
(e) For purposes of calculating the ratio of earnings to fixed charges,
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).
For the three months ended January 31, 1998 the Company had a deficiency
of pro forma earnings to fixed charges of $2,124.
(f) Reflects a pro forma calculation for the twelve months ended January 31,
1998.
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11
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before making an investment in the New Notes. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
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 to Service Debt
The Company has incurred substantial indebtedness in connection with the
Transactions. As of January 31, 1998, after giving pro forma effect to the
Offering, the application of the proceeds thereof and the Transactions, the
Company (including the Indebtedness of its subsidiaries) would have had
approximately $259.3 of outstanding Indebtedness. The New Credit Facility also
permits additional Indebtedness of up to $100.0 million thereunder. In addition,
the Surety Arrangement provides a surety line of $60.0 million. See "Description
of the New Credit Facility" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Furthermore, subject to certain restrictions in the 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 the Company's indebtedness could have important consequences
to holders of the New Notes, 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 has significant cash requirements for debt service;
(iii) financial and other covenants and operating restrictions imposed by the
terms of the Indenture and by the New Credit Facility 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 is 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 its
principal payment obligations under the New Credit Facility, which commence on
June 30, 1998, 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. In addition, although the New Credit Facility includes the Revolving
Credit Facility (as defined herein), 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, 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 obligations under the New Notes and any other indebtedness of
the Company and its subsidiaries ranking pari passu with the New Notes,
including secured indebtedness. 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
uncertainties beyond the Company's control would increase the need for
alternative sources of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Effective Subordination of the New Notes and the Guarantees
The New Notes will be unsecured obligations of the Company and will rank
pari passu in right of payment with all existing and future obligations of the
Company that are not by their terms expressly subordinated to the New Notes,
including the principal of (and premium, if any) and interest on and all other
amounts due on or payable in connection with the New Credit Facility and the
Surety Arrangement. Similarly, the Guarantees of the Guarantors
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will rank pari passu in right of payment with all obligations of the respective
Guarantors that are not by their terms expressly subordinated to the Guarantees.
The New Notes will be effectively subordinated to the indebtedness of all of the
Company's subsidiaries that are not Guarantors.
The Company has granted to the lenders under the New Credit Facility first
priority security interests in substantially all of the present and future
assets of the Company and its subsidiaries located in the United States and the
United Kingdom and certain of the Company's subsidiaries' present and future
assets located in Canada, as well as a pledge of all of the issued and
outstanding shares of capital stock of the Company and its current and future
subsidiaries. Collateral for the Surety Arrangement will be a letter 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. In
addition, the Indenture limits, but does not prohibit, the incurrence by the
Company and the Guarantors of additional secured indebtedness. In the event of a
default under the New Credit Facility, the Surety Arrangement or future secured
indebtedness (whether as a result of the failure to comply with a payment or
other covenant, a cross-default, or otherwise), the lenders thereunder will have
a secured claim on the assets of the Company and its subsidiaries securing their
obligations. If such parties should attempt to foreclose on their collateral,
the Company's financial condition and the value of the New Notes will be
materially adversely affected. In the event of certain asset sales, the New
Credit Facility provides that net proceeds thereof not reinvested as provided
therein must be applied first to the repayment of borrowings under the New
Credit Facility. See "Description of the New Credit Facility" and "Description
of the Surety Arrangement."
As of January 31, 1998, after giving effect to the consummation of the
Transactions, the Company (including the Indebtedness of its subsidiaries) would
have had approximately $259.3 million of Indebtedness outstanding, of which
$55.0 million would have been borrowings under the New Credit Facility, and $0.7
million would have been Indebtedness of the Company's subsidiaries other than
the Guarantors. The New Credit Facility also permits additional Indebtedness of
up to $100.0 million thereunder.
Restrictive Covenants
The Indenture, the Holdings Restated Certificate (as defined herein) and
the indenture governing the Exchange Debentures (as defined herein), if issued
(the "Exchange Debenture Indenture"), contain certain covenants (some of which
in the Holdings Restated Certificate and the Exchange Debenture Indenture may be
more restrictive than those contained in the Indenture and the New Credit
Facility) that, among other things, limit the ability of the Company 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 the Company or transfer or sell all or substantially all of the consolidated
assets of the Company. See "Description of the New Notes--Certain Covenants" and
"The Unit Offering."
In addition, the New Credit Facility contains a number of covenants that,
among other things, limit the Company's ability to incur additional
indebtedness, prepay subordinated indebtedness, dispose of certain assets,
create liens, make capital expenditures, make certain investments or
acquisitions and otherwise restrict corporate activities. The New Credit
Facility also requires the Company to comply with certain financial ratios and
tests, under which the Company is required to achieve certain financial and
operating results. The ability of the Company to comply with such provisions may
be affected by events beyond its control. A breach of any of these covenants
would result in a default under the New Credit Facility. In the event of any
such default, the lenders under the New Credit Facility could elect to declare
all amounts borrowed under the New Credit Facility, together with accrued
interest thereon, to be due and payable which would be an event of default under
the Indenture and 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 and obligations under the Surety Arrangement (which
obligations are effectively senior to the New Notes with respect to the assets
of the Company and its subsidiaries secured thereby) and the Indenture. See
"--Effective Subordination of the New Notes and the Guarantees." Any future
refinancing of the New Credit Facility is likely to contain similar restrictive
covenants. See "Description of the New Credit Facility."
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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 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 and 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."
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While the Company believes that the Surety Arrangement will provide
sufficient credit support to operate the MHE Business, 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.
Labor Relations
As of January 31, 1998, the Company had 2,072 employees. Of the Company's
833 hourly employees, approximately 74% are represented by unions, including
approximately 151 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. Although negotiations with
respect to a new collective bargaining agreement have not yet begun, the Company
contemplates 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 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."
Dependence on Subsidiaries
All of the Company's operations are conducted, directly or indirectly,
through wholly-owned subsidiaries, with the exception of Singapore operations
that are conducted through an entity in which the Company has an 85% interest.
The Company's cash flow and consequent ability to service its debt largely
depend upon the earnings of its subsidiaries and the distribution of those
earnings to the Company, or upon loans or other payments of those subsidiaries
to the Company. The ability of the Company's subsidiaries to pay dividends or to
make other payments or advances to the Company is subject to applicable laws and
contractual restrictions contained in the instruments governing any indebtedness
of such subsidiaries. There can be no assurance that the Company's subsidiaries
will generate sufficient cash flow to dividend, distribute or advance funds to
the Company. The Company's subsidiaries have no obligation, contingent or
otherwise, to make funds available to the Company, other than to repay
intercompany notes incurred immediately prior to the Recapitalization Closing in
connection with the Recapitalization. Although the New Credit Facility and the
Indenture impose certain limitations on the ability of subsidiaries of the
Company to enter into agreements restricting their ability to declare dividends
or make distributions or advances to the Company, such limitations are subject
to a number of qualifications. See "Description of the New Notes--Certain
Covenants--Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries" and "Description of the New Credit Facility."
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.
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. While the Company
believes that it will be able to avail itself of HII's third party insurance
with respect to any such
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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.
HarnCo has been and is currently a defendant in numerous asbestos related
lawsuits and, will likely be named in future such actions. 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 policies generally
provide insurance coverage for exposures to asbestos through the mid 1980s. 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.
Fraudulent Conveyance Considerations
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company, at the time it borrowed under the New Credit Facility or the Surety
Arrangement or issued the Old Notes (or transferred proceeds of the foregoing to
Holdings) (i) incurred such indebtedness with intent to hinder, delay or defraud
creditors or (ii) (a) received less than reasonably equivalent value or fair
consideration for incurring such indebtedness and (b) (1) was insolvent at the
time of incurrence, (2) was rendered insolvent by reason of such incurrence (and
the application of the proceeds thereof), (3) was engaged or was about to engage
in a business or transaction for which the assets remaining with the Company
after the conveyance constituted unreasonably small capital to carry on its
business or (4) intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature, then, in each case, a court of
competent jurisdiction could void, in whole or in part, the Notes, or, in the
alternative, subordinate the Notes to existing and future indebtedness of the
Company. In light of the use of proceeds of the Notes, it is unlikely that the
Notes will meet the reasonably equivalent value or fair consideration test. The
measure of insolvency for purposes of the foregoing will vary depending upon the
law applied in such case. Generally, however, the Company would be considered
insolvent if the sum of its debts, including contingent liabilities, was greater
than all of its assets at fair valuation or if the present fair saleable value
of its assets was less than the amount that would be required to pay the
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature.
In addition, the Guarantees may be subject to review under the relevant
federal and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally apply.
A court could void any of the Guarantors' obligations under the Guarantees,
subordinate the Guarantees to other indebtedness of a Guarantor or take other
action detrimental to the holders of the Notes.
Under the United Kingdom Insolvency Act of 1986, the Insolvency Rules and
the Company Directors Disqualification Act of 1986, certain transactions may be
avoided where a company is unable to pay its debts at the time of the
transaction or becomes so as a result of the transaction, and the transaction
took place within a specified period before commencement of an administration or
liquidation. The requirements are particularly stringent where the transaction
involves affiliated persons as defined in the Insolvency Act. Subject to certain
provisions, a company may not confer a benefit upon a person (especially if
affiliated) with the consequence of reducing the assets which would otherwise be
available for the general pool of unsecured creditors by way of (i) a
transaction that is a gift or transfer for less than full consideration within
two years prior to the commencement of administration or liquidation or (ii) the
giving of a preference, i.e., placing a creditor in a better position than it
would have been had the company gone into insolvent liquidation. A United
Kingdom court also has the power to set aside transactions entered into with the
deliberate intention of putting assets beyond the reach of creditors even where
the company is not insolvent. Similar considerations exist under other foreign
laws.
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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 additional funds.
There can be no assurance that the Company will be able to obtain such
additional funding. Additionally, the New Credit Facility, the Indenture, the
Holdings Restated Certificate and the Exchange Debenture 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; Ability to Service Debt," "--Restrictive
Covenants," "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. 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. Furthermore, some foreign jurisdictions have laws limiting
the right and ability of entities organized or operating therein to pay
dividends or remit earnings to affiliated companies unless specified conditions
are met. 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
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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 all of the directors of the Company and control the direction and
future operations of the Company. 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 Notes.
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 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, the Company is required to offer to repurchase
all outstanding 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 (which, in the case of
Indebtedness under the New Credit Facility and the
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Surety Arrangement, is effectively senior to the Notes with respect to the
assets of the Company and its subsidiaries secured thereby) and to repurchase
the Notes. Should a Change of Control occur and a substantial amount of Notes be
presented for purchase, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to repay such other debt and to
make any required repurchases of Notes tendered. The source of funds for any
such repurchase will be the Company's available cash or cash generated from
operations or other sources, including borrowings, sales of assets or additional
public or private offerings of debt or equity securities. There can be no
assurance that the Company would be able to obtain such financings. Further, the
provisions of the Indenture may not afford holders of the Notes protection in
the event of a highly leveraged transaction, reorganization, restructuring,
merger, or similar transaction involving the Company that may adversely affect
holders of Notes, if the transaction does not result in a Change of Control. See
"--Effective Subordination of the Notes and the Guarantees," "Description of the
New Notes--Change of Control Offer" and "Description of the New Credit
Facility."
Absence of Public Market; Restrictions on Transfer
There is no existing trading market for the Old Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. If such a market were to
develop, the New Notes could trade at prices that may be higher or lower than
the initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. The Initial Purchasers have advised the Company that are making a
market in the Old Notes and that they currently intend to make a market in the
New Notes. The Initial Purchasers are not obligated to do so, however, and any
market-making with respect to the Notes may be discontinued at any time without
notice. Therefore, there can be no assurance as to the liquidity of any trading
market for the New Notes or that an active public market for the New Notes will
develop. The Company does not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
Consequences of the Exchange Offer on Non-Tendering Holders of the Old Notes
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Company does not intend to file further registration statements
for the sale of other disposition of Old Notes. Consequently, following
completion of the Exchange Offer, holders of Old Notes 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 Old Notes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
General
The Old Notes were sold by the Company 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 Old Notes were sold to the Initial Purchasers
who resold the Old Notes to "qualified institutional buyers" within the meaning
of Rule 144A under the Securities Act. The Initial Purchasers required as a
condition to the purchase of the Old Notes that the Company and the Guarantors
grant the purchasers of the Old Notes certain registration rights pursuant to
the Registration Rights Agreement. The Registration Rights Agreement required
the Company and the Guarantors to file with the Commission following the closing
of the Offering of the Notes on March 30, 1998 (the "Closing"), a registration
statement relating to an exchange offer pursuant to which notes which are
substantially identical to the Old Notes would be offered in exchange for the
then outstanding Old Notes tendered at the option of the holders thereof. The
form and terms of the New Notes are identical in all material respects to the
form and terms of the Old Notes except (i) that the New Notes have been
registered under the Securities Act, (ii) that the New Notes are not entitled to
certain registration rights which are applicable to the Old Notes under the
Registration Rights Agreement, and (iii) certain contingent dividend rate
provisions applicable to the Old Notes are generally not applicable to the New
Notes. In the event that the applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, or if for any
other reason the Exchange Offer is not consummated within 180 days of the
Registration Rights Agreement, the Company and the Guarantors have agreed to use
their respective best efforts to cause to become effective a shelf registration
statement with respect to the resale of the Old Notes 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 the Company and
the Guarantors under the Registration Rights Agreement.
The Company and the Guarantors have agreed that if (i) the Company and the
Guarantors fail 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) the Company has not exchanged
the New Notes for all Old Notes 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 interest rate on the Old Notes
will increase by 50 basis points during the first 90-day period following the
occurrence of such default and the per annum interest 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 interest rate borne by the Old Notes, until such time as no
default is in effect (at which time the interest rate will revert to its initial
rate).
The holders of any Old Notes not tendered in the Exchange Offer will not
be entitled to require the Company to file a shelf registration statement, and
the interest rate on such Old Notes will remain at its initial level. See
"Exchange Offer; Registration Rights."
An exchange offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged New Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to such exchange offer and (ii) the Company having exchanged, pursuant
to such exchange offer, New Notes for all Old Notes that have been validly
tendered and not withdrawn on the Expiration Date. In such event, holders of Old
Notes 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, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The exchange of New Notes for Old Notes will be made (i) with respect to
all Old Notes 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 Notes validly tendered and not withdrawn after the
Early Exchange
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Date but on or prior to the Expiration Date, within two business days following
the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly following each of the Early Exchange Date and the Expiration
Date. The Company will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of outstanding Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer in denominations of $1,000 and integral multiples of $1,000
in excess thereof.
Based on an interpretation by the staff of the Commission set forth in SEC
no-action letters issued to unrelated third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes 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 New
Notes 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 New Notes. 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 New
Notes for its own account in exchange for Old Notes, where such Old Notes 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 New Notes. 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 the Company in the Letter of Transmittal that
the conditions described above have been met.
In connection with the issuance of the Old Notes, the Company arranged for
the inclusion of the Old Notes 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. The
Company also arranged for the Old Notes 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 New Notes 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, $200,000,000 in aggregate principal
amount of the Old Notes is outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving New Notes from the Company and
delivering New Notes to such holders.
If any tendered Old Notes 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 Old Notes 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 the Company. The Company has
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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 Old
Notes pursuant to the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean , 1998, unless the Company,
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, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes 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 the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "--Conditions" shall have occurred and shall not have been waived
by the Company, 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 Old
Notes. 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 the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company 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.
Interest on the New Notes
The New Notes will bear interest from March 30, 1998, the date of issuance
of the Old Notes, payable semi-annually in arrears on April 1 and October 1 of
each year commencing on October 1, 1998, at the rate of 9 1/2% per annum.
Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of interest on such Old
Notes accrued from March 30, 1998 until the date of the issuance of the New
Notes.
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 Notes (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 Old Notes 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 Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with
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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 Old Notes will constitute an agreement between
such holder and the Company 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 Old Notes 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 Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Old Notes are held of record by DTC who desires to
deliver such Old Notes at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender his Old Notes 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 Old Notes,
either make appropriate arrangements to register ownership of the Old Notes 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 Old Notes listed therein, such Old Notes must be endorsed
or accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes 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 the Company,
evidence satisfactory to the Company 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 Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's 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 Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes 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
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holder of such Old Notes unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
By tendering, each holder will represent to the Company that, among other
things (i) the New Notes 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 New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and (iv) such holder is not a broker-dealer who
acquired Old Notes directly from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, 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 Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes 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 Old Notes 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
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Old Notes 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 Notes 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 Old Notes 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 the Company.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the transfer agent with respect to
the Old Notes to register the transfer of such Old Notes into the name of the
Depositor withdrawing the tender and (iv) specify the name in which any such Old
Notes 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 the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes 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 Old
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Notes 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, the Company will not
be obligated to consummate the Exchange Offer if the New Notes 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 the Company with an opinion of
counsel reasonably satisfactory to the Company to the effect that the New Notes
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. The
Company may waive this condition.
If the condition described above exists, the Company will be entitled to
refuse to accept any Old Notes and, in the case of such refusal, will return all
tendered Old Notes to exchanging holders of the Old Notes. See "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
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Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. 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 the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, 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 the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes 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 Old Notes
tendered, or if tendered Old Notes 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 Old Notes 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 the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the New Notes under generally
accepted accounting principles.
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THE TRANSACTIONS
The Recapitalization
The Offering was consummated on March 30, 1998 in conjunction with the
recapitalization of Holdings. Holdings is the direct owner of all of the capital
stock of Morris Material Handling, Inc., which was formed in March 1998. In the
Recapitalization, MHE Investments, a newly formed affiliate of Chartwell
Investments Inc., together with certain institutional investors and HarnCo,
invested new and continuing equity capital of $126.0 million in Holdings.
The proceeds of the Equity Investment, together with approximately $55.0
million of aggregate borrowings by the Company under the New Credit Facility and
approximately $200.0 million in aggregate proceeds from the 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 $23.5 million of fees and expenses. See
"Use of Proceeds." The Recapitalization consideration consisted of (i) $336.0
million in cash that was paid to HarnCo (subject to potential
post-Recapitalization Closing adjustments as to which an additional $5.0 million
was provided to HarnCo at the Recapitalization Closing) and (ii) $12.0 million
of continuing equity capital that was retained by HarnCo.
The Recapitalization was effectuated pursuant to the Recapitalization
Agreement, among MHE Investments, HarnCo and certain of HarnCo's affiliates. In
the Recapitalization, (i) MHE Investments acquired approximately 88.2% of the
voting power of Holdings, (ii) the Company acquired, directly or indirectly, all
of the equity interests of the entities engaged in the MHE Business that were
previously owned by the HarnCo Parties, and (iii) HarnCo received the cash
Recapitalization consideration, comprised of $282.0 million from Holdings and
$54.0 million directly from MHE Investments. Concurrently with the Offering,
Holdings offered $60.0 million of its Units (the "Series A Units") consisting of
approximately $57.7 million liquidation preference of Series A Senior Preferred
Stock and 720 shares of Holdings Common Stock (the "Unit Offering"). See "The
Unit Offering." The net proceeds of the Unit Offering, together with the
proceeds of the Offering and borrowings under the New Credit Facility, which
were used to repurchase shares of the Company held by Holdings, were used to
finance the cash Recapitalization consideration paid by Holdings.
MHE Investments owns approximately 72.6% of the Holdings Common Stock and
approximately $28.9 million liquidation preference of the Series C Junior Voting
Preferred Stock and HarnCo owns approximately 20.8% of the Holdings Common Stock
and approximately $4.8 million liquidation preference of the Series B Junior
Preferred Stock. The remaining equity interests, consisting of non-voting stock
representing approximately 6.6% of the Holdings Common Stock and approximately
$57.7 million liquidation preference of the Series A Senior Preferred Stock, are
held by institutional investors.
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 12 months after the Recapitalization Closing. 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 on substantially similar terms and
conditions to those historically provided. See "Certain Relationships and
Related Transactions."
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The Pre-Closing Transactions
Immediately prior to the Recapitalization Closing, the HarnCo Parties
effected a number of transactions that resulted in the Company holding, directly
or indirectly, the equity interests of all of the entities engaged in the MHE
Business that were previously owned by the HarnCo Parties.
The October 1997 Drop Down
The organizational structure of the Company 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 retain 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 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 will be
repayable in 20 quarterly installments, commencing on June 30, 1998 and Term
Loan B will be 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 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."
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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 $38.4 million as of March 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."
29
<PAGE>
USE OF PROCEEDS
(dollars in thousands)
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes offered
hereby, the Company will receive, in exchange, Old Notes in like principal
amount.
The aggregate proceeds of the Offering and the borrowings under the New
Credit Facility were used (i) to repurchase shares of the Company held by
Holdings, the proceeds of which, together with the Equity Investment, were used
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 estimated fees and expenses associated with the
Transactions. See "Capitalization."
The sources and uses of the Recapitalization were as follows:
Sources:
New Credit Facility:
Term Loans.................................................. $ 55,000
Old Notes ...................................................... 200,000
Equity Investment............................................... 126,000
--------
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 the purchase of equity
interests..................................................... 900
General corporate purposes...................................... 3,310
Estimated fees and expenses..................................... 23,500
--------
Total uses............................................. $381,000
========
30
<PAGE>
CAPITALIZATION
(dollars in thousands)
The following table sets forth the combined capitalization of the Company
at January 31, 1998 and as adjusted to give effect to the Transactions as if
they had occurred as of January 31, 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 Combined Financial Statements of the Company and the notes
thereto appearing elsewhere in this Prospectus.
As of January 31, 1998
----------------------------
Actual As Adjusted
--------- -----------
Cash .............................. $ 6,317 $ 3,310(a)
========= =========
Existing debt ..................... $ 4,289 $ 4,289(b)
New Credit Facility: (c)
Term Loans ................... 55,000(d)
Old Notes ......................... 200,000
Total debt .............. 4,289 259,289
--------- ---------
Shareholder's equity .............. 132,684 (26,846)(e)
--------- ---------
Total capitalization .... $ 136,973 $ 232,443
========= =========
- - ----------
(a) As adjusted cash reflects cash remaining after giving effect to the
Transactions, including the prepayment of a $5.0 million purchase price
adjustment under the Recapitalization Agreement. According to the terms of
the Recapitalization Agreement, if determined at January 31, 1998, the
purchase price adjustment would have been $2.4 million. The remaining $2.6
million of the prepaid purchase price adjustment would then be refunded
within 60 days of the Recapitalization Closing.
(b) Existing debt of $4.3 million consists of a $2.7 million bank overdraft,
$0.4 million of short-term debt, a $0.7 million mortgage, $0.3 million of
industrial revenue bonds and $0.2 million of capital leases.
(c) The New Credit Facility will consist 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."
(d) The Term Loans will consist of a $20.0 million five year term loan and a
$35.0 million seven year term loan.
(e) Reflects the following adjustments to historical book value:
Cash retained by HarnCo ............................... $ (6,317)
Intercompany receivable retained by HarnCo ............ (255)
Deferred income tax asset retained by HarnCo .......... (2,720)
Deferred income tax asset (net) arising out of Section
338(h)(10) election under the Internal Revenue Code
of 1986 (the "Code") ............................... 73,946
Income taxes payable retained by HarnCo ............... 2,563
Deferred income tax liability retained by HarnCo ...... 3,142
Estimated purchase price adjustment ................... (2,389)
Repurchase of shares of the Company held by Holdings .. (227,500)
---------
$(159,530)
=========
31
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet of the Company as
of January 31, 1998 has been prepared to reflect the consummation of the
Transactions as if they had occurred as of January 31, 1998. The Unaudited Pro
Forma Combined Statements of Operations of the Company for the three months
ended January 31, 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 Financial Information does
not purport to be indicative of the operating results and financial position of
the Company that actually would have been obtained if the Transactions had been
consummated as of and for the dates and periods presented or that may be
obtained in the future. The unaudited pro forma adjustments, as described in the
Notes to Unaudited Pro Forma Combined Financial Information, are based on
available information and upon certain assumptions that management believes are
reasonable. The Unaudited Pro Forma Combined Financial Information should be
read in conjunction with the Combined Financial Statements of the Company and
notes thereto appearing elsewhere herein.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
As of January 31, 1998
--------------------------------------------
Historical Adjustments Pro Forma (a)
---------- ----------- -------------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................... $ 6,317 $ (3,007)(b) $ 3,310
Accounts receivable, net ................................ 75,545 (255)(c) 75,290
Inventories ............................................. 36,509 36,509
Other current assets .................................... 6,348 (2,720)(d)
290 (e)
900 (f)
2,611 (g) 7,429
--------- --------- ---------
Total current assets ............................... 124,719 (2,181) 122,538
--------- --------- ---------
Property, plant and equipment
Land and improvements ................................... 3,328 3,328
Buildings ............................................... 20,860 20,860
Machinery and equipment ................................. 36,268 36,268
Less: accumulated depreciation .......................... (22,462) (22,462)
--------- --------- ---------
37,994 37,994
--------- --------- ---------
Other assets
Goodwill ................................................ 31,792 31,792
Other ................................................... 5,874 91,946 (h) 97,820
--------- --------- ---------
37,666 91,946 129,612
--------- --------- ---------
Total assets ....................................... $ 200,379 $ 89,765 $ 290,144
========= ========= =========
Liabilities and Shareholder's Equity
Current liabilities
Short-term notes payable and current portion of long-term
obligations .......................................... $ 567 $ 1,350 (i) $ 1,917
Bank overdrafts ......................................... 2,713 2,713
Trade accounts payable .................................. 26,729 26,729
Accrued expenses ........................................ 10,989 10,989
Advance payments and progress billings .................. 8,829 8,829
Income taxes payable .................................... 2,563 (2,563)(j) --
Other current liabilities ............................... 10,777 10,777
--------- --------- ---------
Total current liabilities .......................... 63,167 (1,213) 61,954
Term Loans, excluding current portion ........................ 53,650 (k) 53,650
Other term debt .............................................. 1,009 1,009
Old Notes .................................................... 200,000 200,000
Deferred income taxes ........................................ 3,142 (3,142)(l) --
--------- --------- ---------
Total liabilities .................................. 67,318 249,295 316,613
Minority interest ............................................ 377 377
Shareholder's equity ......................................... 132,684 (159,530)(m) (26,846)
--------- --------- ---------
Total liabilities and shareholder's equity ......... $ 200,379 $ 89,765 $ 290,144
========= ========= =========
</TABLE>
33
<PAGE>
Notes to Unaudited Pro Forma Combined Balance Sheet
(a) Pro forma to give effect to the Transactions as if they had occurred as of
January 31, 1998.
(b) Reflects the following:
Cash retained by HarnCo................................ $ (6,317)
Proceeds from the Old Notes............................ 200,000
Borrowings under the New Credit Facility............... 55,000
Estimated fees and expenses............................ (18,000)
Prepayment of credit support fee to HII................ (290)
Estimated short-term loan to management to finance the
purchase of equity interests........................ (900)
Prepayment of purchase price adjustment................ (5,000)(i)
Repurchase of shares of the Company held by Holdings... (227,500)
---------
$ (3,007)
=========
(i) Reflects prepayment of a purchase price adjustment under the
Recapitalization Agreement. According to the terms of the
Recapitalization Agreement, if determined at January 31, 1998, the
purchase price adjustment would have been $2.4 million. The
remaining $2.6 million of the prepaid purchase price adjustment
would then be refunded within 60 days of the Recapitalization
Closing.
(c) Reflects elimination of intercompany receivables retained by HarnCo.
(d) Reflects elimination of deferred income tax asset retained by HarnCo.
(e) Reflects the prepayment of credit support fee to HII.
(f) Reflects short-term loan to management to finance the purchase of equity
interests. The Company expects such loan to be repaid within one year.
(g) Reflects the receivable from Holdings which represents the estimate of the
portion of the $5.0 million prepaid purchase price adjustment under the
Recapitalization Agreement that is anticipated to be refunded within 60
days of the Recapitalization Closing.
(h) Reflects the following:
Deferred income tax asset (net) arising out of the
Code Section 338(h)(10) election................... $ 73,946(i)
Capitalization of the estimated fees and expenses
related to the debt portion of the Financings...... 18,000
---------
$ 91,946
=========
(i) Reflects the increase in the deferred income tax assets of the
Company since, for United States federal and state income tax
purposes, the Transactions are treated as a taxable asset sale. As a
result there is a step-up in the tax basis of the net assets which
will provide future income tax deductions of $231.1 million and may
reduce future income tax payments by approximately $73.9 million as
shown below:
Company total enterprise value....................... $ 360,178
Less: tax basis of net assets acquired............... (129,097)
---------
231,081
Estimated corporate tax rate......................... 40.0%
---------
Deferred income tax asset arising out of the Code
Section 338(h)(10) election........................ $ 92,432
=========
Less: valuation reserve.............................. (18,486)(x)
---------
Deferred income tax asset (net) arising out of
the Code Section 338(h)(10) election............... $ 73,946
=========
(x) A valuation reserve has been established against the deferred income
tax asset on the assumption that the deferred income tax asset may
not be fully utilized in future years. The valuation reserve
represents 20% of the gross asset.
(i) Reflects the current portion of the Term Loans.
(j) Reflects elimination of income taxes payable retained by HarnCo.
(k) Reflects borrowings under the Term Loans excluding current portion.
(l) Reflects elimination of deferred income tax liability retained by HarnCo.
34
<PAGE>
(m) Reflects the following:
Cash retained by HarnCo................................ $ (6,317)
Intercompany receivable retained by HarnCo............. (255)
Deferred income tax asset retained by HarnCo .......... (2,720)
Deferred income tax asset (net) arising out of
the Code Section 338(h)(10) election................. 73,946
Income taxes payable retained by HarnCo ............... 2,563
Deferred income tax liability retained by HarnCo ...... 3,142
Estimated purchase price adjustment.................... (2,389)
Repurchase of shares of the Company held by Holdings... (227,500)
----------
$ (159,530)
==========
35
<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
Product development, selling 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) (26,105)(e) (26,503)
--------- --------- ---------
Income before income taxes and minority interest 34,745 (24,849) 9,896
Provision for income taxes ..................... (13,874) 9,939 (f) (3,935)
Minority interest .............................. (18) (18)
--------- --------- ---------
Net income ........................... $ 20,853 $ (14,910) $ 5,943
========= ========= =========
Other Financial Data:
EBITDA (g) ..................................... $ 45,859 $ 43,859
Depreciation and amortization .................. 6,736 8,536
Capital expenditures ........................... 6,498 6,498
Cash interest expense .......................... 792 24,703
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended January 31, 1998
-------------------------------------------
Historical Adjustments Pro Forma (a)
------------ ----------- ---------------
<S> <C> <C> <C>
Revenues
Net sales ........................................ $ 76,483 $ $ 76,483
Other income--net ................................ 284 284
-------- -------- --------
76,767 76,767
Cost of sales ......................................... 56,653 56,653
Product development, selling and administrative
expenses ........................................... 14,480 824 (b) 15,304
Management fee ........................................ 677 (427)(c) 250
-------- -------- --------
Operating income ............................ 4,957 (397) 4,560
Interest expense--net
Affiliates ....................................... (687) 687 (d) --
Third party ...................................... (158) (6,526)(e) (6,684)
-------- -------- --------
Income/(loss) before income taxes and minority interest 4,112 (6,236) (2,124)
(Provision)/benefit for income taxes .................. (1,987) 2,494 (f) 507
Minority interest ..................................... 14 14
-------- -------- --------
Net income/(loss) ........................... $ 2,139 $ (3,742) $ (1,603)
======== ======== ========
Other Financial Data:
EBITDA (g) ............................................ $ 7,538 $ 6,464
Depreciation and amortization ......................... 1,659 2,109
Capital expenditures .................................. 816 816
Cash interest expense ................................. 845 6,234
</TABLE>
37
<PAGE>
Notes to the Unaudited Pro Forma Combined Statements of Operations
<TABLE>
<CAPTION>
Pro Forma
Pro Forma for for the Three
the Year Months
Ended Ended
October 31, January 31,
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:
Estimated incremental costs attributable to stand alone operations...... $ 1,000 $ 250
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 12 months after the
Recapitalization Closing................................................ -- 574
----------- -----------
$ 1,000 $ 824
=========== ===========
(c) Reflects the following:
Elimination of HII Management Fee....................................... $ (2,862) $ (677)
Chartwell Investments Inc.'s management consulting fee.................. 1,000 250
----------- -----------
$ (1,862) $ (427)
=========== ===========
(d) Reflects elimination of interest expense paid to affiliates of HII.
(e) Reflects the following:
Estimated change in cash interest expense on debt....................... $ (24,006) $ (6,001)
Estimated fee paid to HII for outstanding credit support................ (299) (75)
Estimated amortization of debt financing costs.......................... (1,800) (450)
----------- -----------
$ (26,105) $ (6,526)
=========== ===========
<CAPTION>
Principal Interest Cost Interest Cost
--------- ------------- -------------
Estimated cash interest expense on debt:
Revolving Credit Facility at LIBOR plus 2.25%(i)........ $ -- $ 350 $ 87
Acquisition Facility at LIBOR plus 2.75%(i)............. -- 150 37
Term Loan A at LIBOR plus 2.25%......................... 20,000 1,575 394
Term Loan B at LIBOR plus 2.75%......................... 35,000 2,931 733
Notes at 9.50%.......................................... 200,000 19,000 4,750
----------- -----------
$ 24,006 $ 6,001
=========== ===========
</TABLE>
(i) Reflects a 0.50% fee for undrawn commitments under these facilities.
For the purposes of the above, LIBOR is estimated to be 5.625%.
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 three months ended
January 31, 1998 by approximately $0.1 million and the pro forma net
income for the three months ended January 31, 1998 by approximately $0.1
million.
(f) Reflects the tax effect of all adjustments at an assumed effective tax
rate of 40%.
38
<PAGE>
(g) EDITDA is defined as operating income before depreciation, amortization,
the HII Management Fee and charges related to certain depreciation
expenses for HarnCo assets. For fiscal 1997 and the three months ended
January 31, 1998, the HII Management Fee was $2,862 and $677,
respectively, and the charges related to certain depreciation expenses for
HarnCo assets were $724 and $245, respectively. Pro forma EBITDA
represents operating income before depreciation, amortization and the
charges related to certain depreciation expenses for HarnCo assets. EBITDA
is not a calculation based on generally accepted accounting principles.
EBITDA should not be considered as an alternative to net income or
operating income, as an indicator of the operating performance of the
Company or as an alternative to operating cash flows as a measure of
liquidity.
39
<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 three months ended January 31, 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 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 as of and for the three
months ended January 31, 1998 and for the year ended October 31, 1997 have been
prepared to reflect the consummation of the Transactions. The unaudited pro
forma combined balance sheet data have been prepared as if such transactions had
occurred as of January 31, 1998 and the unaudited pro forma combined statements
of operations data have been prepared as if such transactions had occurred on
November 1, 1996. The selected pro forma combined financial data are not
necessarily indicative of the financial position or results of operations of the
Company had the transactions reflected therein actually been consummated on the
dates assumed and are not necessarily indicative of the financial position or
results of operations that may be expected for any future periods.
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 Combined
Financial Statements of the Company and notes thereto appearing elsewhere
herein.
40
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Fiscal Year Ended October 31, January 31,
------------------------------------------------------------------ -----------------------------------
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 $ 79,982 $ 76,483 $ 76,483
Gross profit .......... N/A N/A 56,765 76,176 92,556 92,556 19,190 19,830 19,830
Operating expenses(b) N/A N/A 35,043 46,160 57,019 56,157 12,642 14,873 15,270
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income ...... $ 4,781 $ 10,437 21,722 30,016 35,537 36,399 6,548 4,957 4,560
Net income/(loss) ..... N/A N/A $ 13,476 $ 18,446 $ 20,853 $ 5,943 $ 4,011 $ 2,139 (1,603)
======== ======== ======== ======== ======== ======== ======== ======== ========
Other data:
EBITDA(c) ............. $ 9,341 $ 15,075 $ 28,045 $ 38,220 $ 45,859 $ 43,859 $ 8,925 $ 7,538 $ 6,464
Depreciation and
amortization(d) ..... 2,588 2,981 3,800 5,292 6,736 8,536 1,548 1,659 2,109
Capital expenditures .. 1,419 3,935 3,725 6,752 6,498 6,498 1,744 816 816
Cash interest expense . 24,703 6,234
Ratio of earnings to
fixed charges (e) ... N/A N/A 23.21x 23.11x 16.46x 1.35x 21.58x 4.40x --
Adjusted data:
Ratio of EBITDA to cash
interest expense .... 1.78x 1.70x(f)
Ratio of pro forma debt
to EBITDA ........... 5.91x 6.19x(f)
</TABLE>
<TABLE>
<CAPTION>
As of October 31, As of January 31,
------------------------------------------------------ -----------------------------------
Pro Forma
1993(a) 1994(a) 1995 1996 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital....... N/A N/A $ 17,483 $ 34,523 $ 51,243 $ 37,432 $ 61,552 $ 60,584
Total assets.......... $ 66,667 $126,566 151,168 189,058 199,600 193,633 200,379 290,144
Total debt............ N/A N/A 4,704 2,044 6,088 3,348 4,289 259,289
</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 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) Operating expenses are shown net of other income.
(c) EBITDA is defined as operating income before depreciation, amortization,
the allocation of certain HII corporate overhead charges (the "HII
Management Fee") and charges related to certain depreciation expenses for
HarnCo assets. For fiscal 1997 and the three months ended January 31,
1998, the HII Management Fee was $2,862 and $677, respectively, and the
charges related to certain depreciation expenses for HarnCo assets were
$724 and $245, respectively. Pro forma EBITDA represents operating income
before depreciation, amortization and the charges related to certain
depreciation expenses for HarnCo assets. EBITDA is not a calculation based
on generally accepted accounting principles. EBITDA should not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of the Company or as an alternative
to operating cash flows as a measure of liquidity.
(d) Pro forma includes $1,800 and $450 of amortization of debt issuance costs
for fiscal 1997 and the three months ended January 31, 1998, respectively.
(e) For purposes of calculating the ratio of earnings to fixed charges,
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).
For the three months ended January 31, 1998 the Company had a deficiency
of pro forma earnings to fixed charges of $2,124.
(f) Reflects a pro forma calculation for the twelve months ended January 31,
1998.
41
<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.
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 Ltd. since its
acquisition in 1994) were conducted through a number of entities owned, directly
or indirectly, by HII and its affiliates. Since the Recapitalization Closing,
the Company operates independently of HII. As a result, the Company's historical
performance may not be indicative of future results.
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.
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 $38.4 million as of March 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 12 months after the Recapitalization Closing.
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
42
<PAGE>
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.
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 Three months ended Six Months Ended April 30,
------------------ ------------------ ---------------------------------------------
April 30, 1998 April 30, 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% $177.1 100.0% $157.2 100.0%
Other income - net 0.4 0.5% 0.2 0.3% 1.5 0.8% 0.7 0.5%
Cost of sales 58.5 72.5% 72.8 75.0% 133.6 75.5% 115.2 73.2%
Product development,
selling, and
administrative
expenses 15.2 18.8% 14.0 14.4% 27.3 15.4% 29.5 18.8%
HII management fee 0.5 0.6% 0.8 0.8% 1.4 0.8% 1.2 0.7%
Nonrecurring employee
benefit costs (1) 1.8 2.2% -- 0.0% -- 0.0% 1.9 1.2%
Operating income 5.3 6.5% 9.7 10.0% 16.2 9.2% 10.2 6.5%
Net income 1.5 1.9% 5.6 5.8% 9.6 5.4% 3.7 2.3%
</TABLE>
(1) Severance costs and incentives as described below.
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 due 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.
Product development, selling 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, 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 a
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 $1.8
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.
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 due to a full six
month 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.
43
<PAGE>
Product development, selling 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. Accordingly, only two months of product development, selling 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.
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
Product development
selling, 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.
44
<PAGE>
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 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 high
margin aftermarket products and services. 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.
Product development, selling 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 higher margin aftermarket products and services,
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.
Product development, selling 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.
45
<PAGE>
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.
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 cash provided from 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. The increase
from 1995 to 1996 was primarily due to an increase in net income, an increase in
cash provided from HII and its affiliates 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
46
<PAGE>
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.
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 $24,703,000.
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, the Company and its subsidiaries had an aggregate of
$261.9 million of Indebtedness outstanding, including the $200.0 million
principal amount of the Notes and $55.0 million of borrowings under the New
Credit Facility.
At April 30, 1998, the Company subject to compliance with certain
conditions, had approximately $64.5 million of availability (of which $15.0
million is required under the Note 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.
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, 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.
47
<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. Management believes that this
growth 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.
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.
48
<PAGE>
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 handling 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
conveyers 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 $600 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.
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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.
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
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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.
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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.
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In addition to responding to service calls from clients, the Company has
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.
The following table outlines the Company's current DSC network:
Location Principal Trade Names Number
- - -----------------------------------------------------------------------------
North America P&H Material Handling Center 38
United Kingdom UK Crane Service 12
South Africa Crane Aid 10
Southeast Asia Morris Blooma 1
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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.
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 January 31, 1998 was approximately
$99.8 million compared to approximately $111.9 million at January 31, 1997.
However, bookings in the quarter ended January 31, 1998 increased by $19.2
million or 32.4% as compared to the quarter ended January 31, 1997. The change
in backlog is primarily attributable to 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.
Warranties
The Company generally provides a warranty on its products for periods of
one to two years. At January 31, 1998, the Company had accrued warranties of
approximately $3.5 million.
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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 and for
related services offered by the Company. HarnCo 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 12 months after the Recapitalization
Closing. 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.
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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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 have 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 contemplated transaction, 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
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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
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 Land Leased (e)
Toronto, Canada Brake systems and parts manufacturing 17,600 Leased
</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 building is owned while the land underneath the building is to be
leased pursuant to a thirty-year lease.
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
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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.
Employees
At January 31, 1998, the Company had a total of 2,072 full-time employees,
of which 833 were hourly and 1,239 were salaried personnel. Approximately 74% of
the Company's hourly employees are represented by unions. The Company's United
States operations employ approximately 904 employees, of which 151 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. Although negotiations with respect to a new
collective bargaining agreement have not yet begun, the Company contemplates
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.
58
<PAGE>
MANAGEMENT
The following sets forth certain information with respect to the persons
who are members of the Company's Board of Directors or senior management team.
<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
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
Michael S. Shein............. 34 Director
</TABLE>
Michael S. Erwin--Michael Erwin serves as President and Chief Executive
Officer of the Company which he has run since December 1994. He has served as a
director since March 1998. 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 serves as Vice President--Finance since March
1998. He has served as Vice President and Controller 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 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 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. 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
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 Production Management Institute of South Africa. Mr.
Norridge is a Registered Professional Technologist in Engineering and a
Registered Professional Production Manager.
59
<PAGE>
Michael J. Maddock--Michael Maddock has been Vice President--Pacific Rim &
Middle East 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. 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 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.
Michael S. Shein--Michael Shein has been a director 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.
Director Compensation
The Company contemplates paying customary directors fees to non-management
directors who are not employees of Chartwell Investments Inc., and reimbursing
all directors for out-of-pocket expenses incurred in connection with attending
Board meetings.
Executive Compensation
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), 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
60
<PAGE>
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 without Cause (as defined therein) by the Company,
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 (as outlined
above).
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 for Cause by the Company, termination for Good
Reason by 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, 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 (as defined therein), 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 established 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 has reserved 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 made an initial option grant
to each member of the Company's senior management on March 30, 1998 under such
executive's employment agreement. 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 expire ten years from the date of grant. Approximately
one-third of the total number of Equity Units subject to the initial grant vest
ratably on each of the first through fourth anniversaries of the date of grant
provided the executive is in the employ of the Company. Approximately one third
of the Equity Units 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
(as defined therein) for such year ("B Options"), and approximately one third of
the Equity Units (plus any B Options that did not vest and have been carried
forward) vest if the Internal Rate of Return (as defined therein) earned by the
Company exceeds 40% on the closing date of a Change of Control (as defined
therein) and the executive is in the employ of the Company on such date. The
executives will be permitted to exercise their vested options and sell their
Equity Units after an initial public offering (subject to approval of the
Compensation Committee).
Arrangements Prior to Consummation of the Transactions
The following describes certain compensation and benefit arrangements
applicable to employees 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.
61
<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 $51,063 for various expatriate
expenses incurred by Mr. Norridge, paid by the Company pursuant to the
terms of his employment agreement.
62
<PAGE>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values (a)
The following table sets forth information with respect to the Named
Executive Officers concerning the number of shares of HII common stock acquired
on exercise of options by the Named Executive Officers during fiscal 1997, the
value realized and the number and value of options outstanding at October 31,
1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Shares Options at Fiscal at Fiscal Year-End
Acquired Value Year-End (#) ($)(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 $39.375.
Until the Recapitalization Closing, a portion of the incentive
compensation for senior executives was paid in cash and a portion was deferred
based on future results.
For those executives who have elected to defer their cash bonuses by
converting such bonuses into HII common stock under the terms of the HII
Executive Incentive Plan, the "banked" portion of any bonus is converted into
HII common stock on the same terms as the "unbanked" portion of the bonus.
Long Term Incentive Plans--Awards in Last Fiscal Year
Number of Shares, Estimated Future
Units of Other Payouts Under
Rights Non-Stock Price
Name (#)(a) Based Plans ($)(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."
63
<PAGE>
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.
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.
64
<PAGE>
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 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.
65
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Holdings owns 100.0% of the issued and outstanding capital stock of Morris
Material Handling, Inc.
The following table sets forth the number and percentage of outstanding
shares of voting stock of Holdings beneficially owned by: (i) each executive
officer and director of the Company; (ii) all directors and executive officers
of the Company as a group; and (iii) each person known by the Company to own
beneficially more than five percent of Holdings voting stock, respectively. The
Company believes that each individual or entity named will have 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%
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
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. 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 the Company, is a limited partner of Chartwell
L.P. Michael S. Shein, who is a director of the Company, 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, affiliates of CIBC Oppenheimer Corp. and Credit Agricole
Indosuez, an Initial Purchaser and the Financial Advisor in the Offering,
respectively, became minority interest holders of Frasier L.L.C. and Niles
L.L.C. Jay R. Bloom, who is a director of the Company, is a Managing
Director of CIBC Oppenheimer Corp.
(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 the
Company, is a limited partner of Chartwell L.P. Michael S. Shein, who is a
director of the Company, 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) Members of the Company's senior management purchased $900,000 of equity
interests of Niles L.L.C. concurrent with the Recapitalization Closing.
66
<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 Holdings 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 will terminate at the Recapitalization
Closing.
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
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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 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 March 30, 1998, there was approximately $38.4
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 the Company 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 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
The Company has 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 12
months after the Recapitalization Closing 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
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is the fully absorbed standard cost for normal production products and repair
parts, and the fully absorbed job cost for rebuilds and repairs.
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 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 of Holdings. 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 of Holdings
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 $38.4
million as of March 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.
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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 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 are 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 the Company and both are
officers and directors of Chartwell Investments Inc.
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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
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 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 (the
"Agents") individually and as 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
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 will be
repayable in 20 quarterly installments, commencing on June 30, 1998 and Term
Loan B will be 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 Fund Rate plus 0.50%; or (ii) 2.25% per
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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 Fund 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.
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
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.
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 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.
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.
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THE UNIT OFFERING
Concurrent with the Offering, Holdings sold, on March 30, 1998, $60.0
million of its Series A Units consisting of approximately (i) an aggregate of
57,710 shares of Series A Senior Preferred Stock and (ii) an aggregate of 720
shares of non-voting Holdings Common Stock (the "Unit Common Stock"). Each
Series A Unit consists of one share of Series A Senior Preferred Stock and
0.012476 shares of Unit Common Stock. The Series A Senior Preferred Stock and
the Unit Common Stock are separately transferable, subject to compliance with
applicable federal and state securities laws. The net proceeds from the sale of
the Series A Units were used by Holdings to finance a portion of the
Transactions. See "Use of Proceeds."
Series A Senior Preferred Stock. Each share of Series A Senior Preferred
Stock has a liquidation preference of $1,000 per share plus accumulated and
unpaid dividends. Dividends on the Series A Senior Preferred Stock are
cumulative from March 30, 1998, the date of issuance of the Series A Units (the
"Issue Date"), at an annual rate of 12%, and payable semi-annually in arrears on
each April 1 and October 1, commencing October 1, 1998. Dividends are payable at
the option of Holdings, on any dividend date occurring on or prior to April 1,
2003, either in cash or in additional shares of Series A Senior Preferred Stock.
Thereafter, dividends will be payable in cash.
The Series A Senior Preferred Stock rank senior in right of payment to the
Series B Junior Preferred Stock, the Series C Junior Voting Preferred Stock and
any other preferred stock, and senior to any class of common stock of Holdings
with respect to dividend rights and rights upon liquidation, dissolution or
winding-up of Holdings.
Holdings will be required to redeem in cash all of the 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 redemption date.
The Series A Senior Preferred Stock are 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 in the Second Amended and Restated Certificate of
Incorporation of Holdings 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 "Holdings
Restated Certificate"), together with accrued and unpaid dividends thereon, if
any, to the redemption date. In addition, Holdings, at its option, may redeem
all, but not less than all, of the Series A Senior Preferred Stock outstanding
at any time on or prior to April 1, 2001, at a redemption price equal to 112% of
the liquidation preference thereof together with accrued 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 A
Senior Preferred Stock will be entitled to require Holdings to make an offer to
purchase such holder's Series A Senior Preferred Stock at a purchase price equal
to 101% of the liquidation preference, together with accrued and unpaid
dividends thereon, if any, to the repurchase date.
Holders of Series A Senior Preferred Stock do not have voting rights,
except under certain limited circumstances or as required by law.
The Holdings Restated Certificate contains covenants for the benefit of
the holders of the Series A Senior Preferred Stock that, among other things,
restrict the ability of Holdings and any of its Restricted Subsidiaries
(including the Company) 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 Holdings or sell all or substantially all of Holdings'
assets (determined on a consolidated basis for Holdings and its Restricted
Subsidiaries). These covenants are subject to a number of important exceptions.
The Holdings Restated Certificate provides that if Holdings fails to make
or consummate a Change of Control Offer (as defined in the Holdings Restated
Certificate), the dividend rate on the Series A Preferred Stock will increase by
400 basis points per annum until such time as Holdings makes or consummates a
Change of Control.
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Subject to certain provisions, the Series A Senior Preferred Stock are
exchangeable in whole, but not in part, at the option of Holdings into
subordinated debentures (the "Exchange Debentures") with substantially the same
terms as the Series A Preferred Stock and providing certain additional
covenants. The Exchange Debentures, if issued, will be issued pursuant to an
indenture which will contain covenants for the benefit of the holders of the
Exchange Debentures that, among other things, restrict the ability of Holdings
and any of its Restricted Subsidiaries (including the Company) to: (i) incur
additional 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; (vii)
merge or consolidate in a transaction involving all or substantially all of the
assets of Holdings and its Restricted Subsidiaries, taken as a whole. These
covenants will be subject to a number of important exceptions.
Pursuant to a registration rights agreement among Holdings and CIBC
Oppenheimer Corp., Holdings must use its best efforts to file within 60 days,
and cause to become effective within 135 days, of the Issue Date, a Preferred
Stock Exchange Offer Registration Statement (as defined in such agreement) with
respect to an offer to exchange the Series A Senior Preferred Stock (the
"Preferred Stock Exchange Offer") for preferred stock of Holdings with terms
substantially identical to the Series A Senior Preferred Stock. In addition,
under certain circumstances, Holdings may be required to file a Shelf
Registration Statement (as defined in such agreement). Among other provisions,
in the event that (i) the Preferred Stock Exchange Offer Registration Statement
or Shelf Registration Statement has not been filed with the Commission within 60
days after the Issue Date, or (ii) the Preferred Stock Exchange Offer
Registration Statement or Shelf Registration Statement is not declared effective
within 135 days after the Issue Date, or (iii) (a) the Preferred Stock Exchange
Offer is not consummated within 45 days after the date on which the Preferred
Stock Exchange Offer Registration Statement was declared effective, or (b) the
Preferred Stock Exchange Offer Registration Statement ceases to be effective at
any time prior to the time that the Preferred Stock Exchange Offer is
consummated as to all Series A Senior Preferred Stock validly tendered, or (c)
if applicable, the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior to
the second anniversary of its effective date (each such event referred to in
clauses (i) through (iii) above is a "Preferred Stock Registration Default"),
the sole remedy available to holders of the Series A Senior Preferred Stock is
the immediate assessment of additional dividends (the "Additional Dividends") as
follows: the per annum dividend rate on the Series A Senior Preferred Stock will
increase by 50 basis points during the first 90 days when any such default
exists and increased by an additional 25 basis points per annum for each
subsequent 90-day period during which the Preferred Stock Registration Default
remains uncured, up to a maximum rate of 200 basis points per annum. All
Additional Dividends will be payable to holders of the Preferred Stock on each
April 1 and October 1, commencing with the first such date occurring after any
such Additional Dividends commence to accrue, and continuing until such
Preferred Stock Registration Default is cured. Additional Dividends will be
payable at the option of Holdings on any dividend date occurring on or prior to
April 1, 2003, either in cash or in additional shares of Series A Senior
Preferred Stock. After the date on which such Preferred Stock Registration
Default is cured, additional dividends will cease to accrue.
Unit Common Stock. The shares of Unit Common Stock sold in the Unit
Offering represent approximately 6.6% of all classes of Holdings Common Stock
outstanding. Prior to an initial public offering of Holdings Common Stock,
holders of the Unit Common Stock are not entitled to vote except as otherwise
required by law. After a public offering of Holdings Common Stock, holders of
Unit Common Stock will be entitled to one vote per share on all matters on which
the holders of Holdings Common Stock are entitled to vote. Holdings does not
anticipate paying dividends on the Holdings Common Stock. Holders of Unit Common
Stock are entitled, when and if declared by the Board of Directors of Holdings
out of funds legally available therefor, to receive dividends on each
outstanding share of Unit Common Stock. Pursuant to an agreement with Holdings
and MHE Investments, the holders of the Unit Common Stock are entitled to
certain registration rights and other rights.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued, and the New Notes will be issued, under an
indenture, dated as of March 30, 1998 (the "Indenture"), among the Company, the
Guarantors and United States Trust Company of New York, as trustee (the
"Trustee"). The New Notes will be issued solely in exchange for an equal
principal amount of the outstanding Old Notes pursuant to the Exchange Offer.
The terms of the New Notes will be identical in all material respects to the
form and terms of the Old Notes except that: (i) the New Notes 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 Old Notes are
not applicable to the New Notes. The Old Notes and the New Notes are
collectively referred to herein as the "Notes."
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The Notes are subject to all such terms, and holders of the Notes are referred
to the Indenture and the Trust Indenture Act for a statement of the provisions
of the Notes. The following is a summary of the material terms and provisions of
the Indenture, the Notes and the Guarantees. 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 Notes and the Indenture
(including the definitions contained therein). The form of the Indenture is
filed as an Exhibit to the Registration Statement of which this Prospectus is a
part and a copy may be obtained from the Company 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 Indenture and such definitions are incorporated by reference
herein. For purposes of this section, 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 Notes are limited in aggregate principal amount to $200.0 million. The
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. Indebtedness incurred under the Credit Facilities,
including the New Credit Facility, is secured by certain of the Company's and
its Subsidiaries' assets, including substantially all of their assets located in
the United States and the United Kingdom and certain assets in Canada as well as
a pledge of all of the issued and outstanding shares of capital stock of the
Company and its current and future subsidiaries. In addition, obligations
incurred under certain of the Surety Arrangements will be secured by certain of
the Company's assets. Accordingly, while the Notes rank pari passu in right of
payment with the Indebtedness under the Credit Facilities and the Surety
Arrangements and all other liabilities not expressly subordinated by their terms
to the Notes, the Notes are effectively subordinated to the Indebtedness
outstanding under the Credit Facilities, certain of the Surety Arrangements and
other secured Indebtedness to the extent of the value of the assets securing
such Indebtedness. See "Description of the New Credit Facility," "Certain
Relationships and Related Transactions--Credit Indemnification Agreement" and
"Description of the Surety Arrangement."
All of the operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
Substantially all of the Subsidiaries of the Company are Guarantors of the
Notes. The Notes are effectively subordinated to all Indebtedness and other
liabilities (including trade payables, tort claims and tax claims) of the
Company's present and future Subsidiaries which are not Guarantors, including
present and future Unrestricted Subsidiaries. Any right of the Company to
receive assets of any of its Non-Guarantor Restricted Subsidiaries upon such
Subsidiary's liquidation or reorganization (and the consequent right of the
holders of the Notes to participate in those assets) is effectively subordinated
to the claims of that Subsidiary's third-party creditors, except for any
Indebtedness validly owed to the Company or to Guarantors.
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The Notes are unconditionally guaranteed, on a senior unsecured basis, as
to payment of principal, premium, if any, and interest, jointly and severally,
by the Guarantors. Each Guarantee ranks pari passu in right of payment with all
existing and future unsubordinated obligations of the respective Guarantors and
senior to all existing and future Subordinated Indebtedness of such Guarantors.
As of January 31, 1998, after giving pro forma effect to the Offering, the
application of the net proceeds therefrom and the Transactions, the Company and
its Subsidiaries would have had an aggregate of $259.3 million of Indebtedness
outstanding, of which $55.0 million would have been borrowings under the New
Credit Facility, and $0.7 million would have been Indebtedness of the Company's
Subsidiaries other than the Guarantors, in respect of which the Notes are
effectively subordinated.
Maturity, Interest and Principal
The Notes will mature on April 1, 2008. The Notes bear interest at a rate
of 9 1/2% per annum from the date of original issuance until maturity. Interest
is payable semi-annually in arrears on each April 1 and October 1 commencing
October 1, 1998, to holders of record of the Notes at the close of business on
the immediately preceding March 15 and September 15, respectively. Interest on
the Notes is computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the Old Notes is subject to increase, and such Additional
Interest (as defined below under "Exchange Offer; Registration Rights") will be
payable on the payment dates set forth above, in certain circumstances, if,
among other matters, the Old Notes (or other securities substantially similar to
the Old Notes) are not registered with the Commission within the prescribed time
periods. See "Exchange Offer; Registration Rights." All references herein to
"interest" shall be deemed to include any such Additional Interest.
Optional Redemption
The Notes are redeemable at the option of the Company, 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 a percentage 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................................................ 104.750%
2004................................................ 103.167%
2005................................................ 101.583%
2006 and thereafter................................. 100.000%
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of Notes at any time and from time to
time prior to April 1, 2001 at a redemption price equal to 109.500% 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 at least $130.0 million of the principal amount of 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.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or on a pro rata basis or in such other manner as it shall
deem appropriate the Notes to be redeemed. The Notes 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 Notes. On and after any redemption
date, interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
Certain Covenants
The Indenture contains, among others, the following covenants.
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Limitation on Additional Indebtedness
The Company will not, and will not cause or permit any Restricted
Subsidiary of the Company 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 Company or any
Restricted Subsidiary may incur Indebtedness (including any Acquired
Indebtedness) if the Company's Consolidated Interest Coverage Ratio is greater
than 2.0 to 1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Company 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 Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the "--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 Company (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 Company 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 Company or (B) any Indebtedness or
other securities of the Company that are convertible into or exercisable
or exchangeable for Capital Stock (other than Disqualified Capital Stock)
of the Company which have been so converted or exercised or exchanged
(other than by a Restricted Subsidiary of the Company), excluding, in the
case of clause (c)(2), any Net Proceeds from a Public Equity Offering to
the extent used to redeem the Notes in accordance with the second
paragraph of "--Optional Redemption" above 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 Company 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 Indenture, not to exceed in
the case of any Person the amount of Investments (other than Permitted
Investments) previously made by the Company 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 Indenture;
(ii) the retirement of any shares of Capital Stock of the Company or
Subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified Capital Stock) of the Company, or out
of, the Net Proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company)
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of other shares of Capital Stock of the Company (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 Company) of shares
of Capital Stock of the Company 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
Company, or out of the Net Proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary of the Company) of other shares of Disqualified
Capital Stock of the Company;
(v) payments to Holdings or any other Person in respect of which Holdings
or such other Person is a member of the consolidated tax group of the Company,
for so long as Holdings or such other Person owns such amount of the Capital
Stock of the Company as will permit it or a member of the consolidated tax group
of Holdings or such other Person 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 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 Company and its Subsidiaries or to
Holdings' or such other Person's ownership thereof;
(vi) payments to Holdings, for so long as it owns not 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 Commission
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 (v) (which taxes are attributable to the operations of the Company and
its Restricted Subsidiaries or to Holdings' ownership thereof); i 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 Company and its
Restricted Subsidiaries for such fiscal year;
(vii) the purchase, redemption, retirement or other acquisition for value
of Capital Stock of the Company, Holdings or of any Person that directly or
indirectly controls (as defined in the definition of Affiliate) Holdings held by
employees or former employees of the Company 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 clause (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.
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If the Company 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 Company, would be permitted under the requirements of the
Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustment made in
good faith to the Company's financial statements affecting Consolidated Net
Income.
Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries, directly or indirectly, to create, incur or otherwise cause or
suffer to exist or become effective any Liens of any kind (other than Permitted
Liens) on or with respect to any Property or assets of the Company or any of its
Restricted Subsidiaries owned on the Issue Date or thereafter acquired or
designated, or on the income or profits thereof, unless (i) if such Lien secures
Indebtedness which is ranked pari passu with the Notes or any Guarantee, then
the Notes or such Guarantee, as the case may be, is secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien or (ii) if such Lien secures
Subordinated Indebtedness, then the Notes or such Guarantee, as the case may be,
is secured and the Lien securing such other Indebtedness shall be subordinated
to the Lien granted to the holders of the Notes or such Guarantee, as the case
may be, at least to the same extent as such Indebtedness is subordinated to the
Notes or such Guarantee, as the case may be.
Limitation on Transactions with Affiliates
The Company 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
Company and the Restricted Subsidiaries or between or among Restricted
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair to the
Company 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 Company 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 Company shall deliver to the Trustee a resolution of a majority of
the disinterested members of the Board of Directors of the Company 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 Company shall deliver to the 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 Company
must deliver to the 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 Company 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 Company 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 Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company'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 (xi) of the definition
of Permitted Investments); or (v) 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
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by such persons in the performance of their responsibilities to the Company or
such Subsidiary or in connection with any relocation. The aggregate management,
consulting and similar fees paid by the Company 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 Company 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 Company may pay advisory fees to an
Affiliate of the Company (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 Company
or any Restricted Subsidiary and an Affiliate of the Company that is approved by
a majority of the disinterested members of the 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 Company may pay
fees and expenses to Affiliates of the Company on the Issue Date in connection
with the consummation of the Transactions as described in this Offering
Memorandum.
Limitation on Creation of Subsidiaries
The Company shall not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Indenture, (ii) a Restricted
Subsidiary that is acquired or created after the date of the Indenture, or (iii)
an Unrestricted Subsidiary; provided, that each Restricted Subsidiary that is
required to be a Guarantor pursuant to the covenant "--Guarantees" and is
acquired or created pursuant to clause (ii) shall have executed a Guarantee,
satisfactory in form and substance to the Trustee (and with such documentation
relating thereto as the Trustee shall require, including, without limitation a
supplement or amendment to the Indenture and opinions of counsel as to the
enforceability of such Guarantee), pursuant to which such Restricted Subsidiary
shall become a Guarantor.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company 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 Company 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 Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities or
liabilities (including Subordinated Indebtedness) subordinated to the Notes or
the Guarantees 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 Company 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
Company or such Restricted Subsidiaries are applied (a) either (x) to the extent
the Company elects, or is required, to the prepayment, repayment or purchase of
Indebtedness outstanding under the Credit Facility or any other secured
Indebtedness of the Company or 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 Company elects, to acquisitions of assets (and Investments otherwise
permitted to be made in accordance with the terms of the Indenture) used or
useful in businesses similar or reasonably related to the business of the
Company 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 Company shall apply an
amount equal to such Available Asset Sale Proceeds to an offer to repurchase the
Notes (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 Notes), 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
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remains after the completion of such Excess Proceeds Offer, the Company may use
such remaining amount in any manner permitted by the 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.
If the Company is required to make an Excess Proceeds Offer, the Company
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 Company to apply the Available Asset Sale Proceeds to purchase such
Notes (and stating whether the Company 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 Company, that each holder must follow in order to have such
Notes purchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the purchase of such Notes.
In the event that the Company makes an Excess Proceeds Offer, the Company
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 Company will not permit any of its Restricted Subsidiaries to issue
any Preferred Stock (other than to the Company or a Wholly-Owned Subsidiary),
other than Permitted Foreign Restricted Subsidiary Preferred Stock, or permit
any Person (other than the Company or a Wholly-Owned Subsidiary) to hold any
such Preferred Stock unless the Company 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 Company will not (i) sell, pledge or hypothecate (other than Permitted
Liens) 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, pledge or hypothecate (other than Permitted
Liens) or otherwise convey or dispose of any Capital Stock of a Restricted
Subsidiary of the Company other than to the Company or a Wholly-Owned Subsidiary
or (iii) permit any of its Restricted Subsidiaries to issue any Capital Stock,
other than to the Company or a Wholly-Owned Subsidiary of the Company. 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
Company 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.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the Fair Market Value of the property sold and (ii) the Company could incur
the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction
in compliance with the covenant described under "--Certain Covenants--Limitation
on Additional Indebtedness." The foregoing restrictions shall not apply to the
Exempt Sale and Lease-Back Transaction.
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Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company 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 Company 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 Company or any of its Restricted
Subsidiaries, (iii) make loans or advances or capital contributions to the
Company or any of its Restricted Subsidiaries that is a stockholder of such
Person or (iv) transfer any of its Properties or assets to the Company 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;
(ii) any Credit Facility (existing on the Issue Date), the Indenture, the
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 Company, 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 Company, 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 Company 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 or 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 Company, 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 Indenture, the Notes and the Guarantees;
provided, that the Company is the primary obligor under such Indebtedness;
(viii) customary restrictions in security agreements or mortgages or
Permitted Liens securing Indebtedness of the Company or a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject to
such security agreements and mortgages or Permitted Liens;
(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).
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Nothing contained in this covenant shall prevent the Company or any
Restricted Subsidiary from (i) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "--Limitation on Liens" covenant or
(ii) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries incurred in accordance with the
Indenture.
Payments for Consent
Neither the Company 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 Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Change of Control Offer
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (the "Change of Control Offer") the outstanding
Notes 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 Company 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 Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(a) that a Change of Control Offer is being made pursuant to this
covenant and that all Notes 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 Note not validly tendered will continue to accrue
interest;
(d) that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes 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 Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes 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 Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such
Notes purchased;
(g) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, provided, that each Note purchased and each such
new Note issued shall be in an original principal amount in denominations
of $1,000 and integral multiples thereof;
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(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 Company shall, to the extent
lawful, (i) accept for payment Notes 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 Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price for
such Notes, and the Company shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided, that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
The Indenture requires that if any of the Credit Facilities are in effect,
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 Company shall be required to (i) repay in
full all obligations under or in respect of such Credit Facility or offer to
repay in full all obligations under or in respect of such Credit Facility and
repay within such 30-day period the obligations under or in respect of such
Credit Facility of each lender who has then irrevocably accepted such offer or
(ii) obtain the requisite consent under such Credit Facility to permit the
purchase of the Notes as described above. The Company must first comply with the
covenant described in the preceding sentence before it shall be required to
purchase Notes in the event of a Change of Control; provided that the Company'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 Company will have adequate
resources to refinance or fund the repurchase of the Notes in the event of a
Change of Control. The failure of the Company, following a Change of Control, to
make a Change of Control Offer or to pay when due the Change of Control Purchase
Price of Notes tendered in conformity with any such Change of Control Offer will
give the Trustee and the holders of the Notes the rights described under
"--Events of Default." As a result of the foregoing, a holder of the Notes may
not be able to compel the Company to purchase the Notes unless the Company is
able at the time to refinance all of the obligations under or in respect of such
Credit Facility or other Indebtedness or obtain requisite consent thereunder.
The Indenture further provides that, (A) if the Company or any Restricted
Subsidiary thereof has issued any outstanding (i) Subordinated Indebtedness or
(ii) Preferred Stock, and the Company or such Restricted Subsidiary is required
to make a Change of Control Offer or to make a distribution with respect to such
Subordinated Indebtedness or Preferred Stock in the event of a Change of
Control, the Company or such Restricted Subsidiary shall not consummate any such
offer or distribution with respect to such Subordinated Indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have validly
accepted the Company's Change of Control Offer and shall otherwise have
consummated the Change of Control Offer made to holders of the Notes and (B) the
Company will not issue Subordinated Indebtedness or Preferred Stock with change
of control provisions requiring the payment of such Indebtedness or Preferred
Stock prior to the payment of the Notes in the event of a Change in Control
under the Indenture.
The Company will comply with the requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The Company 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
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the times and otherwise in compliance with the requirements of the Indenture and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Merger, Consolidation or Sale of Assets
The Company 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 Company's assets (determined on
a consolidated basis for the Company 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 Company shall be the continuing
Person, or (y) the Person (if other than the Company) formed by such
consolidation or into which the Company or the Restricted Subsidiary, as the
case may be, is merged or to which the properties and assets of the Company 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 Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company under the Notes, the Indenture, the Guarantees and the Registration
Rights Agreement, as the case may be (upon which assumption the Company and such
Guarantor shall be discharged of any and all obligations on the Notes, the
Guarantees, the Indenture and the Registration Rights Agreement), and the
obligations under the Indenture and the Guarantees of the Guarantors (other than
such Guarantors) 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 and any Lien granted 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 Company (or the Surviving Entity if
the Company is not continuing) (A) shall have a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of the Company 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 Company without
complying with this clause (iii)(B).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
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
Company, the Capital Stock of which constitutes all or substantially all of the
Properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the assets of the Company. In addition, the phrase "all
or substantially all" of the assets of the Company 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
Company or any Restricted Subsidiary has occurred.
For all purposes of the Indenture and the Notes, Subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Guarantors, Restricted Subsidiaries or Unrestricted Subsidiaries, to the extent
and as provided pursuant to the Indenture, and all Liens on Property or assets,
of the Surviving Entity and its Subsidiaries that were not Liens on Property or
assets, of the Company and its Subsidiaries immediately prior to such
transaction or series of transactions shall be deemed to have been incurred upon
such transaction or series of transactions.
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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 Company under
the Indenture with the same effect as if such Surviving Entity had been named as
the Company therein; and when a Surviving Entity duly assumes all of the
obligations and covenants of the Company pursuant to the Indenture and the
Notes, except in the case of a lease, the predecessor Person shall be relieved
of all such obligations.
Guarantees
The Notes are fully and unconditionally guaranteed, on a senior unsecured
basis, jointly and severally, by each of the Guarantors. The Guarantors
guarantee all of the obligations of the Company under the Indenture, including
its obligation to pay principal, premium, if any, and interest with respect to
the Notes. Each Guarantee ranks pari passu in right of payment with any other
senior Indebtedness and certain other liabilities (including trade payables,
tort claims and tax claims) of the Guarantor thereof and senior to any future
Subordinated Indebtedness of such Guarantor.
The Company will not permit any of its Restricted Subsidiaries to
guarantee or otherwise become contingently liable for any Indebtedness of the
Company or any Guarantor without causing such Restricted Subsidiary to issue a
Guarantee that ranks in right of payment in relation to the guarantee of such
other Indebtedness, the same as the ranking in right of payment of the Notes or
the Guarantees, as the case may be, in relation to such other Indebtedness.
Each Person becoming a Guarantor after the Issue Date shall issue a
Guarantee, satisfactory in form and substance to the Trustee (and with such
other documentation relating thereto as the Trustee shall require, including,
without limitation, a supplement or amendment to the Indenture and opinions of
counsel as to the enforceability of such Guarantee).
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee not constitute a fraudulent conveyance or
fraudulent transfer under federal, state or applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the net assets of each Guarantor, determined in accordance with GAAP.
A Guarantor shall be released from all of its obligations under its
Guarantee if (a) all of its Capital Stock is sold in a transaction in compliance
with the covenant described under "--Certain Covenants--Limitation on Certain
Asset Sales," (b) all or substantially all of its assets are sold in a
transaction in compliance with the covenant described under "--Certain
Covenants--Limitation on Certain Asset Sales"; provided, that such Guarantor
merges with and into or is liquidated into another Guarantor or the Company or
(c) in the case of a Guarantee by a Restricted Subsidiary (other than a Five
Percent Subsidiary), the guarantee which resulted in the creation of such
Restricted Subsidiary's Guarantee is released or discharged, except a discharge
or release by, or as a result of, payment under such guarantee; and, in the case
of clauses (a), (b) or (c), such Guarantor has delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent herein provided for relating to such transaction have been
complied with.
Separate financial statements and other disclosures concerning the
Guarantors are not included herein because the Guarantors are jointly and
severally liable with respect to the Company's obligations under the Notes and
the Indenture, and because management has determined that such financial
statements and other disclosures are not material to investors.
Events of Default
The following events are defined in the Indenture as "Events of Default":
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(i) default in payment of any principal of, or premium, if any, on
any Note when due;
(ii) default in the payment of any interest, including any
Additional Interest, on any Notes when due, which default continues for 30
days or more;
(iii) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 60
days after written notice from the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding (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);
(iv) failure to pay when due (within any applicable grace period)
principal, interest or premium with respect to any Indebtedness of the
Company or any Restricted Subsidiary thereof in an aggregate principal
amount of $5 million or 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 Company 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 Company 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;
(vi) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary thereof; or
(vii) any of the Guarantees of a Five Percent Subsidiary ceases to
be in force and effect or any of the Guarantees of a Five Percent
Subsidiary is declared to be null and void and unenforceable or any of the
Guarantees of a Five Percent Subsidiary is found to be invalid or any of
the Guarantors denies its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture).
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. For purposes of
clause (vii) above, any Guarantor which, when aggregated with all other
Guarantors that are not otherwise Five Percent Subsidiaries and as to which any
event described in clause (vii) above has occurred, would constitute a Five
Percent Subsidiary.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes or a default in the observance or performance of the
"Merger, Consolidation or Sale of Assets" covenant) if the Trustee considers it
to be in the best interest of the holders of the Notes to do so.
The 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 Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare the Notes to be immediately due and payable. The entire
principal amount of all the Notes then outstanding plus accrued interest to the
date of acceleration, and such amounts shall become immediately due and payable;
provided, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes 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 Indenture, (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has
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become due otherwise than by such declaration of acceleration, has been paid,
(iii) if the Company has paid the Trustee its reasonable compensation and
reimbursed the 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 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 Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes. 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 Indenture.
The holders of a majority in principal amount of the Notes then
outstanding have the right to waive any existing Default or Event of Default or
compliance with any provision of the Indenture or the Notes and to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, subject to certain limitations provided for in the Indenture and
under the Trust Indenture Act.
No holder of any Note has any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder has
previously given to the Trustee written notice of a continuing Event of Default
and unless the holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request and offered reasonable indemnity to
the Trustee to institute such proceeding as trustee, and unless the Trustee has
not received from the holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request and has failed to
institute such proceeding within 60 days. Notwithstanding the foregoing, such
limitations do not apply to a suit instituted on such Note on or after the
respective due dates expressed in such Note.
Satisfaction and Discharge of the Indenture; Defeasance
The Company and the Guarantors may terminate their obligations under the
Indenture, when (1) either: (A) all Notes theretofore authenticated and
delivered have been delivered to the Trustee for cancellation, or (B) all such
Notes not theretofore delivered to the 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 Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company
has irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes, not
theretofore delivered to the 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 Company has paid or caused to be
paid all other sums then due and payable hereunder by the Company; and (3) the
Company has delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent under the Indenture relating
to the satisfaction and discharge of the Indenture have been complied with.
The Company may elect, at its option, to have its obligations discharged
with respect to the outstanding Notes ("defeasance"). Such defeasance means that
the Company will be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes and its obligations under the Indenture and
the Guarantors will be discharged from their obligations under the Guarantees
and the Indenture, except for (1) the rights of holders of such Notes to receive
payments in respect of the principal of and any premium and interest on such
Notes when payments are due, (2) the Company's obligations with respect to such
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes 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 Trustee, (4) the Company's right of
optional redemption, and (5) the defeasance provisions of the Indenture. In
addition, the Company 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
Indenture ("covenant
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defeasance") and any omission to comply with such obligation shall not
constitute a Default or an Event of Default with respect to the Notes. 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 Notes.
In order to exercise either defeasance or covenant defeasance with respect
to outstanding Notes: (1) the Company must irrevocably have deposited or caused
to be deposited with the 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 Notes:
(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
Trustee, to pay and discharge, and which shall be applied by the 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 Notes on
the stated maturity thereof or (if the Company has made irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the Company) the redemption date
thereof, as the case may be, in accordance with the terms of the Indenture and
such Notes; (2) in the case of defeasance, the Company shall have delivered to
the Trustee an opinion of counsel stating that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
(B) since the date of the 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 Notes 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 Notes 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 Company shall
have delivered to the Trustee an opinion of counsel to the effect that the
holders of such outstanding Notes 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 Notes 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 Notes 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 Company shall have delivered to the 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 Trustee to have a conflicting interest
within the meaning of the Trust Indenture Act (assuming all Notes 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 Company 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 Company shall have delivered to the 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 Company becomes insolvent within
the applicable preference period after the date of deposit, monies held for the
payment of the Notes may be part of the bankruptcy estate of the Company,
disbursement of such monies may be subject to the automatic stay of the
bankruptcy code and monies disbursed to holders of the Notes may be subject to
disgorgement in favor of the estate of the Company. Similar results may apply
upon the insolvency of the
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Company 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 Notes, the Company, the
Guarantors and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental to the Indenture for any of the following
purposes: (1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in the
Indenture and in the Notes; or (2) to add to the covenants of the Company for
the benefit of the holders of the Notes, or to surrender any right or power
herein conferred upon the Company; or (3) to add additional Events of Default;
or (4) to provide for uncertificated Notes in addition to or in place of
certificated Notes; or (5) to evidence and provide for the acceptance of
appointment under the Indenture by a successor Trustee; or (6) to secure the
Notes; or (7) to add a Guarantor or to release a Guarantor in accordance with
the Indenture; or (8) to cure any ambiguity, to correct or supplement any
provision in the Indenture which may be defective or inconsistent with any other
provision in the Indenture, or to make any other provisions with respect to
matters or questions arising under the Indenture, provided, that such actions
pursuant to this clause shall not adversely affect the interests of the holders
of the Notes in any material respect; or (9) to comply with any requirements of
the Commission in order to effect and maintain the qualification of the
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 Notes, the Company, the Guarantors and the
Trustee may enter into an indenture or indentures supplemental to the Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying, in any
manner the rights of the holders of the Notes under the Indenture including the
definitions therein; provided that no such supplemental indenture shall, without
the consent of the holder of each outstanding Note affected thereby, (1) change
the stated maturity of any Note or of any installment of interest on any Note,
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 Note 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 Notes,
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 Indenture or certain defaults thereunder and their
consequences) provided for in the Indenture, or (3) modify in any material
respect the obligations of the Company to make Change of Control Offers upon a
Change of Control or Excess Proceeds Offers from the Available Asset Sale
Proceeds, or (4) subordinate the Notes or the Guarantees, as appropriate, in
right of payment to any other Indebtedness of the Company or the applicable
Guarantor, 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 Indenture cannot be modified or waived without the consent of the holder
of each outstanding Note affected thereby, or (6) release any Guarantees
required to be maintained under the Indenture.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past default under the 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 Notes (including any Note 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 Company), or (2) in respect of a covenant or provision hereof which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Note affected.
Reports to Holders
The Indenture provides that whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
shall furnish to the Trustee and to the holders of the Notes within 10 days
after it is or would have been required to file them with the Commission, (i)
all annual and quarterly financial
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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 Company 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 Company'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
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company 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 Company
shall furnish to the Trustee, the holders of the Notes 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 Notes are not freely transferable under the
Securities Act. The Company will also comply with the other provisions of ss.
314(a) of the Trust Indenture Act.
Compliance Certificate
The Company will deliver to the Trustee on or before 90 days after the end
of the Company'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'
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 Trustee
The Trustee under the Indenture is the Paying Agent and Registrar with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
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 Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under the 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 Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
Governing Law
The Indenture provides that the Indenture and the Notes are governed by,
and will be 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
covenants contained in the Indenture. Reference is made to the 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.
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"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 Indenture, the term "Affiliate," as it relates to
the Company, shall (a) include HarnCo for so long as HarnCo is entitled to
designate at least one member of the Board of Directors of Holdings or any
successor to Holdings and (b) not include CIBC Oppenheimer Corp. or Indosuez
Capital or their respective Affiliates.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person becomes a Restricted Subsidiary of the Company, or is merged with or into
the Company or any Restricted Subsidiary of the Company or (b) the acquisition
by the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) 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.
"Asset Sale" means the sale, transfer or other disposition (including,
without limitation, by merger or consolidation) (other than to the Company or
any of its Guarantors) 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 Company (other than directors' qualifying shares to
the extent required by applicable law), (b) all or substantially all of the
assets of the Company 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 Company or any Restricted Subsidiary thereof, or a division, line
of business or comparable business segment of the Company or any Restricted
Subsidiary thereof; provided, that Asset Sales shall not include (i) sales,
leases, conveyances, transfers or other dispositions to the Company 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 Guarantor, (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company 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 Company or any Restricted Subsidiary, as the case may be, (v)
the incurrence of any Permitted 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 Company 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 Company 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 Company 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 Company or any Restricted
Subsidiary from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or noncash consideration into cash.
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"Attributable Indebtedness" under the Indenture in respect of a Sale and
Lease-Back Transaction means, as at the time of determination, the present value
(discounted in accordance with GAAP at the cost of indebtedness implied in the
Sale and Lease-Back Transaction) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"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.
"Blooma" means Morris Blooma Engineering Pte Ltd., a corporation organized
under the laws of Singapore.
"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.
"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 Company 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 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 10 days.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) prior to any Public Equity Offering by the Company or Holdings
of its Common Stock, Holdings ceases to be, directly or indirectly, the
beneficial owner of 100% of the Voting Stock of the Company, (ii) 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
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Exchange Act, or any successor provision thereto) (a "Group"), other than a
Permitted Holder, becomes the beneficial owner (as defined under Rule l3d-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, (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 Company or Holdings, and the Permitted
Holders beneficially own, in the aggregate, a lesser 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, (iv) there shall be consummated any consolidation or merger of the Company
or Holdings in which the Company or Holdings, as the case may be, is not the
continuing or surviving corporation or pursuant to which the Common Stock of the
Company or Holdings, as the case may be, would be converted into cash,
securities or other Property, other than a merger or consolidation of the
Company or Holdings, as the case may be, in which the holders of the Common
Stock of the Company or Holdings, as the case may be, 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 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.
"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 Company 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 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
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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
Company.
"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 Company or a Restricted
Subsidiary (other than dividends paid or payable in shares of Capital Stock
(other than Disqualified 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 (other than
Disqualified 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 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 Company 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 Company 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 Company's proportionate share
of such Person's Net Income for such period actually paid in cash to the Company
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 Notes, the Indenture,
the New Credit Facility or any other Indebtedness of the Company or any
Restricted 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 the Notes, the Indenture or the New Credit
Facility) 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 Company or such
Restricted Subsidiary (i) shall use audited financial statements for the portion
of the relevant
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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 Company 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
Company 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 Company
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 Company 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
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Disqualified Capital Stock" means any Capital Stock of the Company 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 the maturity date of the Notes, for any consideration other than
Capital Stock of the Company which is not Disqualified Capital Stock; provided,
that Preferred Stock of the Company 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 Company, which provisions have
substantially the same effect as the provisions of the Indenture 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 Company 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 Company, 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.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Sale and Lease-Back Transaction" means the sale for less than
$500,000 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.
"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 Company 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 Company delivered to the Trustee.
"Five Percent Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries, (i) for the most recent fiscal year of the Company
accounted for more than 5.0% of the consolidated revenues of the Company and the
Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned more
than 5.0% of the Consolidated Tangible Assets of the Company and its Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and its Restricted Subsidiaries for such year prepared in conformity
with GAAP.
"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 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.
"Guarantors" means (i) each Restricted Subsidiary of the Company existing
on the Issue Date other than Blooma, Morris Mechanical Handling (Pty) Limited
and those Non-Guarantor Restricted Subsidiaries identified in clause (b)(y) of
the definition of Non-Guarantor Restricted Subsidiaries (to the extent therein
provided), (ii) each other One Percent Subsidiary of the Company formed, created
or acquired after the Issue Date other than Non-Guarantor Restricted
Subsidiaries, and (iii) each other Subsidiary required to become a Guarantor
pursuant to the covenant contained under "--Guarantees."
"Hercules" means Morris Material Handling Mexico, S.A. de C.V, a
corporation organized under the laws of the Republic of Mexico.
"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
Company 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 Company or any of
its Restricted Subsidiaries under any Surety Obligation will be deemed to be
Indebtedness only upon the earlier of (a) the Company'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 Company or any of its Restricted Subsidiaries of any Surety
Obligation or (c) the time at which the Company 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 Company 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.
"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 Company or a Restricted Subsidiary of an
interest in any Person that, as a result thereof, becomes a Restricted
Subsidiary, the Company shall
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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
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 Company.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"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 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 Company
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 Company 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.
"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).
"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
Company, the aggregate net proceeds received by the Company, 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 Company 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 Company 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 Company in connection therewith.
"Non-Guarantor Restricted Subsidiary" means (a) any newly acquired or
created Foreign Restricted Subsidiary after the Issue Date for so long as the
issuance of a guarantee by such Foreign Restricted Subsidiary would (i) result
in a material increase in the aggregate amount of income tax in respect of the
Foreign Restricted Subsidiary and its Subsidiaries on a consolidated basis or
(ii) be illegal under the laws of the jurisdiction in which such Foreign
Restricted Subsidiary is organized, provided, that, in either case, the Company
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel so stating on the date of such acquisition or creation, (b) (x) any
other Foreign Restricted Subsidiary, 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 Trustee an Officers' Certificate to such
effect on the date of such acquisition or creation and (y) Linear Motors
Limited, U.K. Crane Services Limited, Vaughan Crane Company Ltd., Royce Ltd. and
P&H Middle East, Ltd. but only for so long as they are not, individually or
collectively, a One Percent Subsidiary, and (c) Hercules and its Subsidiaries,
at such time as the Board of Directors of the Company shall determine; provided,
that (i) all Investments in Hercules or its Restricted Subsidiaries made by the
Company or any of its Restricted Subsidiaries after the Issue Date in excess of
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the amount thereof outstanding on the Issue Date and all Investments owned by
Hercules or its Restricted Subsidiaries and acquired after the Issue Date in
excess of the amount thereof outstanding on the Issue Date shall be deemed made
as of such determination, (ii) all Indebtedness of Hercules or its Restricted
Subsidiaries that has been guaranteed by the Company or any Guarantor after the
Issue Date shall be deemed incurred as of such determination, and (iii) the
Company shall have delivered to the Trustee an Officer's Certificate to such
effect on the date of such determination. Notwithstanding the foregoing, no
Restricted Subsidiary shall be permitted to be a Non-Guarantor Restricted
Subsidiary if any of its Subsidiaries are Guarantors.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board, 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 Indenture.
"One Percent Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted 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
Restricted 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 Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and its Restricted 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 be a
One Percent Subsidiary.
"Permitted Affiliate Agreements" means the agreements between or among the
Company and each of MHE Investments, Inc., Holdings, HarnCo, Chartwell and their
respective Affiliates, listed in the Indenture in effect immediately after the
initial issuance of the Old Notes 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--Limitations 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 Company has determined in
good faith that no material adverse effect on the creditworthiness of the
Company 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 Company 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 Company 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 Company and its
Restricted Subsidiaries and (y) 45% of the book value of consolidated
inventory of the Company 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;
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(ii) Indebtedness under Surety Obligations and under the Surety
Arrangement, in either case, that are due no later than 10 days after the
earlier of (a) the Company'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 Company or any of its Restricted Subsidiaries of any
Surety Obligation or (c) the time at which the Company 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 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 Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary, provided, that Indebtedness of the Company or any
Guarantor that is a Wholly-Owned Subsidiary to any Restricted Subsidiary
(other than a Guarantor that is a Wholly-Owned Subsidiary) is unsecured
Subordinated Indebtedness (or Disqualified Capital Stock) and is incurred
for borrowed money; provided, further, that (a) any Indebtedness referred
to in the immediately preceding proviso that is no longer held by a
Wholly-Owned Subsidiary that is a Guarantor (whether (i) as a result of a
sale or transfer of such Indebtedness, (ii) as a result of such Person no
longer being a Guarantor that is a Wholly-Owned Subsidiary or (iii)
otherwise) or (b) any Indebtedness otherwise referred to in this clause
(v) that is no longer held by a Restricted Subsidiary or the Company
(whether (i) as a result of a sale or transfer of such Indebtedness, (ii)
as a result of such Person no longer being the Company 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 Company and its Restricted Subsidiaries;
(vii) Interest Rate Agreements and Currency Agreements;
(viii) guarantees of obligations of the Company or its Restricted
Subsidiaries;
(ix) additional Indebtedness of the Company and 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) or (vii) above or incurred under 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 Company, or by a Restricted Subsidiary, in
the Company or a Guarantor;
(ii) Investments by the Company or by any Restricted Subsidiary in
Non-Guarantor Restricted Subsidiaries not to exceed, in the aggregate, on
the date of the making of any Investment pursuant to this clause (ii), 10%
of the Consolidated Tangible Assets of the Company and its Restricted
Subsidiaries;
(iii) Cash Equivalents;
(iv) Investments by the Company, or by a Guarantor, in a Person, if
as a result of such Investment (a) such Person becomes a Guarantor of the
Company or (b) such person is merged, consolidated or amalgamated with
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or into, or transfers or conveys substantially all of its assets
(including the proceeds of such Investment) to, or is liquidated into, the
Company or a Guarantor thereof;
(v) 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";
(vi) Interest Rate Agreements and Currency Agreements;
(vii) any Investment existing on the Issue Date;
(viii) Investments received in settlement of obligations owed to the
Company 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 Company or any Restricted Subsidiary;
(ix) Investments required pursuant to any agreement or obligation of
the Company or a Restricted Subsidiary to make such Investments in effect
on the Issue Date, as described in the Indenture;
(x) Investments required to be made pursuant to the Transactions, as
described in the Indenture; and
(xi) Investments by the Company 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 clauses (ii) and (xi) 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 Company 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 Liens" means (i) Liens on any Property, Capital Stock or assets
of any Person existing at the time such assets are acquired by the Company or
any of its Restricted Subsidiaries, whether by merger, consolidation, purchase
of assets or otherwise; provided, (a) that such Liens are not created, incurred
or assumed in connection with, or in contemplation of, such assets being
acquired by the Company or its Restricted Subsidiaries and (b) that any such
Lien does not extend to or cover any Property, Capital Stock or assets other
than the Property, Capital Stock or assets being acquired and the proceeds
thereof and accessions and additions thereto, (ii) Liens securing Refinancing
Indebtedness, provided, that any such Lien does not extend to or cover any
Property, Capital Stock or assets other than the Property, Capital Stock or
assets securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of the Guarantors, (iv) Liens to secure
Purchase Money Indebtedness or Capitalized Lease Obligations that is (or are)
otherwise permitted under the Indenture, provided,0 that (a) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, 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 such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs and expenses, and (c)
such Lien does not extend to or cover any Property other than such item of
Property and any improvements on such item and the proceeds thereof, (v)
statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialsmen's, repairmen's or other like Liens arising in the
ordinary course of business which do not secure any Indebtedness and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (vi)
other liens securing obligations incurred in the ordinary
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course of business which obligations do not exceed $1,000,000 in the aggregate
at any one time outstanding, (vii) Liens for taxes, assessments or governmental
charges that are not yet due and payable (or which, if due and payable, are
being contested in good faith by appropriate proceedings and for which adequate
reserves are being maintained, to the extent required by GAAP), (viii) zoning
restrictions, easements or minor defects or irregularities in title and other
similar charges or encumbrances on Property not interfering in any material
respect with the use of such Property by the Company or any Restricted
Subsidiary, (ix) customary deposit arrangements entered into in connection with
acquisitions, (x) Liens securing Indebtedness permitted to be incurred under
clauses (i) (other than Acquired Indebtedness), and (ix) of the definition of
"Permitted Indebtedness" and Liens securing additional Indebtedness under the
Credit Facilities or Liens to secure a Guarantor's guarantee of additional
Indebtedness under the Credit Facilities, in an aggregate principal amount, with
respect to all such additional Indebtedness under such Credit Facilities or
under such guarantees, at any one time outstanding not to exceed $45 million,
(xi) Liens securing only the Notes, the Indenture or the Guarantees, (xii) Liens
in favor of the Trustee as provided for in the Indenture on money or property
held or collected by the Trustee in its capacity as Trustee, (xiii) Liens
existing on the Issue Date securing Indebtedness as in effect on the Issue Date
(other than the South African Credit Facility), (xiv) Liens securing obligations
under any Interest Rate Agreement or Currency Agreement, and (xv) Liens on
Property or other assets (a) in connection with workers' compensation,
unemployment insurance and other types of statutory obligations or the
requirements of any official body, or (b) to secure the performance of Surety
Obligations incurred in the ordinary course of business consistent with industry
practice, including under the Surety Arrangement, or (c) to obtain or secure
obligations with respect to letters of credit, guarantees, bonds or other
sureties or assurances given in connection with the activities described in
clauses (a) and (b) above, in each case not incurred or made in connection with
the borrowing of money, the obtaining of advances or credit or the payment of
the deferred purchase price of Property or services or imposed by ERISA or the
Internal Revenue Code in connection with a "plan" (as defined in ERISA) (other
than any Lien imposed in connection with the Company's 401(k) Plan), or (d)
arising in connection with any attachment or judgment unless such Liens shall
not be satisfied or discharged or stayed pending appeal within 60 days after the
entry thereof or the expiration of any such stay, or (e) Liens securing
performance of leases, construction, sales or servicing contracts and similar
obligations incurred in the ordinary course of business.
"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 of the Company or Holdings (however designated and whether
voting or non-voting) 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, provided, that in the event of a Public
Equity Offering by Holdings, Holdings contributes the Net Proceeds of such
Public Equity Offering to the common equity of the Company.
"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 Company or its Restricted Subsidiaries outstanding on
the Issue Date or other Indebtedness permitted to be incurred by the
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Company or its Restricted Subsidiaries pursuant to the terms of the Indenture,
but only to the extent that (i) if the Indebtedness being refunded or refinanced
is Subordinated Indebtedness, the Refinancing Indebtedness is subordinated to
the Notes and/or the Guarantees, as the case may be, 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 the final stated
maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the final stated
maturity date of the Notes 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 the final
stated maturity date of the Notes, 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 Company 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 Company or a Restricted
Subsidiary) which is conditioned on a change of control of the Company pursuant
to provisions substantially similar to those contained in the 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 Company may incur
Refinancing Indebtedness to refund or refinance Indebtedness of any Guarantor of
the Company and any Guarantor may incur Refinancing Indebtedness to refund or
refinance Indebtedness of any other Guarantor.
"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 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 Guarantor 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 Capital Stock of the
Company or any Restricted Subsidiary of the Company or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Restricted Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) of the Company and (y) in the case of Restricted Subsidiaries of the
Company, dividends or distributions payable to the Company or to a Restricted
Subsidiary of the Company and (z) dividends or distributions from a
Non-Guarantor Restricted Subsidiary that are paid ratably to all Persons holding
the Capital Stock of such Non-Guarantor 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 Capital Stock of the Company or 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 Company or a Restricted Subsidiary of the Company;
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 Non-Guarantor Restricted Subsidiary that remains such
immediately after such purchase, redemption or other acquisition; provided, that
for purposes of this clause (b), such purchase, redemption or other acquisition
or retirement for value is permitted under clauses (ii), (ix) or (xi) of the
definition of Permitted Investments), (iii) 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
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(xi) 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 Company 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 Company to the Company 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 Company'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
Company or a Restricted Subsidiary of an interest in any Person that, as a
result thereof, becomes a Restricted Subsidiary, the Company shall be deemed to
have made a Restricted Payment equal to the Fair Market Value of the Capital
Stock or Subordinated Indebtedness of the Company or its Subsidiaries owned by
such new Restricted Subsidiaries.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company 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 Default or Event of Default shall have occurred and
be continuing, (ii) Indebtedness of such Person and its Subsidiaries and all
Liens on any asset of such Person and its Subsidiaries outstanding immediately
following such redesignation would, if incurred at such time, be permitted to be
incurred under the Indenture and (iii) the provisions referred to in clause (b)
of the last sentence of the definition of 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 Indenture.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Seller Note" means any Indebtedness of the Company or any Restricted
Subsidiary issued to a seller as a portion of the purchase price in any Asset
Acquisition by the Company or such Restricted Subsidiary from such seller.
"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) Limited.
"Subordinated Indebtedness" of the Company or any Guarantor 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
Notes or the Guarantee of such Guarantor, as the case may be.
"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.
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"Surety Arrangement" means one or more surety arrangements providing,
inter alia, for the issuance of Surety Obligations, between the Company or any
of its Restricted Subsidiaries and one or more providers, provided to the
Company 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.
"Surety Obligations" means any bonds, including bid bonds, advance bonds,
or performance bonds, letters of credit, warranties, and similar arrangements
between the Company or any of its Restricted Subsidiaries and one or more surety
providers, for the benefit of the Company'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
Company, Holdings and MHE Investments, Inc., 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 the Company or on
the holders of the Notes shall result as a consequence thereby.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company 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 Company; 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 Company 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
Company 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 Trustee shall be given prompt notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted. The Indenture
provides that the Company 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 Company.
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EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the issuance of the Old Notes, the Company and the
Guarantors entered into the Registration Rights Agreement pursuant to which they
agreed, for the benefit of the holders of the Old Notes, that they would, at
their cost (i) within 60 days after the date of original issue of the Old Notes,
file a registration statement (the "Exchange Offer Registration Statement") with
the Commission with respect to a registered offer to exchange the Old Notes for
the New Notes, with terms substantially identical in all material respects to
the Old Notes except (a) that the New Notes have been registered under the
Securities Act, (b) that the New Notes are not entitled to certain registration
rights which are applicable to the Old Notes under the Registration Rights
Agreement and (c) certain contingent interest rate provisions applicable to the
Old Notes are not applicable to the New Notes, and (ii) within 135 days after
the Issue Date, use their best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the New Notes in exchange for surrender of the Old Notes. The Company will 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 Notes. For each Old Note surrendered to the Company pursuant
to the Exchange Offer, the holder of such Old Note will receive a New Note
having a principal amount at maturity equal to that of the surrendered Old Note.
Interest on the New Notes will accrue from March 30, 1998. The Exchange Offer is
being made to satisfy the contractual obligations of the Company and the
Guarantors under the Registration Rights Agreement.
Under existing Commission interpretations, the New Notes 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 Company and the Guarantors have 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 Notes 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 Registration
Rights Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes that wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations
including representations that (i) any New Notes 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 Notes, (iii) it is not
an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or
any of the Guarantors, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, and (iv) it is not acting on behalf of any person who could
not truthfully make the foregoing representations.
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 Notes. If the holder is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes 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 Notes.
In the event that applicable interpretations of the staff of the
Commission do not permit the Company to effect such an Exchange Offer, or if for
any other reason the Exchange Offer is not consummated within 180 days of the
date of the Registration Rights Agreement, the Company and the Guarantors will,
at their own expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of the Old Notes (the "Shelf Registration
Statement"), (b) use their respective best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use their respective best efforts to keep effective the Shelf Registration
Statement until two years after its effective date. The Company will, in the
event of the Shelf Registration Statement, provide to each holder of the Old
Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A holder of Old Notes that sells
such
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Old Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder 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 Registration Rights Agreement which are
applicable to such a holder (including certain indemnification rights and
obligations).
Although the Company and the Guarantors intend 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 Company and the Guarantors fail to comply with the above
provisions or if such registration statement fails to become effective, then, as
liquidated damages, additional interest shall become payable in respect of the
Old Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf
Registration Statement is not filed within 60 days after the Issue Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 135 days after the Issue Date;
and
(iii) either (A) the Company has not exchanged the New Notes for all
Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 45 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the
time that the Exchange Offer is consummated as to all Old Notes validly
tendered or (C) if applicable, the Shelf Registration Statement has been
declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of its effective
date;
(each of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Old Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Old Notes will increase by 50
basis points during the first 90-day period following the Registration Default
and the per annum interest rate will increase by an additional 25 basis points
for each subsequent 90-day period during which the Registration Default remains
uncured, up to a maximum additional interest rate of 200 basis points per annum
in excess of the interest rate originally borne by the Old Notes. All Additional
Interest will be payable to holders of the Old Notes in cash on the same
original interest payment dates as the Old Notes, commencing with the first such
date occurring after any such Additional Interest commences to accrue, until
such Registration Default is cured. After the date on which such Registration
Default is cured, the interest rate on the Old Notes will revert to the interest
rate originally borne by the Old Notes.
If the Exchange Offer is made and the Initial Purchasers continue to hold
Old Notes, the Initial Purchasers may exchange Old Notes for other notes
identical to the New Notes except for transfer restrictions ("Private Exchange
Notes"). If they receive Private Exchange Notes, the Initial Purchasers
thereafter will have the right for a period after consummation of the Exchange
Offer to request the Company and the Guarantors to file a shelf registration
statement covering the Private Exchange Notes. If such requested shelf
registration is not filed or does not become effective by the times provided in
the Exchange Offer Registration Right Agreement, the interest rate on the
Private Exchange Notes will increase as provided above until such time as it
does become effective.
The summary herein of certain provisions of the 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 Registration Rights
Agreement, a copy of which will be available upon request to the Company.
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BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially sold to QIBs (as defined) in reliance on Rule
144A under the Securities Act ("Rule 144A Notes"). Old Notes also were offered
and sold in offshore transactions in reliance on Regulation S ("Regulation S
Notes"). In addition, Old Notes may have subsequently been 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 Old Notes").
Rule 144A Notes initially were represented by one note in registered,
global form without interest coupons (the "Rule 144A Global Note"). The Rule
144A Global Note was deposited upon issuance with the Trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of a nominee of DTC, in each case for credit to an account of a direct
or indirect participant as described below. Other Old Notes held by
Institutional Accredited Investors are represented by one or more certificated
Old Notes. Regulation S Notes initially were represented by one note in
registered, global form without interest coupons (the "Regulation S Global
Note," and, together with the Rule 144A Global Note, the "Old Global Notes").
The Regulation S Global Note was deposited upon issuance with the Trustee as
custodian for DTC, and registered in the name of a nominee of DTC, in each case
for credit to the accounts of Euroclear System ("Euroclear") and Cedel Bank,
S.A. ("CEDEL").
The Old Global Notes, to the extent directed by holders thereof in their
Letters of Transmittal, will be exchanged through book-entry electronic transfer
for one or more New Notes in registered, global form without coupons
representing the New Notes (collectively, the "New Global Note") registered in
the name of DTC or its nominee. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
New Notes issued to non-qualified institutional buyers in exchange for Old
Notes held by such investors, if any, will be issued only in certificated, fully
registered, definitive form. The New Global Note will, upon request, be
exchangeable for other New Notes in definitive, fully registered form without
coupons in denominations of $1,000 and integral multiples thereof, but only in
accordance with DTC's customary procedures. The New Global Note will also be
exchangeable in certain other limited circumstances. The Company, the Trustee
and any other agent thereof will be entitled to treat DTC's nominee as the sole
owner and holder of the unexchanged portion of the New Global Note for all
purposes.
Depositary Procedures
DTC has advised the Company 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 Purchasers), 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 Company that pursuant to procedures established
by it, (i) upon deposit of the New Global Note, DTC will credit the accounts of
Participants designated by the Participants with portions of the principal
amount of the Old Global Notes and (ii) ownership of such interests in the New
Global Note 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 Note).
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Investors in the New Global Note may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are Participants in such
system. Euroclear and CEDEL will hold interests in the New Global Note on behalf
of their participants through their respective depositories, which in turn will
hold such interests in the New Global Note customers' securities accounts in
their respective names on the books of DTC. The Chase Manhattan Bank, Brussels
office, will initially act as depository for Euroclear, and Citibank, N.A., will
initially act as depository for CEDEL. All interests in the New Global Note,
including those held through Euroclear or CEDEL, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
CEDEL may also be subject to the procedures and requirements of 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 the Old Global Notes or the New
Global Note 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 the New Global Note 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. For certain other restrictions on the transferability
of the Notes, see "--Exchange of Book-Entry Notes for Certificated Notes."
Except as described below, owners of interests in the New Global Note will
not have New Notes registered in their names, will not receive physical delivery
of New Notes in certificated form and will not be considered the registered
owners or holders thereof under the Indenture for any purpose.
Payments in respect of the principal of (and premium, if any) and interest
on the New Global Note registered in the name of DTC or its nominee will be
payable to DTC or its nominee in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the New Notes, including the New Global Note,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company, the Trustee or any agent of the Company or the Trustee 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 Note, 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 Note, 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 Company that its current practice, upon receipt of any
payment in respect of securities such as the New Notes (including 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 New Notes will be governed by standing
instructions and customary practices and will not be the responsibility of DTC,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by DTC or any of the Participants in identifying the beneficial
owners of the New Notes, and the Company and the Trustee 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 Note for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the New Global Note 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. Transfers between
accountholders in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
110
<PAGE>
Cross-market transfers between the accountholders in DTC, on the one hand,
and directly or indirectly through Euroclear or CEDEL accountholders, on the
other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depository;
however, such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines of
such system. Euroclear or CEDEL, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depository to take action to effect final settlement on its behalf by delivering
or receiving interests in the New Global Note in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear and CEDEL accountholders may not deliver
instructions directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL accountholder purchasing an interest in the New Global Note from an
accountholder in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of DTC. Cash received in Euroclear or CEDEL as a
result of sales of interests in the New Global Note by or through a Euroclear or
CEDEL accountholder to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or CEDEL
cash account only as of the business day for Euroclear or CEDEL following DTC's
settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account with DTC interests in the Old Global Notes or the New Global Note
are credited and only in respect of such portion of the aggregate principal
amount of the Notes 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 Notes for Certificated Notes" occurs, DTC reserves the right to
exchange the New Global Note for New Notes in certificate form and to distribute
such New Notes 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 Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Old Global Notes and the New Global
Note among accountholders in DTC and accountholders of Euroclear and CEDEL, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of the Company or the
Trustee nor any agent of the Company or the Trustee will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective participants,
indirect participants or accountholders of their respective obligations under
the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
The New Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depository for the New Global Note and the Company
thereupon fails to appoint a successor depository or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the New Notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the New Notes. In
all cases, certificated New Notes delivered in exchange for the New Global Note
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 New Notes, New Notes in definitive
form will be issued upon the resale, pledge or other transfer of any New Notes
or interest therein to any person or entity that is not a qualified
institutional buyer or that does not participate in DTC.
111
<PAGE>
CERTAIN 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 the Company, the following
accurately sets forth the anticipated material U.S. federal income tax
consequences applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquire the New Notes
pursuant to the Exchange Offer. It is limited solely to U.S. federal income tax
matters and is based upon the Internal Revenue Code of 1986, as amended (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.
The following is limited to holders who hold the Notes as "capital assets"
for U.S. federal income tax purposes and does not cover all aspects of federal
income taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, particular holders. The following
does not address U.S. federal income tax consequences that may be applicable to
particular categories of shareholders, including insurance companies, tax-exempt
persons, financial institutions, dealers in securities, persons with significant
holdings of Company stock, and non-United States persons, including foreign
corporations and nonresident alien individuals. The following does not address
any tax considerations under the laws of any state, locality, or foreign
country.
The Company 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), HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW
NOTES.
Exchange
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
will not be treated as an exchange or other tax event for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. A holder will have the same adjusted tax
basis and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
Interest
A holder of New Notes will be required to report interest income for
federal income tax purposes for any interest earned on the Notes in accordance
with such holder's method of tax accounting.
Market Discount
Under the market discount rules of the Code, an exchanging holder (other
than a holder who made the election described below) who purchased an Old Note
with "market discount" (generally defined as the amount by which the stated
redemption price of the Old Note on the holder's date of purchase exceeded the
holder's purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note received in the exchange
as ordinary income to the extent of the market discount that accrued during the
holder's holding period for such New Note (which period will include such
holder's holding period for the Old Note). In addition, a holder of a Note
acquired at market discount may be required to defer the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note. A holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not be required to treat any gain recognized as ordinary income (or
defer interest deductions) under the market discount
112
<PAGE>
rules described above. Holders should consult their tax advisors as to the
portion of any gain that would be taxable as ordinary income under these
provisions.
Amortizable Bond Premium
In general, if a holder's initial tax basis in the Old Notes at
acquisition exceeded the amount payable at maturity, the excess will be treated
as "amortizable bond premium" (including after the exchange of such Old Notes
for New Notes). In such case, the holder may elect under section 171 of the Code
to amortize the bond premium annually under a constant yield method. The
holder's adjusted tax basis in the Note is decreased by the amount of the
allowable amortization. Because the Notes have early call provisions, holders
must take such call provisions into account to determine the amount of
amortizable bond premium. Amortizable bond premium is treated as an offset to
interest received on the obligation rather than as an interest deduction, except
as may be provided in Treasury regulations. An election to amortize bond premium
would apply to amortizable bond premium on all taxable bonds held on or acquired
after the beginning of the holder's taxable year for which the election is made,
and may be revoked only with the consent of the IRS. Holders who acquire their
Notes with amortizable bond premium should consult their own tax advisors.
Sale, Exchange, Redemption or Other Disposition of Notes
On sale, exchange, redemption or other disposition of the Notes, and
except to the extent that the cash received is attributable to accrued interest
(which generally represents ordinary interest income) or market discount (the
tax consequences of which are described above), a holder generally will
recognize capital gain or loss measured by the difference between the amount
realized and such holder's adjusted tax basis in the Notes redeemed.
Backup Withholding
Federal income tax backup withholding at a rate of 31 percent on
dividends, interest payments, and proceeds from a sale, exchange, or redemption
of New Notes 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. A holder of
Notes who does not provide the Company with his correct taxpayer identification
number may be subject to penalties imposed by the IRS. The Company will report
to the holders of the Notes and the IRS the amount of any "reportable payments"
and any amount withheld with respect to the Notes during the calendar year.
ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code prohibit certain
employee benefit plans, individual retirement accounts, individual retirement
annuities, and employee annuity plans ("Plans") from engaging in certain
transactions with persons who, with respect to such Plan, are "parties in
interest" under ERISA or "disqualified persons" under the Code. A violation of
these "prohibited transactions" rules may generate excise taxes under the Code
and other liabilities under ERISA for such persons. Possible violations of the
prohibited transaction rules occur if the Notes are purchased with the assets of
any Plan if the Company or any of its affiliates is a party in interest or
disqualified person with respect to such Plan, unless such acquisition is
subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
113
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Securities Purchase
Agreement (the "Purchase Agreement") dated March 23, 1998, the Company sold to
CIBC Oppenheimer Corp. and Goldman, Sachs & Co. ("the Initial Purchasers"), and
the Initial Purchasers purchased from the Company, severally, the respective
principal amounts of the Old Notes set forth opposite their respective names
below:
Principal
Amount
Initial Purchaser of the Notes
----------------- ------------
CIBC Oppenheimer Corp....................... $170,000,000
Goldman, Sachs & Co......................... 30,000,000
------------
$200,000,000
============
The purchase price for the Old Notes was $1,000 per $1,000 principal
amount (the "Old Notes Offering Price") less the Initial Purchasers' discount of
3.0%. The Initial Purchasers sold the Old Notes at the Old Notes Offering Price
to "Qualified Institutional Buyers" within the meaning of Rule 144A of the
Securities Act.
The Company reimbursed the Initial Purchasers for certain expenses and
agreed to indemnify the several Initial Purchasers against certain liabilities,
including liabilities under the Securities Act.
CIBC Oppenheimer Corp. acted as initial purchaser in the Series A Unit
Offering for which it received customary fees.
Indosuez Capital, a division of Credit Agricole Indosuez (the "Financial
Advisor"), acted as a financial advisor to the Company in connection with the
offering and received a fee of 20% of the Initial Purchasers' discount, as
compensation for such services.
CIBC Oppenheimer Corp. and the Financial Advisor acted as co-agents under
the New Credit Facility and received customary fees and had expenses reimbursed
in connection with such services.
An affiliate of CIBC Oppenheimer Corp. and affiliates of the Financial
Advisor invested an aggregate of approximately $13.5 million and $10.0 million,
respectively, in Frasier L.L.C. and Niles L.L.C., to acquire indirect equity
interests in the Company, on arm's length terms concurrent with the Offering.
Each broker-dealer that receives New Notes 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 Notes. 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 New Notes received in exchange for Old Notes only
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company 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 Old Notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and such New Notes have been resold by such
broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes 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 New Notes 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 New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a
114
<PAGE>
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes 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 Old Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for New Notes and
such New Notes have been resold by such broker-dealers, the Company 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. The Company 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 Notes, except as expressly set forth in the
Registration Rights Agreement, and will indemnify the holders of the Notes
(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
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Akin,
Gump, Strauss, Hauer & Feld, L.L.P., Washington, D.C., counsel to the Company.
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Reference
---------
MORRIS MATERIAL HANDLING, 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 Shareholder's Equity for the Six Months Ended
April 30, 1998 ................................................ F-5
Notes to Financial Statements.................................... F-6
MATERIAL HANDLING EQUIPMENT BUSINESS OF HARNISCHFEGER INDUSTRIES, INC.
Report of Independent Accountants................................ F-17
Combined Balance Sheets as of October 31, 1997 and October
31, 1996....................................................... F-18
Combined Statements of Income for the Years Ended October 31,
1997, October 31, 1996 and October 31, 1995.................... F-19
Combined Statements of Cash Flows for the Years Ended October
31, 1997, October 31, 1996 and October 31, 1995................ F-20
Notes to Combined Financial Statements........................... F-21
F-1
<PAGE>
MORRIS MATERIAL HANDLING, 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 SHAREHOLDER'S 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
Shareholder's Equity/Parent Investment (31,709) 124,318
--------- ---------
Total liabilities and shareholder's
equity/parent investment $ 289,845 $ 199,600
========= =========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MORRIS MATERIAL HANDLING, 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
Product development, selling 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>
MORRIS MATERIAL HANDLING, 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 activites (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 --
Dividends to and redemption of shares held by
Holdings (232,845) --
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>
MORRIS MATERIAL HANDLING, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(Dollars In '000's)
<TABLE>
<CAPTION>
Common Stock Parent
----------------------- Investment/ Cumulative
# of Shares Additional Translation Retained
Outstanding Par Value Paid-In Capital Adjustment Earnings Total
----------- ---------- --------------- ------------ ----------- ----------
(A)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997 -- $ -- $ 124,618 $ (300) $ -- $ 124,318
Net Income -- -- -- -- 3,669 3,669
Change in Foreign Currency Translation -- -- -- (1,520) -- (1,520)
Stock issued to Holdings in exchange for
certain operating assets and ownership
interests of the MHE business 200 -- -- -- -- --
Divedend to and redemption of shares
from Holdings (100) -- (232,845) -- -- (232,845)
Issuance of loans to senior management -- -- (900) -- -- (900)
Deferred taxes arising from change
in U.S. federal income tax basis -- -- 71,129 -- -- 71,129
Capital contribution from HII -- -- 1,216 -- -- 1,216
Activity with HII and other affiliates,
October 31, 1997 - March 30, 1998 -- -- 3,224 -- -- 3,224
========= ====== ========= ========= ========= =========
Balance at April 30, 1998 100 $ -- $ (33,558) $ (1,820) $ 3,669 $ (31,709)
========= ====== ========= ========= ========= =========
</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>
MORRIS MATERIAL HANDLING, 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"). The transaction (the "Recapitalization")
resulted in a significant change in the Company's capital structure. In
connection with the resulting March 30, 1998 Recapitalization (see Note 2), MMH
Holdings, Inc. ("Holdings") acquired all of the equity interests of the entities
engaged in the MHE Business that were previously owned by HII. All of the
Company's business operations are conducted through subsidiaries of Morris
Material Handling, Inc. ("MMH"), a wholly-owned subsidiary of Holdings. For
purposes hereof, it is assumed that, on a historical basis, all of the assets of
the Company were wholly-owned by subsidiaries of MMH. Accordingly, the
historical combined financial statements of MMH and Holdings for periods prior
to the Recapitalization are identical following completion of the transaction
and 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. In the Recapitalization, (i) MHE
Investments acquired 7,907 shares of Holdings' common stock and $28.9 million of
12 1/2% Series C Junior Voting Exchangeable Preferred Stock from Harnco, (ii)
MMH, a newly-formed subsidiary of Holdings, acquired, directly or indirectly,
all of the equity interests of the entities engaged in the MHE Business that
were previously owned by HII and its affiliates, including Harnco, and (iii)
Harnco received the cash Recapitalization consideration from Holdings. The
transaction closed on March 30, 1998 (the "Recapitalization Closing").
Prior to the Recapitalization Closing, Harnco and other HII affiliates effected
a number of transactions which resulted in Holdings owning indirectly through
MMH the equity interests of all of the entities engaged in the MHE Business.
To consummate the Recapitalization, MMH issued $200 million of 9 1/2% Senior
Notes due 2008 and obtained $55 million of aggregate borrowings under a senior
secured credit facility (see Note 5). Holdings offered 57,710 Units consisting
of 57,710 shares of its 12% Series A Senior Exchangeable Preferred Stock and 720
shares of non-voting common stock for $60 million. These proceeds were used (i)
to finance the cash Recapitalization consideration paid by Holdings, (ii) to
make loans to senior management to acquire indirect equity interests in Holdings
and (iii) to pay approximately $24.0 million of fees and expenses. In connection
with the Recapitalization, Holdings paid to Harnco cash consideration of $287
million, including a $5 million prepayment for a potential post-closing
redemption price adjustment, in exchange for the redemption of 88,319 shares of
voting common stock and 1,145 shares of Series C Junior Preferred Stock. In
addition, Holdings exchanged 1,512 shares of voting common stock for $4.8
million of 12 1/4% Series B Junior Exchangeable Preferred Stock.
F-6
<PAGE>
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
The cash paid by MMH to Holdings in connection with such transactions was
primarily obtained from the issuance of $200 million of 9 1/2% Senior Notes and
$55 million of bank term loans under a senior secured credit facility.
MHE Investments owns approximately 72.6% of the common stock of Holdings and
$28.9 million of the 12 1/2% Series C Junior Voting Exchangeable Preferred Stock
of Holdings and Harnco owns approximately 20.8% of the common stock of Holdings
and $4.8 million of the 12 1/4% Series B Junior Exchangeable Preferred Stock of
Holdings. The remaining equity interests were issued to institutional investors
and consist of non-voting stock representing approximately 6.6% of common shares
outstanding and $57.7 million of the 12% Series A Senior Exchangeable Preferred
Stock of Holdings.
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>
MORRIS MATERIAL HANDLING, 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.
F-8
<PAGE>
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
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.
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.
F-9
<PAGE>
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(dollars in thousands unless indicated)
(Unaudited)
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 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>
MORRIS MATERIAL HANDLING, 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 receivables 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 payables 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
======== ======== ========= ========= =========
</TABLE>
F-11
<PAGE>
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
October 31, 1997
(Dollars in Thousands)
<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) --
Advance payments and progress billings 7,626 59 -- 7,685
Accrued warranties 3,913 85 -- 3,998
Other current liabilities 20,644 732 -- 21,376
-------- -------- --------- --------
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-12
<PAGE>
MORRIS MATERIAL HANDLING, 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
Product Development, Selling
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
========= ======== ======= ========= =========
</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
Product Development, Selling
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
========= ======== ======= ========= =========
</TABLE>
F-13
<PAGE>
MORRIS MATERIAL HANDLING, 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
Product Development, Selling
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
Product Development, Selling
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-14
<PAGE>
MORRIS MATERIAL HANDLING, 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
======= ======= ========= ======= =========
</TABLE>
F-15
<PAGE>
MORRIS MATERIAL HANDLING, 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-16
<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-17
<PAGE>
MATERIAL HANDLING EQUIPMENT BUSINESS
OF HARNISCHFEGER INDUSTRIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
----------------------
1997 1996
--------- ---------
(dollars in thousands)
ASSETS
<S> <C> <C>
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
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S INVESTMENT
<S> <C> <C>
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-18
<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
Product Development, Selling 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-19
<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-20
<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.
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 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-21
<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. 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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gain on fire insurance claim..... $2,011 $ -- $2,343
Licensee income.................. 524 830 679
Other............................ 114 319 744
------ ------ ------
$2,649 $1,149 $3,766
====== ====== ======
</TABLE>
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-22
<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-23
<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.
F-24
<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-25
<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.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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-26
<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-27
<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-28
<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 or indirectly, of all of the equity interests
of the entities engaged in the Material Handling Equipment Business that were
previously owned by Harnischfeger 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, on an uncombined basis, 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-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, 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-30
<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-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, 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
Product Development, Selling
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-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, 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
Product Development, Selling
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-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 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
Product Development, Selling
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-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, 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-35
<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-36
<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-37
<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 Ninth of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") (incorporated by reference as Exhibit 3.1 to
this Registration Statement), eliminates the liability of the Company's
directors to the Company 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 Tenth of the Certificate of Incorporation provides that the
Company shall indemnify any current or former director or officer to the fullest
extent permitted by the DGCL. Article VIII of the Company's Bylaws provides that
the Company 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 the Company. The Company also maintains
officers' and directors' liability insurance which insures against liabilities
that officers and directors of the Company may incur in such capacities.
Reference is made to the Registration Rights Agreement filed as Exhibit
4.1 to this Registration Statement which provides for indemnification for the
officers and directors of the Company signing a Registration Statement and
certain control persons of the Company 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 Securities Purchase Agreement, dated March 23, 1998 by and
among Morris Material Handling, Inc., the Guarantors named
therein, CIBC Oppenheimer Corp and Goldman, Sachs & Co., and
Indosuez Capital.
2.1 Recapitalization Agreement, dated January 28, 1998, among
Harnischfeger Corporation, the sellers named therein and MHE
Investments, Inc., as amended.
3.1 Certificate of Incorporation of Morris Material Handling, Inc.
3.2 Bylaws of Morris Material Handling, Inc.
4.1 Registration Rights Agreement, dated as of March 30, 1998, by
and among Morris Material Handling, Inc, the Guarantors named
therein and CIBC Oppenheimer Corp., Goldman, Sachs & Co. and
Indosuez Capital.
4.2 Indenture dated as of March 30, 1998 between Morris Material
Handling, Inc. and United States Trust Company of New York, as
Trustee, relating to Morris Material Handling, Inc.'s 9 1/2%
Senior Notes due 2008.
4.3 Form of 9 1/2% Senior Note due 2008.
4.4 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.
4.5 U.S. Security Agreement, dated as of March 30, 1998, made by
Morris Material Handling, Inc., the Guarantors listed therein,
in favor of Canadian Imperial Bank of Commerce.
4.6 Guarantee, dated as of March 30, 1998, by MMH Holdings, Inc.,
in favor and for the benefit of Canadian Imperial Bank of
Commerce.
4.7 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.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the Notes (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).
10.1 Surety Arrangement, dated March 30, 1998, among Reliance
Insurance Companies, MMH Holdings, Inc., Morris Material
Handling, Inc. and certain of their subsidiaries.
10.2 Credit Indemnification Agreement between Harnischfeger
Industries, Inc. and Morris Material Handling, Inc., dated as
of March 30, 1998.
II-2
<PAGE>
Exhibit
Number Exhibit
------ -------
10.3 Tax Sharing Agreement between MHE Investments, Inc., MMH
Holdings, Inc. and certain of MMH Holdings, Inc.'s
subsidiaries, dated as of March 30, 1998.
10.4 Component and Manufactured Products Supply Agreement between
Harnischfeger Corporation and Morris Material Handling, Inc.,
dated as of March 30, 1998.
10.5 Transition Services Agreement between Harnischfeger
Corporation and Morris Material Handling, Inc., dated as of
March 30, 1998.
10.6 Trademark License Agreement between Harnischfeger
Technologies, Inc. and Morris Material Handling Inc., dated as
of March 30, 1998.
10.7 Management Consulting Agreement between Morris Material
Handling, Inc. and Chartwell Investments Inc., dated March 30,
1998.
10.8 Financial Advisory Agreement between Morris Material Handling,
Inc. and Chartwell Investments Inc., dated March 30, 1998.
10.9 Separation Agreement, dated October 26, 1997, between
Harnischfeger Corporation and Material Handling, LLC.
10.10 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.
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 Michael J. Maddock.
10.18 Service Agreement, dated March 30, 1998, between Morris
Mechanical Handling Limited and K. Bruce Norridge.
II-3
<PAGE>
Exhibit
Number Exhibit
------ -------
12. Statement of Computation of Financial Ratios.
21. Subsidiaries of Morris Material Handling, 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. 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).
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 Co-Registrant has
duly caused this Amendment No. 1 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 26th day of June, 1998.
MORRIS MATERIAL HANDLING, INC.
By: /s/ TODD R. BERMAN
-------------------------------------
Todd R. Berman
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 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 June 26, 1998
- ----------------------
Todd R. Berman
/s/ MICHAEL S. ERWIN * President, Chief Executive Officer June 26, 1998
- ---------------------- and Director (Principal Executive
Michael S. Erwin Officer)
/s/ DAVID D. SMITH* Vice President June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MICHAEL S. SHEIN Director June 26, 1998
- ----------------------
Michael S. Shein
/s/ MICHAEL S. SHEIN
- ----------------------
* By Michael S. Shein, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
3016117 NOVA SCOTIA ULC
By: /s/ DAVID D. SMITH
-------------------------------------
David D. Smith
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID D. SMITH President June 26, 1998
- ---------------------- (Principal Executive Officer and
David D. Smith Principal Financial and Accounting
Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
-----------------------------------------
Martin L. Ditkof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
BIRMINGHAM CRANE & HOIST, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President and Director
- ---------------------- (Principal Executive Officer) June 26, 1998
Michael S. Erwin
/s/ DAVID D. SMITH Vice President and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
BUTTERS ENGINEERING SERVICES LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ---------------------- (Principal Executive Officer)
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven Davis Officer)
- ---------------------- Director June 26, 1998
Harnish Sutherland
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
----------------------------
Martin L. Ditkof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
CMH MATERIAL HANDLING, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EDWARD J. DOOLAN* Manager June 26, 1998
- ---------------------- (Principal Executive Officer)
Edward J. Doolan
/s/ DAVID D. SMITH Manager June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ----------------------
Martin L. Ditkof
- ---------------------- Manager June 26, 1998
Jimmy Rogers
/s/ MICHAEL S. ERWIN
- ------------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
EPH MATERIAL HANDLING, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EDWARD J. DOOLAN* Manager June 26, 1998
- ---------------------- (Principal Executive Officer)
Edward J. Doolan
/s/ DAVID D. SMITH Manager June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ----------------------
Martin L. Ditkof
- ---------------------- Manager June 26, 1998
David Sinkhorn
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
HARNISCHFEGER DISTRIBUTION & SERVICE, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EDWARD J. DOOLAN* Manager June 26, 1998
- ---------------------- (Principal Executive Officer)
Edward J. Doolan
/s/ DAVID D. SMITH Manager June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MORRIS MATERIAL HANDLING MEXICO, S.A. DE C.V.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ CARLOS VERAZA RODRIGUEZ* General Manager and Director June 26, 1998
- --------------------------- (Principal Executive Officer)
Carlos Veraza Rodriguez
/s/ SALVADOR AGUILAR* Controller June 26, 1998
- ---------------------- (Principal Financial and
Salvador Aguilar Accounting Officer)
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
-----------------------------------------
Martin L. Ditkof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
HPH MATERIAL HANDLING, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EDWARD J. DOOLAN* Manager June 26, 1998
- --------------------- (Principal Executive Officer)
Edward J. Doolan
/s/ DAVID D. SMITH Manager June 26, 1998
- --------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ---------------------
Martin L. Ditkof
- --------------------- Manager June 26, 1998
Michael James
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
HYDRAMACH ULC
By: /s/ DAVID D. SMITH
-------------------------------------
David D. Smith
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID D. SMITH President and Director June 26, 1998
- ---------------------- (Principal Executive Officer and
David D. Smith Principal Financial and
Accounting Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
---------------------------
Martin L. Ditkof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
INVERCOE ENGINEERING LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ---------------------- (Principal Executive Officer)
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven Davis Officer)
- ---------------------- Director June 26, 1998
Harnish Sutherland
/s/ MICHAEL S. ERWIN
- ----------------------
Michael S. Erwin Director June 26, 1998
/s/ DAVID D. SMITH
- ----------------------
David D. Smith Director June 26, 1998
/s/ MARTIN L. DITKOF
- ----------------------
Martin L. Ditkof Director June 26, 1998
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
--------------------------------
Martin L. Ditkof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
KAVERIT STEEL AND CRANE ULC
By: /s/ DAVID D. SMITH
-------------------------------------
David D. Smith
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID D. SMITH President and Director June 26, 1998
- ---------------------- (Principal Executive Officer and
David D. Smith Principal Financial and
Accounting Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
---------------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
LOWFILE LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Secretary
- ---------------------- (Principal Executive Officer) June 26, 1998
K. Bruce Norridge
/s/ STEVEN DAVIS* Director
- ---------------------- (Principal Financial and Accounting June 26, 1998
Steven Davis Officer)
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
---------------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Las
Vegas, State of Nevada, on the 26th day of June, 1998.
MATERIAL HANDLING EQUIPMENT
NEVADA CORPORATION
By: /s/ PATRICK DORN
-------------------------------------
Patrick Dorn
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ PATRICK DORN President
- ---------------------- (Principal Executive Officer) June 26, 1998
Patrick Dorn
/s/ IVAN FARRIS* Vice President, Secretary and
- ---------------------- Treasurer (Principal Financial June 26, 1998
Ivan Farris and Accounting Officer)
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MERWIN, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN Manager June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Manager June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ----------------------
Martin L. Ditkof
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MHE CANADA ULC
By: /s/ MARTIN L. DITKOF
-------------------------------------
Martin L. Ditkof
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID D. SMITH President June 26, 1998
- ---------------------- (Principal Executive Officer and
David D. Smith Principal Financial and Accounting
Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
---------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Wilmington, State of Delaware, on the 26th day of June, 1998.
MHE TECHNOLOGIES, INC.
By: /s/ DAVID W. DUPERT
-------------------------------------
David W. Dupert
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID W. DUPERT President June 26, 1998
- ---------------------- (Principal Executive Officer)
David W. Dupert
/s/ RICHARD F. KLUMPP* Vice President, Secretary and
- ---------------------- Treasurer (Principal Financial June 26, 1998
Richard F. Klumpp and Accounting Officer)
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MMH (HOLDINGS) LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ---------------------- (Principal Executive Officer)
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven Davis Officer)
- ---------------------- Director June 26, 1998
Michael J. Maddock
- ---------------------- Director June 26, 1998
Edward Bavister
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
-----------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MMH INTERNATIONAL LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ----------------------
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ----------------------
Steven Davis
- ---------------------- Director June 26, 1998
Michael J. Maddock
- ---------------------- Director June 26, 1998
Edward Bavister
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
-----------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MONDEL ULC
By: /s/ DAVID D. SMITH
-------------------------------------
David D. Smith
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID D. SMITH President and Director June 26, 1998
- ---------------------- (Principal Executive Officer
David D. Smith and Principal
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
--------------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MORRIS MATERIAL HANDLING, LLC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN Manager June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Manager June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Manager June 26, 1998
- ----------------------
Martin L. Ditkof
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MORRIS MATERIAL HANDLING LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ---------------------- (Principal Executive Officer)
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven Davis Officer)
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
----------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MORRIS MECHANICAL HANDLING, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Vice President, Treasurer and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ EDWARD J. DOOLAN* Director June 26, 1998
- ----------------------
Edward J. Doolan
- ---------------------- Director June 26, 1998
Joe Stern
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MORRIS MECHANICAL HANDLING LIMITED
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ K. BRUCE NORRIDGE* Director June 26, 1998
- ---------------------- (Principal Executive Officer)
K. Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven Davis Officer)
- ---------------------- Director June 26, 1998
Michael J. Maddock
- ---------------------- Director June 26, 1998
Edward Bavister
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
-------------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
MPH CRANE, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President and Director June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Vice President, Treasurer and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
NPH MATERIAL HANDLING, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Vice President, Treasurer and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
PHME SERVICE, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Vice President, Treasurer and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Wilmington, State of Delaware, on the 26th day of June, 1998.
PHMH HOLDING COMPANY
By: /s/ David W. Dupert
-------------------------------------
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DAVID W. DUPERT President June 26, 1998
- ---------------------- (Principal Executive Officer)
David W. Dupert
/s/ RICHARD F. KLUMPP* Vice President, Secretary and Treasurer June 26, 1998
- ---------------------- (Principal Financial and Accounting
Richard F. Klumpp Officer)
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
REDCROWN, ULC
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ BRUCE NORRIDGE* Secretary June 26, 1998
- ---------------------- (Principal Executive Officer)
Bruce Norridge
/s/ STEVEN DAVIS* Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
Steven David Officer)
/s/ MICHAEL S. ERWIN Director June 26, 1998
- ----------------------
Michael S. Erwin
/s/ DAVID D. SMITH Director June 26, 1998
- ----------------------
David D. Smith
/s/ MARTIN L. DITKOF Director June 26, 1998
- ----------------------
Martin L. Ditkof
/s/ MICHAEL S. ERWIN
- ----------------------
* By Michael S. Erwin, by power of attorney
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the undersigned as
the duly authorized representative of the Co-Registrant in the United States on
the 26th day of June, 1998.
/s/ MARTIN L. DITKOF
----------------------------------
Martin L. Dikof
Milwaukee, Wisconsin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on the 26th day of June, 1998.
SPH CRANE & HOIST, INC.
By: /s/ MICHAEL S. ERWIN
-------------------------------------
Michael S. Erwin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL S. ERWIN President and Director June 26, 1998
- ---------------------- (Principal Executive Officer)
Michael S. Erwin
/s/ DAVID D. SMITH Vice President, Treasurer and Director June 26, 1998
- ---------------------- (Principal Financial and Accounting
David D. Smith Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
1.1 Securities Purchase Agreement, dated March 23, 1998 by and
among Morris Material Handling, Inc., the Guarantors named
therein, CIBC Oppenheimer Corp and Goldman, Sachs & Co., and
Indosuez Capital.
2.1 Recapitalization Agreement, dated January 28, 1998, among
Harnischfeger Corporation, the sellers named therein and MHE
Investments, Inc., as amended.
3.1 Certificate of Incorporation of Morris Material Handling, Inc.
3.2 Bylaws of Morris Material Handling, Inc.
4.1 Registration Rights Agreement, dated as of March 30, 1998, by
and among Morris Material Handling, Inc, the Guarantors named
therein and CIBC Oppenheimer Corp., Goldman, Sachs & Co. and
Indosuez Capital.
4.2 Indenture dated as of March 30, 1998 between Morris Material
Handling, Inc. and United States Trust Company of New York, as
Trustee, relating to Morris Material Handling, Inc.'s 9 1/2%
Senior Notes due 2008.
4.3 Form of 9 1/2% Senior Note due 2008.
4.4 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.
4.5 U.S. Security Agreement, dated as of March 30, 1998, made by
Morris Material Handling, Inc., the Guarantors listed therein,
in favor of Canadian Imperial Bank of Commerce.
4.6 Guarantee, dated as of March 30, 1998, by MMH Holdings, Inc.,
in favor and for the benefit of Canadian Imperial Bank of
Commerce.
4.7 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.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the Notes (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).
10.1 Surety Arrangement, dated March 30, 1998, among Reliance
Insurance Companies, MMH Holdings, Inc., Morris Material
Handling, Inc. and certain of their subsidiaries.
10.2 Credit Indemnification Agreement between Harnischfeger
Industries, Inc. and Morris Material Handling, Inc., dated as
of March 30, 1998.
<PAGE>
Exhibit
Number Exhibit
------ -------
10.3 Tax Sharing Agreement between MHE Investments, Inc., MMH
Holdings, Inc. and certain of MMH Holdings, Inc.'s
subsidiaries, dated as of March 30, 1998.
10.4 Component and Manufactured Products Supply Agreement between
Harnischfeger Corporation and Morris Material Handling, Inc.,
dated as of March 30, 1998.
10.5 Transition Services Agreement between Harnischfeger
Corporation and Morris Material Handling, Inc., dated as of
March 30, 1998.
10.6 Trademark License Agreement between Harnischfeger
Technologies, Inc. and Morris Material Handling Inc., dated as
of March 30, 1998.
10.7 Management Consulting Agreement between Morris Material
Handling, Inc. and Chartwell Investments Inc., dated March 30,
1998.
10.8 Financial Advisory Agreement between Morris Material Handling,
Inc. and Chartwell Investments Inc., dated March 30, 1998.
10.9 Separation Agreement, dated October 26, 1997, between
Harnischfeger Corporation and Material Handling, LLC.
10.10 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.
<PAGE>
Exhibit
Number Exhibit
------ -------
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.
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 Michael J. Maddock.
10.18 Service Agreement, dated March 30, 1998, between Morris
Mechanical Handling Limited and K. Bruce Norridge.
12. Statement of Computation of Financial Ratios.
21. Subsidiaries of Morris Material Handling, 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. 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).
