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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
Dover Elevators, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-4013359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
(212) 599-4310
(Registrant's telephone number, including area code)
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Securities to be registered pursuant to
Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
<S> <C>
Common Stock, par value $0.01 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities to be registered pursuant to
Section 12(g) of the Act:
NONE
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DOVER ELEVATORS, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Certain information required to be included herein is incorporated by
reference to specifically identified sections of the Information Statement filed
as an exhibit hereto, subject to completion, dated July 8, 1998 (the
"Information Statement").
Item 1. Business.
The information required by this item is contained under the sections
entitled "Summary," "Introduction," "The Distribution," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business," and
"Consolidated Financial Statements" in the Information Statement and such
information is incorporated herein by reference.
Item 2. Financial Information.
The information required by this item is contained under the sections
entitled "Unaudited Pro Forma Financial Information," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Consolidated Financial Statements" in the
Information Statement and such information is incorporated herein by reference.
Item 3. Properties.
The information required by this item is contained under the section
entitled "Business" in the Information Statement and such information is
incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the sections
entitled "Management" and "Security Ownership of Certain Beneficial Owners of
DEI" in the Information Statement and such information is incorporated herein by
reference.
Item 5. Directors and Executive Officers.
The information required by this item is contained under the sections
entitled "Management" and "Liability and Indemnification of Directors and
Officers" in the Information Statement and such information is incorporated
herein by reference.
Item 6. Executive Compensation.
The information required by this item is contained under the section
entitled "Management" in the Information Statement and such information is
incorporated herein by reference.
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Item 7. Certain Relationships and Related Transactions.
The information required by this item is contained under the sections
entitled "Summary," "The Distribution," and "Relationship between Dover and DEI
after the Distribution" in the Information Statement and such information is
incorporated herein by reference.
Item 8. Legal Proceedings.
The information required by this item is contained under the section
entitled "Business" in the Information Statement and such information is
incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
The information required by this item is contained under the section
entitled "Summary," "The Distribution", "Management" and "Description of Capital
Stock" in the Information Statement and such information is incorporated herein
by reference.
Item 10. Recent Sales of Unregistered Securities.
On July 7, 1998, in connection with its incorporation, the Registrant
issued 1,000 shares of its common stock, for a total consideration of $10.00, to
Dover Corporation, which is and will be the Registrant's sole stockholder until
the Distribution Date as defined and described in the Section entitled "The
Distribution" in the Information Statement, and such section is incorporated
herein by reference. Subsequent to the Distribution, Dover Corporation will hold
no capital stock of the Registrant.
Item 11. Description of Registrant's Securities to be Registered.
The information required by this item is contained under the section
entitled "Description of Capital Stock" and "Certain Antitakeover Effects of
Certain Provisions of the Certificate of Incorporation, the Bylaws, Delaware Law
and the Rights Agreement" in the Information Statement and such information is
incorporated herein by reference.
Item 12. Indemnification of Directors and Officers.
The information required by this item is contained under the section
entitled "Liability and Indemnification of Directors and Officers" in the
Information Statement and such information is incorporated herein by reference.
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Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained under the section
entitled "Summary," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements" in the
Information Statement and such information is incorporated herein by reference.
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
The information required by this item is contained in the "Index to
Consolidated Financial Statements" in the Information Statement and such
information is incorporated herein by reference.
(b) Exhibits
The following documents are filed as exhibits hereto:
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
2 Form of Distribution Agreement*
3.1 Certificate of Incorporation
3.2 Bylaws*
4 Form of Rights Agreement*
10.1 Form of Tax Sharing Agreement*
10.2 Form of Intellectual Property Agreement*
10.3 Form of Employee Matters Agreement*
10.4 Form of Insurance Arrangements Agreement*
10.5 Form of Credit Agreement*
10.6 Form of Change of Control Agreements*
10.7 1998 Incentive Stock Option and Cash Performance Program*
10.8 Employee Savings and Investment Plan*
21 Subsidiaries of Dover Elevators, Inc.*
27 Financial Data Schedule(s) (in EDGAR filing only)
99 Information Statement, subject to completion dated July 8, 1998
</TABLE>
* To be filed by amendment.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
DOVER ELEVATORS, INC.
By: /s/ Paul A. Nickel
------------------------------
Paul A. Nickel
Vice President-Finance
Date: July 8, 1998
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
2 Form of Distribution Agreement*
3.1 Certificate of Incorporation
3.2 Bylaws*
4 Form of Rights Agreement*
10.1 Form of Tax Sharing Agreement*
10.2 Form of Intellectual Property Agreement*
10.3 Form of Employee Matters Agreement*
10.4 Form of Insurance Arrangements Agreement*
10.5 Form of Credit Agreement*
10.6 Form of Change of Control Agreements*
10.7 1998 Incentive Stock Option and Cash
Performance Program*
10.8 Employee Savings and Investment Plan*
21 Subsidiaries of Dover Elevators, Inc.*
27 Financial Data Schedule(s) (in EDGAR filing only)
99 Information Statement, subject to completion
dated July 8, 1998
</TABLE>
* To be filed by amendment.
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CERTIFICATE OF INCORPORATION
OF
DOVER ELEVATORS, INC.
(Pursuant to Section 102
of the Delaware General Corporation Law)
THE UNDERSIGNED, in order to form a corporation under and pursuant to
the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the corporation is DOVER ELEVATORS, INC.
SECOND: The principal office of the corporation in the State of
Delaware is located at 1013 Centre Road, City of Wilmington, County of New
Castle, Delaware, 19805-1297. The name of the resident agent at that address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended from time to time (as amended,
"Delaware Law").
FOURTH: The total number of shares of all classes of stock which the
corporation is authorized to issue is 200,000,000; of which 150,000,000 shares,
having a par value of $0.01 each shall be Common Stock; and 50,000,000 shares
having a par value of $100 each shall be Preferred Stock, with or without voting
powers, full or limited, and in such series and with such designations,
preferences and relative, participating, optional or other special
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rights and qualifications, limitations or restrictions in respect to each class
of stock or series thereof as hereinafter provided.
(A) General. Except as may otherwise be expressly provided for
herein or in any amendment hereto and subject to the provisions hereof, the
Board of Directors shall have the authority to authorize and provide for the
issue of the Preferred Stock or any one or more series thereof and, in the
resolution or resolutions providing for the issue of any such stock adopted by
the Board of Directors pursuant to the authority vested in it by the provisions
hereof, shall state the designations, preferences and relative, participating,
voting, optional or other special rights, and the qualifications, limitations or
restrictions thereof. The Board of Directors shall also have the power to
increase or decrease the authorized amount of any Preferred Stock or series
thereof, but not in excess of the amount provided for in the first sentence of
this Article Fourth, as may be authorized under Delaware Law.
(B) Dividends. The holders of the Preferred Stock or of any
series thereof shall be entitled to receive dividends at such rates and on such
conditions and at such times as shall be stated and expressed in the resolution
or resolutions providing for the issue of such stock adopted by the Board of
Directors as hereinabove provided, payable in preference to, or in such relation
to, the dividends payable on any other class or classes of stock, and cumulative
or non-cumulative, as shall be so stated or expressed. When dividends upon the
Preferred Stock or any series thereof, if any, to the extent of the preference
to which such stocks are entitled, shall have been paid or declared and set
apart for payment, all dividends, whether in cash or in property or otherwise,
as may be declared by the Board of Directors
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from time to time, shall be paid ratably and equally, share for share, on all
the outstanding shares of the Common Stock.
(C) Voting Rights. The holders of the Preferred Stock or of
any series thereof shall have such voting power, if any, not in excess of one
vote for each share, and to such extent, as may be stated and expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors as hereinabove provided. Unless otherwise stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors as hereinabove provided, the holders of the
Preferred Stock or any series thereof shall have no voting rights or voice
whatsoever as holders of such stock in the affairs or management of the
corporation or to notice of any meeting of stockholders, except as specifically
required by law. Except to the extent that the Preferred Stock or any series
thereof may also be granted the right to vote as set forth above, the holders of
the Common Stock shall have the exclusive voting power and rights, one vote for
each share, for all purposes. Any and all voting power of the Common Stock and
of the Preferred Stock or any series thereof which may be granted voting power
shall be exercised on a share for share basis; and no class of stock or series
thereof shall be entitled to vote as a class or series on any matter, except as
specifically required by law. The aggregate amount of the authorized Preferred
Stock set forth in the first sentence of this Article Fourth may be increased or
decreased solely by the affirmative vote of the holders of a majority of the
outstanding shares of the Common Stock.
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(D) Redemption or Repurchase.
(1) The Preferred Stock or any series thereof may be made
subject to redemption at such time or times and at such price or prices and on
such other terms and conditions as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors as hereinabove provided.
(2) The corporation may also at its election, pursuant to
authority granted by the Board of Directors at any time or from time to time,
purchase for retirement at public or private sale all or any shares of the
Preferred Stock or any series thereof upon the best terms reasonably obtained,
but in no event at prices greater than the respective redemption prices of such
stock. Any such stock so purchased for retirement is to be canceled and is not
to be reissued.
(3) The corporation may also at its election, pursuant to
authority granted by the Board of Directors at any time or from time to time,
purchase at public or private sale all or any shares of the Preferred Stock or
any series thereof and/or any shares of Common Stock, to be held as treasury
stock of the corporation or for reissue, at purchase prices in the case of the
Preferred Stock or any series thereof no greater than the respective redemption
prices thereof, and in the case of the Common Stock at such price or prices as
the Board of Directors may from time to time deem reasonable.
(E) Liquidation Rights. The holders of the Preferred Stock or
of any series thereof shall be entitled to such preferential or special rights
upon the dissolution of, or upon any distribution of the assets of, the
corporation as shall be stated and expressed in the resolution or resolutions
providing for the issue of such stock adopted by the Board of
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Directors as hereinabove provided. All remaining available assets shall then be
distributed, in cash or other property or both, ratably among the holders of the
then outstanding Common Stock.
(F) Conversion Rights. Any Preferred Stock or any series
thereof may be made convertible into, or exchangeable for, shares of any other
class or classes or of any other series of the same or any other class or
classes of stock of the corporation or another issuer at such price or prices or
at such rate of exchange and such adjustments as shall be stated and expressed
or provided for in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors as hereinabove provided.
(G) Preemptive Rights. No holder of any of the stock of the
corporation shall, as such holder, have any right to purchase or subscribe for
any stock or warrants of any class or series thereof which the corporation may
issue or sell, whether such stock or warrants are exchangeable for any shares of
the corporation of any class or classes or series thereof, and whether such
stock is issued out of the number of shares authorized by the certificate of
incorporation of the corporation as originally filed or by any amendment
thereof, or out of shares of the stock of the corporation acquired by it after
the issue thereof; nor shall any holder of any of the stock of the corporation,
as such holder, have any right to purchase or subscribe for any obligation,
option or warrant which the corporation may issue or sell that shall be
convertible into, or exchangeable for any shares of the stock of the corporation
of any class or classes or series thereof, or to which shall be attached or
shall appertain any warrant or warrants or other instrument or instruments that
shall confer upon
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the holder or owner thereof the right to subscribe for, or purchase from the
corporation, any shares of its stock of any class or classes or series thereof.
FIFTH: Subject to Article Tenth of this certificate of incorporation,
the number of directors of the corporation shall be such as from time to time
may be fixed by, or in the manner provided in, the bylaws, but in no case shall
the number be less than three. Directors need not be stockholders. The Board of
Directors shall have the general direction and management of the business and
affairs of the corporation. The election of directors need not be by ballot.
SIXTH: (A) The Board of Directors shall have the power (1) to make,
alter or amend the bylaws, subject only to such limitations, if any, as the
bylaws of the corporation may from time to time impose; (2) from time to time to
fix and determine and to vary the amount to be reserved as working capital of
the corporation and, before the payment of any dividends or making any
distribution of profits, to set aside out of the surplus or net profits of the
corporation such sum or sums as the said Board may from time to time in its
absolute discretion think proper either as additional working capital or as a
reserve fund to meet contingencies, or for the repairing or maintaining of any
property of the corporation, or for such other corporate purposes as the Board
of Directors shall think conducive to the interests of the corporation, subject
only to such limitations, if any, as the bylaws of the corporation may from time
to time impose, (3) from time to time, to the extent now or hereafter permitted
by the laws of the State of Delaware, to sell, lease, exchange, or otherwise
dispose of any part of the property and assets of the corporation which the
Board of Directors deems it expedient and for the best interests of the
corporation to dispose of, or
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disadvantageous to continue to own, without assent of the stockholders by vote
or otherwise; (4) to issue or cause to be issued from time to time all or any
part of the authorized Capital Stock of the corporation on such terms and for
such consideration as the Board may determine in its discretion without
obtaining the approval of the holders of any of the then outstanding capital
stock of the corporation; (5) from time to time to determine, pursuant to the
provisions of the bylaws, whether and to what extent, and at what times and
places, and under what conditions and regulations, the accounts and books of the
corporation (other than the stock ledger), or any of them, shall be open to
inspection of stockholders; and no stockholder shall have the right of
inspecting any account, book or document of the corporation, except as conferred
by statute, unless duly authorized so to do by a resolution of a majority of the
stockholders or of the Board of Directors; (6) pursuant to the written consent
of the holders of a majority of the shares of stock issued and outstanding
having voting power, or pursuant to the affirmative vote of the holders of a
majority of stock issued and outstanding having voting power, given at a
stockholders' meeting duly called for that purpose, to sell, lease, exchange, or
otherwise dispose of all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such terms and
conditions as the Board of Directors deems expedient and for the best interests
of the corporation; (7) subject to the provisions of the laws of the State of
Delaware, to exercise any and all other powers, in addition to the powers
expressly conferred upon by law and by this certificate of incorporation, which
may be conferred upon the Board Directors by the corporation through appropriate
bylaw provisions.
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(B) The Board of Directors may, by resolution or resolutions,
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the corporation, which,
to the extent provided in the resolution or resolutions or in the bylaws of the
corporation, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation and may have the
power to authorize the seal of the corporation to be affixed to all papers which
may require it.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed by this corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on
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all the creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: No contract, act or transaction of the corporation with any
person, firm, or corporation shall be affected or invalidated by reason of the
fact that any director or officer of the corporation is a party to or interested
in such contract, act or transaction, or in any way connected with such person,
firm or corporation, provided that such interest or connection shall have been
disclosed or known to the corporation. Any director of the corporation having
any such interest or connection may, nevertheless, be counted in determining the
existence of a quorum at any meeting of the Board or a committee which shall
authorize any such contract, act or transaction and may vote thereon with full
force and effect. No such officer or director nor any such person, firm, or
corporation in or with which such director or officer is connected shall be
liable to account to the corporation for any profit realized from or through any
such contract, act or transaction.
NINTH: The corporation reserves the right to amend, alter or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights and
powers conferred on directors and stockholders herein are granted subject to
this reservation.
TENTH: (A) In addition to any affirmative vote required by law or under any
other provision of this certificate of incorporation, and except as otherwise
expressly provided in Paragraph (B), any Business Combination with respect to a
Related Person shall require the affirmative vote of the holders of at least 80%
of the outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors, considered for the
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purpose of this Article Tenth as one class ("Voting Shares"). Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that some lesser percentage may be specified, by law or in any agreement with
any national securities exchange or otherwise.
(B) The provisions of Paragraph (A) of this Article Tenth
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required by
law and any other provision of this certificate of incorporation if:
(1) A definitive agreement or other arrangement to effectuate
the Business Combination was approved by a majority of the directors of the
corporation at a time when the Related Person who is a party to the Business
Combination did not beneficially own, directly or indirectly, 5% or more of the
outstanding shares of capital stock of the corporation; or
(2) Such Business Combination has been approved by a majority
of the Continuing Directors; or
(3) All of the following conditions shall have been satisfied:
(a) The aggregate amount of the cash and the fair market value
(as of the date of the consummation of the Business Combination) of other
consideration to be received per share by holders of the Common Stock of the
corporation in such Business Combination is no less than the higher of:
(i) the price per share equal to the Market Price of
Common Stock immediately prior to the announcement of such Business Combination,
multiplied by the ratio
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of (a) the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) which the Related Person has theretofore
paid for any of the shares of Common Stock already owned by it, to (b) the
Market Price of the Common Stock immediately prior to the commencement of
acquisition of Common Stock by such Related Person; or
(ii) the highest per share price (including brokerage
commission, transfer taxes and soliciting dealers' fees) paid by such Related
Person for any shares of Common Stock acquired by it;
provided, however, that, as used in the foregoing calculations, all
prices per share shall be adjusted to reflect any subsequent stock splits, stock
dividends, or other similar corporate actions.
(b) The aggregate amount of the cash and the fair market value
(as of the date of consummation of the Business Combination) of other
consideration to be received per share by holders of the Preferred Stock of the
corporation in such Business Combination is no less than the highest of:
(i) the price per share equal to the Market Price of
Preferred Stock immediately prior to the announcement of such Business
Combination, multiplied by the ratio of (a) a highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees) which the
Related Person has theretofore paid for any of the shares of Preferred Stock
already owned by it, to (b) the Market Price of the Preferred Stock immediately
prior to the commencement of acquisition of Preferred Stock by such Related
Person; or
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(ii) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by such Related
Person for any shares of Preferred Stock acquired by it; or
(iii) the highest preferential amount per share to
which the holders of shares of such class of Preferred Stock would be entitled
in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the corporation, regardless of whether the Business
Combination to be consummated constitutes such an event;
provided, however, that, as used in the foregoing calculations, all
prices per share shall be adjusted to reflect any subsequent stock splits, stock
dividends or other similar corporate actions.
The provisions of this subsection (3)(b) shall apply with respect to
every class of outstanding Preferred Stock, whether or not the Related Person
has previously acquired any such Preferred Stock.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Shares in such Business Combination shall
be in the same form and of the same kind as the consideration paid by the
Related Person in acquiring the shares of such class of Voting Shares already
owned by it. If the Related Person has purchased shares of any class of Voting
Shares with varying forms of consideration, the form of consideration for such
class of Voting Shares to be paid in the Business Combination shall be either
cash or the form previously used by such Related Person to acquire the largest
number of shares of such class of Voting Shares.
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(d) After such Related Person has acquired ownership of not
less than 15% of the then outstanding Voting Shares (a "15% Interest") and prior
to the consummation of such Business Combination:
(i) the Related Person shall have taken steps to
ensure that the corporation's Board of Directors has included at all times
representation by Continuing Director(s) proportionate to the ratio that the
Voting Shares which from time to time are owned by Public Holders bear to all
Voting Shares outstanding at such respective times (with a Continuing Director
to occupy any resulting fractional Board position);
(ii) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full dividends (whether cumulative or not) on the
outstanding Preferred Stock;
(iii) there shall have been no reduction in the rate
of dividends payable on the Common Stock except as necessary to ensure that a
quarterly dividend payment does not exceed 8.75% of the net income of the
corporation for the four full consecutive fiscal quarters immediately preceding
the declaration date of such dividend or except as may have been approved by a
majority of the Continuing Directors;
(iv) such Related Person shall not have become the
beneficial owner of any newly issued shares of stock, directly or indirectly,
from the corporation except upon conversion of convertible securities acquired
by it prior to obtaining a 15% Interest or as a result of a pro rata stock
dividend or stock split or except as may have been approved by a majority of the
Continuing Directors.
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(v) such Related Person shall not have become the
beneficial owner of any additional Voting Shares or securities convertible into
or exchangeable for Voting Shares except as a part of the transaction which
resulted in such Related Person acquiring its 15% Interest; and
(vi) such Related Person shall not have (A) received
the benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges, or other financial assistance, or
tax credits or other tax advantages provided by the corporation, (B) made any
major change in the corporation's business or equity capital structure without
the unanimous approval of the Continuing Directors, or (C) used any asset of the
corporation as collateral, or compensating balances, directly or indirectly, for
any obligation of such Related Person.
(e) a proxy or information statement responsive to the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), shall have been mailed to all holders of Voting Shares at least 30 days
prior to the consummation of such Business Combination. Such proxy statement
shall contain:
(i) at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have furnished
in writing; and
(ii) if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking or appraisal
firm as to the fairness (or lack of fairness) of the terms of such Business
Combination, from the point of view of the Public Holders (such investment
banking or appraisal firm to be selected by a majority of the
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Continuing Directors, to be a firm which has not previously been associated with
or rendered services to or acted as manager of an underwriting or as agent for a
Related Person, to be furnished with all information it reasonably requests and
to be paid a reasonable fee for its services upon receipt by the corporation of
such opinion).
(C) (1) Except as otherwise expressly provided in paragraph
(C)(2) below, any purchase by the corporation, or any subsidiary of the
corporation, of Voting Shares from a person or persons known by the corporation
to be an Interested Stockholder at a per share price in excess of the Market
Price at the time of such purchase of the shares so purchased, shall require the
affirmative vote of not less than a majority of the votes entitled to be cast by
the holders of all then outstanding Voting Shares not beneficially owned by the
Interested Stockholder, voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
(2) The provisions of Paragraph (C)(1) of this Article
Tenth shall not be applicable to any purchase of Voting Shares, if such purchase
is pursuant to (i) an offer, made available on the same terms, to the holders of
all of the outstanding shares of the same class of those purchased or (ii) a
purchase program effected on the open market and not the result of a
privately-negotiated transaction.
(D) (1) In the event that there shall exist a Substantial
Stockholder of the corporation and such existence shall be known or made known
to the corporation in advance of a meeting of stockholders at which directors
will be elected, each holder of
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<PAGE> 16
Voting Shares shall be entitled, in connection with any vote taken for such
election of directors, to as many votes as shall equal the number of votes which
(except for this provision as to cumulative voting) such stockholder would be
entitled to cast for the election of directors with respect to such
stockholder's Voting Shares multiplied by the number of directors to be elected,
and such stockholder may cast all of such votes for a single director or may
distribute them among the number of directors to be voted for, or for any two or
more of them as such stockholder may see fit.
(2) In connection with any election of directors in which
stockholders are entitled to cumulative voting:
(a) The Board of Directors shall appoint a committee (the
"Committee") consisting of three Directors.
(b) The Committee shall send to all stockholders of the
corporation entitled to vote in the election of directors at least 90 days in
advance of such election a written notice informing stockholders (i) that the
cumulative voting provisions of this Article will be in effect, (ii) that
persons meeting the eligibility requirements of subparagraph (B)(2)(c) may
submit nominations to the Committee, if such nominations are received at least
60 days in advance of the election and contain relevant information concerning
the nominee, including all information required to be included in a proxy
statement under the Exchange Act and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, rules or regulations), and the
nominee's consent to be nominated, and (iii) as to the time, place and date of
the meeting at which such election will be held.
- 16 -
<PAGE> 17
(c) The Committee will review all nominees, and the
corporation's proxy materials being prepared in connection with such meeting
will include information relating to, and afford stockholders the opportunity to
vote for, all nominees who are included by the Committee in the corporation's
proxy materials. The Committee shall be required to include in such proxy
materials at least one nominee of each stockholder or group of stockholders who
beneficially own Voting Shares with a Market Price (as herein defined) of at
least $250,0000 at the time notice of such meeting is sent to stockholders and
who submit the information required with respect to such nominee under
subparagraph (D)(2)(b). The Committee may include more than one nominee of such
person or persons, provided that the number of nominees included by the
Committee which are submitted by any one person or group of persons may not
exceed the number of directors to be elected at such a meeting.
(d) The corporation's proxy statement and other communications
with respect to the election shall contain, on an equal basis and at the expense
of the corporation, descriptions and other statements of or with respect to all
nominees for election which qualify under the procedures set forth in this
paragraph (D).
(3) If necessary to assure that the provisions of this
Paragraph (D) are fairly applied and complied with, the Board of Directors may
postpone any meeting of stockholders to which this Article would apply for such
period of time as shall be necessary to permit the Committee to perform its
responsibilities hereunder.
(4) Notwithstanding any other provision which may be contained
from time to time in this certificate of incorporation or the bylaws of the
corporation concerning the
- 17 -
<PAGE> 18
manner in which the size of the Board of Directors of the corporation may be
established or changed, in the event that a person becomes a Substantial
Stockholder, the number of directors at the time such person becomes a
Substantial Stockholder shall remain fixed and may not be changed by the Board
of Directors or the stockholders until such time as such person is no longer a
Substantial Stockholder.
(E) No action required to be taken or which may be taken at
any annual or special meeting of stockholders of the corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
(F) For the purposes of this Article Tenth:
(1) A "person" shall mean any individual, firm, corporation or
other entity.
(2) The term "Business Combination" shall mean:
(a) any merger or consolidation of the corporation or any
Subsidiary with or into (i) any Related Person or (ii) any other corporation
(whether or not itself a Related Person) which, after such merger or
consolidation, would be an Affiliate of a Related Person;
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to, by or
with any Related Person of any assets of or to the corporation or any Subsidiary
having an aggregate fair market value of $1,000,000 or more;
(c) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the corporation or any Subsidiary
- 18 -
<PAGE> 19
to any Related Person in exchange for cash, securities or other property (or a
combination thereof);
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by or on behalf of a Related Person;
(e) any reclassification of securities (including any reverse
stock split), recapitalization, reorganization, merger, or consolidation of the
corporation with any of its subsidiaries, or any other transaction (whether or
not with or into or otherwise involving a Related Person) which has the effect,
directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the corporation or
any Subsidiary which is directly or indirectly owned by any Related Person; or
(f) any agreement, contract or other arrangement providing for
any of the transactions described herein.
(3) "Related Person" shall mean any person (other than the
corporation or any Subsidiary; and other than any profit-sharing, employee stock
ownership, or other employee benefit plan of the corporation or any Subsidiary,
or any trustee of or fiduciary with respect to any such plan when acting in such
capacity) who or which:
(a) is the beneficial owner, directly or indirectly, of not
less than 15% of the Voting Shares; or
(b) is an Affiliate of the corporation and at any time within
two years prior thereto was the beneficial owner, directly or indirectly, of not
less than 15% of the then outstanding Voting Shares; or
- 19 -
<PAGE> 20
(c) is an assignee of or has otherwise succeeded to any shares
of capital stock of the corporation which were at any time within two years
prior to thereto beneficially owned by any Related Person, and such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
(4) A person shall be the "beneficial owner" of any Voting
Shares:
(a) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially own, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants, or options, or otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of the
corporation.
(5) "Public Holders" shall mean those holders of Voting Shares
of the corporation who are not Related Persons.
(6) The outstanding Voting Shares shall include shares deemed
owned through application of Section (4) above but shall not include any other
Voting Shares which
- 20 -
<PAGE> 21
may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise.
(7) "Continuing Director" shall mean a member of the Board of
Directors of the corporation who was first elected or appointed to the Board of
Directors of the corporation prior to the date as of which any Related Person
became a Related Person and any successor to a Continuing Director who is
unaffiliated with such Related Person and who was recommended or elected to
succeed a Continuing Director by a majority of the then Continuing Directors.
(8) In the event of any Business Combination in which the
corporation survives, the phrase "other consideration to be received" as used in
sections (3)(a) and (b) of Paragraph (B) shall include the Voting Shares of the
corporation retained by its Public Holders.
(9) "Affiliate" and "Associate" shall have their respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on July 1, 1998.
(10) "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulators under the Exchange Act, as in effect on July 1,
1998) is owned, directly or indirectly, by the corporation; provided, however,
that for the purposes of the definition of a Related Person set forth in Section
(3) of this Paragraph (E), the term "Subsidiary" shall mean only a corporation
of which a majority of each class of equity security is owned, directly or
indirectly, by the corporation.
- 21 -
<PAGE> 22
(11) "Market Price" shall mean, with respect to any class of
stock, the highest closing sale price, during the 30-day period immediately
preceding the date in question, of a share of such stock on the New York Stock
Exchange; or, if such stock is not listed on such exchange, on the principal
United States securities exchange registered under the Exchange Act on which
such stock is listed; or, if such stock is not listed on any such exchange, the
highest closing bid quotation, during the 30-day period immediately preceding
the date in question, of a share of such stock on the National Association of
Securities Dealers, Inc. Automated Quotations System or any such system then in
use (provided, that, for purposes of paragraphs (C) and (D) of this Article
Tenth, the last closing sale price or the last closing bid quotation immediately
preceding the date in question shall be used instead of the highest closing sale
price or the highest closing bid quotation during the 30-day period immediately
preceding the date in question); or, if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
in good faith by a majority of the Continuing Directors.
(12) The term "Substantial Stockholder" shall mean any person
(other than the corporation or any Subsidiary; and other than any profit
sharing, employee stock ownership or other employee benefit plan of the
corporation or any subsidiary, or any trustee of or fiduciary with respect to
any such plan when acting in such capacity) who or which is the beneficial
owner, directly or indirectly, of not less than 40% of the Voting Shares.
(13) "Interested Stockholder" shall mean any person (other
than the corporation or any Subsidiary; and other than any profit sharing,
employee stock ownership,
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<PAGE> 23
or other employee benefit plan of the corporation or any subsidiary, or any
trustee of or fiduciary with respect to any such plan when acting in such
capacity) who or which:
(a) is the beneficial owner, directly or indirectly,
of not less than 5% of the Voting Shares and has been such a beneficial owner
for less than four years; or
(b) is an Affiliate of the corporation and at any
time within two years prior thereto was the beneficial owner, directly or
indirectly, for a period of less than four years of not less than 5% of the then
outstanding Voting Shares; or
(c) is an assignee of or has otherwise succeeded to
any shares of capital stock of the corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder and such
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act.
(14) For the purpose of determining whether a person is an
Interested Stockholder or a Substantial Stockholder, the number of Voting Shares
deemed to be outstanding shall include shares deemed beneficially owned by such
person through application of subparagraph (4) of Paragraph (F) of this Article
Tenth, but shall not include any other Voting Shares that may be issuable
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise.
(G) A majority of the Continuing Directors shall have the
power and duty to determine for the purposes of paragraphs (A) and (B) of this
Article Tenth on the basis of information known to them:
(a) the number of Voting Shares beneficially owned by any
person,
- 23 -
<PAGE> 24
(b) whether a person is an Affiliate or Associate of another,
(c) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in sections (4)(b) and
(c) of paragraph (F), and
(d) whether the assets subject to any Business Combination
have an aggregate fair market value of $1,000,000 or more.
(H) The Board of Directors shall have the power and the duty
to determine for the purposes of paragraphs (C) and (D) of this Article Tenth
(i) whether the provisions of said paragraphs (C) or (D) are applicable to a
particular transaction, (ii) whether a person is an Interested Stockholder or a
Substantial Stockholder, (iii) the number of Voting Shares or other securities
beneficially owned by any person, (iv) whether a person is an Affiliate or
Associate of another, (v) what the Market Price is and whether a price is above
the Market Price as of a given date, and (vi) whether any person nominating
directors in accordance with paragraph (D)(2) beneficially owns Voting Shares
with an aggregate Market Price of at least $250,000.
(I) Notwithstanding any other provisions of this certificate
of incorporation or the bylaws of the corporation to the contrary (and
notwithstanding the fact that a lesser percentage may be specified by law, this
certificate of incorporation or the bylaws of the corporation):
(1) any amendment, alteration, change or repeal of this
Article Tenth of this certificate of incorporation (except for paragraphs (C),
(D), (E), (F)(12) - (14) and the definition of "Market Price" applicable to
paragraphs (C) and (D) hereof) shall require the affirmative vote of the holders
of at least 80% of the then outstanding Voting Shares;
- 24 -
<PAGE> 25
provided, however, that this subparagraph (I)(1) shall not apply to, and such
80% vote shall not be required for, any such amendment, alteration, change or
repeal recommended to the stockholders by the majority vote of the Continuing
Directors or, in the event there is no Related Person at the time such
amendment, alteration, change, or repeal is under consideration, by the majority
vote of the Board of Directors;
(2) any amendment, alteration, change or repeal of paragraphs
(C), (D), (E), (F)(12) - (14) or the definition of "Market Price" applicable to
paragraphs (C) and (D) of this Article Tenth of this certificate of
incorporation shall require the affirmative vote of the holders of at least 80%
of the then outstanding Voting Shares; provided, however, that this subparagraph
(I)(2) shall not apply to, and such 80% vote shall not be required for, any
amendment, alteration, change or repeal recommended to the stockholders by the
majority vote of the Board of Directors and at the time such amendment,
alteration, change or repeal is under consideration there is, to the knowledge
of the Board of Directors, neither an Interested Stockholder nor a Substantial
Stockholder.
(J) Nothing contained in this Article Tenth shall be construed
to relieve any person from any fiduciary obligation imposed by law.
ELEVENTH: (A) To the fullest extent permitted by Delaware Law, as the same
exists or may hereafter be amended, a director of the corporation shall not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
- 25 -
<PAGE> 26
Any repeal or modification of this paragraph (A) of Article
Eleventh shall not result in any liability for a director with respect to any
action or omission occurring prior to such repeal or modification.
(B) The corporation shall, to the full extent authorized or
permitted by the laws of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader rights than such
law permitted the corporation to provide prior to such amendment), (a) indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or officer of the corporation, or by reason of the
fact that such director or officer is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, and (b) advance expenses incurred by any such officer or
director in defending any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. The corporation may provide in its bylaws
procedures reasonably designed to give effect to the provisions of this
paragraph.
The corporation may provide additional indemnification to such persons
or other persons, as provided in its bylaws, by agreement or otherwise, which is
greater or different
- 26 -
<PAGE> 27
than that provided in this certificate of incorporation. Nothing contained
herein shall affect any rights to indemnification to which any person may be
entitled by law.
Any repeal or modification of this paragraph (B) of Article
Eleventh shall not apply to or have any effect on any right to indemnification
provided hereunder with respect to any events occurring prior to such repeal or
modification.
TWELFTH: The name and address of the incorporator is:
Landon R. Prieur
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July,
1998.
/s/ Landon R. Prieur
-----------------------
Landon R. Prieur
Incorporator
- 27 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-1-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 28,353 21,670
<SECURITIES> 0 0
<RECEIVABLES> 208,237 210,223
<ALLOWANCES> 7,670 7,690
<INVENTORY> 68,556 66,366
<CURRENT-ASSETS> 305,211 299,011
<PP&E> 140,157 132,714
<DEPRECIATION> 85,522 84,478
<TOTAL-ASSETS> 407,150 391,929
<CURRENT-LIABILITIES> 181,963 189,669
<BONDS> 0 0
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 204,357 188,394
<TOTAL-LIABILITY-AND-EQUITY> 407,150 391,929
<SALES> 218,575 852,871
<TOTAL-REVENUES> 218,575 852,871
<CGS> 154,564 613,735
<TOTAL-COSTS> 193,861 762,216
<OTHER-EXPENSES> 8 580
<LOSS-PROVISION> (19) 3,251
<INTEREST-EXPENSE> 87 715
<INCOME-PRETAX> 24,753 90,091
<INCOME-TAX> 8,839 33,994
<INCOME-CONTINUING> 15,912 56,097
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,912 56,097
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS INFORMATION STATEMENT SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES.
SUBJECT TO COMPLETION, DATED JULY 8, 1998
INFORMATION STATEMENT
DOVER ELEVATORS, INC.
Common Stock
(par value $0.01 per share)
This Information Statement is being furnished by Dover Corporation, a
Delaware corporation ("Dover") in connection with the distribution (the
"Distribution") to holders of record of the common stock of Dover, par value
$1.00 per share ("Dover Common Stock") at the close of business on __________,
1998 (the "Record Date") of one share of common stock, par value $0.01 (the "DEI
Common Stock"), of Dover Elevators, Inc., a Delaware corporation ("DEI" or the
"Company"), for every five shares of Dover Common Stock owned on the Record
Date. Fractional shares, other than those held by participants in certain Dover
benefit plans, will be aggregated into whole shares of DEI Common Stock and sold
on the open market by the Distribution Agent (as hereinafter defined), with the
proceeds thereof distributed to holders who would otherwise be entitled to
receive such fractional shares. See "The Distribution - Manner of Effecting the
Distribution".
The Company is a wholly-owned subsidiary of Dover. As a result of
transactions entered into in connection with the Distribution as of 11:59:59
p.m., New York City time, on __________, 1998 (the "Distribution Date"), DEI
will own substantially all of the businesses and assets of, and will be
responsible for substantially all of the liabilities associated with, Dover's
elevator businesses.
The Distribution will be effective on the Distribution Date, subject to
satisfaction of certain conditions. No consideration will be paid by Dover's
stockholders for shares of DEI Common Stock. There is currently no public market
for the DEI Common Stock, although it is expected that a "when issued" trading
market will develop prior to the Record Date. Application is expected to be made
to list the DEI Common Stock on the New York Stock Exchange (the "NYSE"). Each
share of DEI Common Stock will be accompanied by one Preferred Stock Purchase
Right (a "Right") of DEI.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. NO PROXIES ARE BEING SOLICITED, AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
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 INFORMATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT IS ___________, 1998.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 2
Dover Elevators, Inc................................................. 2
The Distribution..................................................... 3
Summary Consolidated Financial Data.................................. 7
INTRODUCTION............................................................... 8
RISK FACTORS............................................................... 9
Cyclicality of the Real Estate Construction Industry................. 9
Competition.......................................................... 9
Product Liability and Insurance...................................... 9
Indebtedness......................................................... 10
Unionized Labor Force................................................ 10
Absence of Prior Trading Market for DEI Common Stock................. 10
Certain Antitakeover Effects......................................... 11
Potential Taxation................................................... 11
No Experience Operating as an Independent Public Company............. 11
Year 2000 Compliance................................................. 12
THE DISTRIBUTION........................................................... 13
Reasons for the Distribution......................................... 13
Manner of Effecting the Distribution................................. 13
Results of the Distribution.......................................... 14
Certain Federal Income Tax Consequences of the Distribution.......... 14
Listing and Trading of DEI Common Stock.............................. 15
RELATIONSHIP BETWEEN DOVER AND DEI AFTER THE DISTRIBUTION.................. 16
Distribution Agreement............................................... 16
Tax Sharing Agreement................................................ 16
Employee Matters Agreement........................................... 17
Insurance Arrangements Agreement..................................... 17
Intellectual Property Agreement...................................... 17
Office Sublease...................................................... 17
FINANCING.................................................................. 18
DIVIDEND POLICY............................................................ 18
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................. 20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Overview............................................................. 20
Results of Operations................................................ 21
Liquidity and Capital Resources...................................... 24
Management Information Systems and the Impact of Year 2000........... 26
Cyclicality.......................................................... 26
BUSINESS................................................................... 28
Overview ............................................................ 28
Industry ............................................................ 28
General........................................................ 28
Types of Elevators............................................. 29
Industry Activities............................................ 30
Strategy............................................................. 31
Manufacturing........................................................ 31
Facilities..................................................... 31
Materials...................................................... 32
Research and Development....................................... 32
Backlog........................................................ 33
Distribution and Markets............................................. 33
North America Operations ...................................... 33
International Operations....................................... 33
Customers............................................................ 33
Competition.......................................................... 34
Intellectual Property................................................ 34
Employees............................................................ 34
Environmental Matters................................................ 35
Government and Other Regulation and Safety Codes .................... 35
Legal Proceedings.................................................... 35
Year 2000............................................................ 36
MANAGEMENT................................................................. 37
The Board of Directors of DEI........................................ 37
Board Compensation and Benefits...................................... 37
Committees of the Board ............................................. 37
Executive Officers................................................... 37
Executive Compensation............................................... 39
Retirement Plans..................................................... 42
Change of Control Provisions......................................... 44
Performance Program.................................................. 45
Incentive Stock Option Plan.......................................... 45
Dover Stock Option Plan Conversion................................... 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF DEI..................... 48
DESCRIPTION OF CAPITAL STOCK............................................... 49
Common Stock......................................................... 49
Preferred Stock...................................................... 50
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Dividends............................................................ 50
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, THE BYLAWS, DELAWARE LAW AND
THE RIGHTS AGREEMENT.................................................... 51
Number of Directors; Removal; Filling Vacancies...................... 51
No Stockholder Action by Written Consent; Special Meetings........... 51
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals...................................................... 52
Amendment of Certain Provisions of the Certificate of Incorporation
and Bylaws..................................................... 53
Preferred Stock...................................................... 54
Repurchase of Stock.................................................. 55
Business Combinations................................................ 55
Delaware Law......................................................... 56
Relationship of Article Ten to Section 203........................... 57
Rights Agreement..................................................... 58
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................... 60
Elimination of Liability of Directors................................ 60
Indemnification of Directors and Officers............................ 61
AVAILABLE INFORMATION...................................................... 63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................. 64
</TABLE>
<PAGE> 5
INFORMATION STATEMENT
This Information Statement is being furnished solely to provide
information to stockholders of Dover who will receive shares of DEI Common Stock
in the Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of Dover or DEI. The information
contained in this Information Statement is believed to be accurate as of the
date set forth on its cover. Changes may occur after that date, and neither
Dover nor DEI will update the information except in the normal course of their
respective public disclosures.
FORWARD-LOOKING STATEMENTS
This Information Statement contains various forward-looking statements and
information that are based on management's belief as well as assumptions made by
and information currently available to management. Such statements relate to,
among other things, the industry in which DEI operates, the U.S. economy,
earnings, cash flow and operating improvements and are indicated by words or
phrases such as "anticipates," "supports," "plans", "projects," "expects,"
"should," "hopes," "forecasts," "believes," "estimates," "intends" and similar
words or phrases. Such statements may also be made by management orally.
Forward-looking statements are subject to inherent uncertainties and risks,
including among others: increasing price and product/service competition by
domestic and foreign competitors, including new entrants; technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes including environmental
regulations; protection and validity of patent and other intellectual property
rights; the cyclical nature of DEI's business; the outcome of pending and future
litigation; and relations with unionized employees. In addition, such statements
could be affected by general industry market conditions and growth rates, and
general domestic and international economic conditions. In light of these risks
and uncertainties, actual events and results may vary significantly from those
included or contemplated or implied by such statements.
<PAGE> 6
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety.
Unless the context otherwise requires, (i) "Dover" refers to Dover Corporation
and its subsidiaries, (ii) "DEI" and the "Company" refers to Dover Elevators,
Inc. and its subsidiaries after the Distribution Date and to the elevator
operations of Dover prior to the Distribution Date. Dover sold substantially all
its European elevator operations in 1997 and such operations are not included in
DEI's operations.
DOVER ELEVATORS, INC.
DEI is the leading manufacturer and installer of new elevators in the
United States, and is a leading provider of post-installation elevator services
in the United States and Canada. DEI believes that it had the second largest
market share in 1997 in the combined U.S. elevator market, consisting of both
new elevator sales and installation and post-installation services.
DEI is the largest manufacturer and installer of "hydraulic" elevators and
a major manufacturer and installer of "traction" elevators in the United States,
where DEI derives most of its revenues. DEI has been the leader in the
production and installation of hydraulic elevators in the United States for over
30 years and had a 1997 share of over 40% of this market --nearly twice that of
the next largest participant. DEI also accounts for approximately 30% of the
production and installation of traction elevators in the U.S. market in 1997
(exceeded by only one other participant), making DEI the largest factor in the
total new elevator market in the United States, measured both in number of units
sold and sales revenues. DEI derived approximately 60% of its total 1997
revenues from the production and installation of elevators.
DEI provides contract maintenance for a significant portion of the units
manufactured and installed by DEI, and also provides contract maintenance for
elevators, escalators and other types of vertical transportation equipment
manufactured by others.
DEI manufactures a large selection of pre-engineered and custom designed
elevators and elevator components at two plants located in Tennessee and
Mississippi. It currently installs, modernizes and services elevators throughout
the United States and Canada through a network of approximately 120 field
offices run by wholly-owned subsidiaries. DEI also sells equipment to
distributors and operates joint ventures in select international markets,
including China and Australia.
DEI plans to pursue a focused-growth strategy designed to achieve both
increased revenue and increased earnings. The key elements of this strategy
include: maintaining DEI's leadership in the U.S. hydraulic market, continuing
DEI's efficient operations, the pursuit of select international operations and
consideration of acquisition opportunities.
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<PAGE> 7
Dover Elevators, Inc. was incorporated on July 7, 1998 in Delaware to
serve as a holding company for all of Dover's elevator businesses. DEI's
principal executive offices are located at 280 Park Avenue, New York, New York
10017.
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company............... Dover Corporation.
Dover Elevators, Inc............... DEI is the leading manufacturer and installer of
new elevators in the United States and a leading
provider of post-installation elevator services in
the United States and Canada. DEI is the largest
manufacturer and installer of "hydraulic"
elevators and a major manufacturer and installer
of "traction" elevators in the United States. DEI
provides contract maintenance for a significant
portion of the units manufactured and installed by
DEI, and also provides contract maintenance for
elevators, escalators and other types of vertical
transportation equipment manufactured by others.
Distribution Ratio................. One share of DEI Common Stock, together with
the associated Right, for every five shares of
Dover Common Stock. Fractional shares, other
than those held by participants in certain Dover
benefit plans, will be aggregated into whole
shares of DEI Common Stock and sold on the
open market by the Distribution Agent, with the
proceeds thereof distributed to holders who would
otherwise be entitled to receive such fractional
shares. See "The Distribution - Manner of
Effecting the Distribution". No payment need be
made by Dover stockholders for the shares of DEI
Common Stock to be received by them, nor will
they be required to surrender or exchange Dover
Common Stock in order to receive DEI Common
Stock.
Shares to be Distributed........... Approximately 44.6 million shares of DEI
Common Stock, together with the associated
Rights, based on the number of shares of Dover
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Common Stock outstanding as of March 31,
1998. Dover will retain no ownership in
DEI.
Conditions to the Distribution..... The Distribution is subject to a number of
conditions, including (i) a favorable ruling of the
Internal Revenue Service (the "IRS") concerning
the tax-free nature of the Distribution, (ii) various
regulatory approvals (including declaration of
effectiveness of the Registration Statement of
which this Information Statement is a part by the
Securities and Exchange Commission), and (iii)
approval by Dover's Board of Directors of the
final terms of the Distribution, including, without
limitation, the formal declaration of a dividend to
Dover's stockholders and other specific actions
necessary to the Distribution. The Dover Board
of Directors may amend, modify or abandon the
Distribution at any time prior to the Distribution
Date.
Trading Market and Symbol.......... There is currently no public market for the DEI
Common Stock. Application is expected to be
made to list the DEI Common Stock on the NYSE
under the symbol "____". It is presently
anticipated that the DEI Common Stock will be
approved for listing on the NYSE prior to the
Distribution Date, and that trading will commence
on a "when issued" basis prior to the Record
Date.
Record Date........................ _______________, 1998.
Distribution Agent................. Harris Trust & Savings Bank.
Distribution Date.................. ______________, 1998. Dover will transfer
shares of DEI to the Distribution Agent for the
benefit of the record holders of Dover Common
Stock at the close of business on the Record Date.
DEI will participate in the Direct Registration
System to effect the Distribution, and shares of
DEI Common Stock will be distributed to Dover
stockholders in book-entry form. Commencing
on or about the Distribution Date, the Distribution
Agent will begin mailing account statements
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
reflecting ownership of shares of DEI Common
Stock to such holders of record of Dover
Common Stock. See "The Distribution - Manner
of Effecting the Distribution".
Tax Consequences................... Dover has applied for a ruling from the IRS to the
effect that the Distribution will be tax free to
Dover and its stockholders for U.S. Federal
income tax purposes. Receipt of such a ruling is
a condition to the Distribution. See "The
Distribution -- Certain Federal Income Tax
Consequences of the Distribution" for a more
detailed description of the Federal income tax
consequences of the Distribution.
Reasons for the Distribution....... Dover's management and Board of Directors have
concluded that the Distribution is in the best
interests of Dover and its stockholders. They
believe that the Distribution will enable Dover
and DEI to resolve certain management,
operational and financial differences which result
from operating dissimilar businesses within the
same corporate group and to facilitate possible
future tax-free acquisitions by each company
using its own stock.
Relationship between Dover and DEI
after the Distribution............. After the Distribution, Dover will have no
ownership interest in DEI, and DEI will be an
independent publicly-owned company. Dover and
DEI have entered and will enter into agreements
governing certain aspects of their relationship
subsequent to the Distribution. The agreements
provide for allocation of assets, liabilities and
responsibilities between them with respect to
employee benefits, compensation and intellectual
property, for allocation of certain insurance
responsibilities and for allocation of tax and
certain other liabilities between them for periods
prior to and after the Distribution. They also
provide for each party to make certain records
available to the other.
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
Preferred Stock Purchase Rights.... As of the Distribution Date, DEI will have
adopted a Rights Agreement (the "Rights
Agreement"). Certificates, if any, and book entry
credits issued in the Distribution representing
shares of DEI Common Stock will also represent
an equivalent number of associated Rights. See
"Certain Antitakeover Effects of Certain
Provisions of the Certificate of Incorporation, the
Bylaws, Delaware Law and the Rights
Agreement".
Certain Antitakeover Effects....... DEI's Certificate of Incorporation and Bylaws, as
each will be in effect as of the Distribution, the
Delaware General Corporation Law ("Delaware
Law") and the Rights Agreement contain
provisions that could make more difficult a
change in control of DEI in a transaction not
approved by the Board of Directors of DEI. See
"Risk Factors -- Certain Antitakeover Effects"
and "Certain Antitakeover Effects of Certain
Provisions of the Certificate of Incorporation, the
Bylaws, Delaware Law and the Rights
Agreement".
DEI Dividend Policy................ The payment and level of cash dividends by DEI
after the Distribution will be subject to the
discretion of the DEI Board of Directors.
Dividend decisions will be based on a number of
factors including DEI's operating results and
financial requirements on a stand-alone basis as
well as credit agreement and legal restrictions
relating thereto. See "Dividend Policy".
Risk Factors....................... Stockholders should carefully consider the matters
discussed under the section entitled "Risk Factors"
in this Information Statement.
</TABLE>
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<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated
financial data(1) which has been derived from DEI's audited consolidated
financial statements as of and for each of the three years in the period ended
December 31, 1997 and DEI's unaudited consolidated financial statements as of
and for each of the two years in the period ended December 31, 1994 and as of
and for the end of each of the three month periods ended March 31, 1997 and
1998. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of unaudited
information have been included. The interim results of operations may not be
indicative of the results for the full year. This summary consolidated financial
information should be read in conjunction with the information set forth under
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
Unaudited
Unaudited Three months
Year ended Year ended ended
December 31, December 31, March 31,
------------------------ --------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- -------- --------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 703,488 $720,646 $ 751,596 $795,907 $ 852,871 $202,085 $218,575
Net earnings(2) 29,741 21,007 21,312 51,001 56,097 14,163 15,912
Total assets 315,731 294,642 321,177 350,377 391,929 349,575 407,150
Long-term obligations
Due to (from) Dover
Corporation (60,892) 11,289 (5,615) 14,996 (1,342) 7,068 7,113
Deferred compensation 6,403 7,304 6,062 9,532 15,008 11,820 13,517
</TABLE>
(1) Dover Elevators, Inc. was formed in July 1998 to be the holding company
for Dover Elevator International, Inc and subsidiaries as of the
Distribution Date. The financial data shown is for Dover Elevator
International, Inc and subsidiaries and does not include the results of
European Elevator operations sold by Dover Corporation in June 1997.
(2) After special charges in the amount of $1,950 for 1997 ($3,000 pretax;
$1,050 tax); $18,384 for 1995 ($30,427 pretax; $12,043 tax) and $6,773 for
1994 ($11,500 pretax; $4,727 tax).
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<PAGE> 12
INTRODUCTION
On May 7, 1998, the Board of Directors of Dover announced a plan to
distribute the DEI Common Stock to all holders of outstanding Dover Common
Stock. On _______, 1998, the Dover Board of Directors formally approved the
Distribution and declared a dividend payable to each holder of record at the
close of business on the Record Date of one share of DEI Common Stock for every
five shares of Dover Common Stock held by such holder at the close of business
on the Record Date. As a result of the Distribution, 100% of the outstanding
shares of DEI Common Stock will be distributed to Dover stockholders on a pro
rata basis. The Distribution will be made on or about _______, 1998.
Stockholders of Dover with questions concerning the Distribution should
contact the Distribution Agent at ________________ or Dover Corporation,
Corporate Secretary, 280 Park Avenue, New York, New York 10017, telephone number
(212) 922-1640. After the Distribution Date, stockholders of DEI with inquiries
related to their investment in DEI should contact Dover Elevators, Inc., 280
Park Avenue, New York, New York 10017, telephone
number (212) 599-4310.
NO PERSON IS AUTHORIZED BY DOVER OR DEI TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
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<PAGE> 13
RISK FACTORS
CYCLICALITY OF THE REAL ESTATE CONSTRUCTION INDUSTRY
Historically, new elevator sales by DEI have been subject to cyclical
variations based, among other things, on general economic conditions and, in
particular, on conditions in the real estate construction industry. During
periods of expansion in real estate construction activity, DEI has generally
benefited from increased new building activity and demand for new elevator
installations. Conversely, during recessionary times, DEI has been adversely
affected by reduced demand for new installations. However, the majority of DEI's
earnings are derived from its participation in the elevator service sector,
where volume and pricing are generally less affected by the state of the real
estate construction industry. Nevertheless, there can be no assurance that a
decline in general economic conditions or the real estate construction industry
will not have a material adverse impact on DEI. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Cyclicality".
COMPETITION
The markets in which DEI operates are highly competitive. Competition in
each of DEI's markets is generally based on cost, customer service and
technology. DEI competes for new construction in the United States primarily
with the other four leading elevator manufacturers -- Otis Elevator Company, a
division of United Technologies ("Otis"), and the elevator operations of Kone
Corporation, a Finnish company ("Kone"), Schindler Holding Ltd., a Swiss company
("Schindler"), and Thyssen Industrie, a German company ("Thyssen") -- and also
competes to a lesser degree with small, locally-based independent companies.
Competition in the elevator service sector is also intense. There can be no
assurance that DEI will be able to maintain its competitive position or that the
actions of competitors will not have a material adverse impact on DEI. See
"Business -- Competition".
PRODUCT LIABILITY AND INSURANCE
Due to the nature of its business, DEI is routinely involved in resolving
claims relating to elevator incidents. DEI currently maintains insurance
policies and self-insures in amounts and with coverage and deductibles that it
deems appropriate, based on the nature and risks of its business, historical
experience and industry standards. There can be no assurance, however, that the
insurance desired by DEI will be available at acceptable rates, or claims in
excess of the Company's insurance coverage or claims not covered by insurance
will not have a material adverse effect on the Company. See "Relationship
Between Dover and DEI After the Distribution -- Insurance Arrangements
Agreement" and "Business -- Legal Proceedings".
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<PAGE> 14
INDEBTEDNESS
In connection with the Distribution, DEI will incur indebtedness to
financial institutions currently estimated to be between $175 and $200 million,
the proceeds of which will remain with Dover. After the Distribution, DEI will
have indebtedness that is significant in relation to its stockholders' equity.
While management believes DEI's cash flow will be sufficient to service
its debt and to reinvest in its business, a significant amount of DEI's cash
flow will be dedicated to payments of interest on debt. Covenants in the credit
facility or other financing agreements relating to such debt may restrict DEI's
ability to dispose of assets, incur additional indebtedness, pay dividends,
create liens on assets, make investments or acquisitions, engage in mergers or
consolidations, make capital expenditures or engage in other corporate
activities without the consent of its lenders. In addition, DEI's ability to
obtain additional financing on favorable terms may be reduced by reason of such
indebtedness. See "Relationship Between Dover and DEI After the Distribution -
Distribution Agreement", "Financing", and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
UNIONIZED LABOR FORCE
Approximately 60% of DEI's employees are represented by labor unions. The
largest portion of DEI's unionized employees are represented by the
International Union of Elevator Contractors under a labor contract expiring in
July 2002. This is a national labor contract, negotiated by an industry
management committee and its terms are substantially the same for all five major
elevator companies operating in the U.S., including DEI. Although DEI considers
its relations with its unionized employees and union representatives to be
satisfactory, there can be no assurance that DEI will be able to successfully
negotiate new union contracts or that its union employees will not engage in
strikes or work slowdowns or stoppages. Such strikes or work slowdowns or
stoppages and the resultant adverse impact on DEI's relationship with its
customers could have a material adverse effect on DEI's business, financial
condition and results of operations. See "Business-- Employees", and "Business--
Legal Proceedings".
ABSENCE OF PRIOR TRADING MARKET FOR DEI COMMON STOCK
There is currently no public trading market for DEI Common Stock.
Application is expected to be made to list the DEI Common Stock on the NYSE
under the symbol "_____". It is presently anticipated that the DEI Common Stock
will be approved for listing on the NYSE prior to the Distribution Date, and
trading is expected to commence on a "when-issued" basis prior to the Record
Date. The term "when issued" indicates a conditional transaction in a security
authorized for issuance but not as yet actually issued. All "when-issued"
transactions are on an "if" basis, to be settled if and when the actual security
is issued and the NYSE rules the transactions are to be settled.
-10-
<PAGE> 15
There can be no assurance as to the prices at which the DEI Common Stock
will trade before, on or after the Distribution Date. Until the DEI Common Stock
is fully distributed and an orderly trading market develops in the DEI Common
Stock, the price at which such stock trades may fluctuate significantly and may
be lower or higher than the price that would be expected for a fully distributed
issue. Prices for the DEI Common Stock will be determined in the marketplace and
may be influenced by many factors, including (i) the depth and liquidity of the
market for DEI Common Stock, (ii) developments affecting DEI's business, (iii)
investor perception of DEI, and (iv) general economic and market conditions. See
"The Distribution -- Listing and Trading of DEI Common Stock".
CERTAIN ANTITAKEOVER EFFECTS
The Certificate of Incorporation and Bylaws of DEI, certain sections of
Delaware Law and the Rights Agreement contain several provisions that may make
the acquisition of control of DEI in a transaction not approved by the Board
more difficult or expensive. See "Certain Antitakeover Effects of Certain
Provisions of the Certificate of Incorporation, the Bylaws, Delaware Law and the
Rights Agreement".
POTENTIAL TAXATION
DEI will enter into a Tax Sharing Agreement pursuant to which, among other
things, DEI will agree to indemnify Dover for taxes imposed as a result of
certain transactions, including a sale of 50% or more of the assets of DEI or
DEI engaging in certain equity or financing transactions, that cause the loss,
directly or indirectly, of the favorable tax treatment of the Distribution under
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Tax Sharing Agreement will also require DEI to take certain actions to preserve
the favorable tax treatment provided for rulings to be obtained from the IRS in
respect of the Distribution. If DEI causes the loss of such favorable tax
treatment, DEI's indemnification obligations could have a material adverse
effect on the results of operations and financial position of DEI. See "The
Distribution -- Certain Federal Income Tax Consequences of the Distribution" and
"Relationship Between Dover and DEI After the Distribution -- Tax Sharing
Agreement".
NO EXPERIENCE OPERATING AS AN INDEPENDENT PUBLIC COMPANY
DEI's success in operating as an independent public company will depend,
in part, on the ability of its management to successfully administer the
additional obligations associated therewith. The management of DEI, although
experienced in managing Dover's elevator business, does not have experience
operating an independent public company. DEI has historically relied on Dover
for certain administrative services such as tax and group credit facility
administration and securities law compliance. After the Distribution, DEI will
handle these functions on its own. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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<PAGE> 16
YEAR 2000 COMPLIANCE
Because most of DEI's elevator controllers are not "date aware",
management does not expect the operations of elevators containing such
controllers to be affected by the Year 2000 problem. DEI has tested its
controllers that are "date aware" and believes that such controllers will not be
affected by the date rollover. DEI has also conducted an examination of its
operations, is currently in the process of installing a new integrated
information system which is Year 2000 compliant, and by year end expects to have
updated, modified or replaced other systems which could be affected by the Year
2000 problem and have a material effect on DEI's business, financial condition
or results of operations, including those which later will be converted to the
new Year 2000 compliant integrated system. DEI is currently reviewing its
suppliers to determine whether they are Year 2000 compliant. The financial
impact to DEI to ensure year 2000 compliance has not been and is not anticipated
to be material to its business, financial condition or results of operations.
-12-
<PAGE> 17
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
Dover management has proposed the Distribution to enable Dover and DEI to
resolve certain management, operational and financial differences which result
from operating dissimilar businesses within the same corporate group and to
facilitate possible future tax-free acquisitions by each company using its own
stock.
MANNER OF EFFECTING THE DISTRIBUTION
On or before the Distribution Date, Dover will transfer to Harris Trust &
Savings Bank, as Distribution agent (the "Distribution Agent"), for the benefit
of holders of record of Dover Common Stock at the close of business on
______________, 1998 (the "Record Date"), all shares of DEI Common Stock then
owned by Dover.
The Distribution will be made to holders of record of Dover Common Stock
at the close of business on the Record Date, without any consideration being
paid by such holders, on the basis of one share of DEI Common Stock, together
with the associated Right, for every five shares of Dover Common Stock held on
the Record Date. DEI will participate in the Direct Registration System to
effect the Distribution, and shares of DEI Common Stock will be distributed to
Dover stockholders in book-entry form. Commencing on or about the Distribution
Date, the Distribution Agent will begin mailing account statements reflecting
ownership of shares of DEI Common Stock to such holders of record of Dover
Common Stock. Any DEI stockholders that would like to receive a certificate
representing their shares may contact the Distribution Agent. The shares of DEI
Common Stock will be fully paid and nonassessable and the holders thereof will
not be entitled to preemptive rights. See "Description of Capital Stock --
Common Stock".
No fractional shares will be distributed as part of the Distribution,
other than fractional shares which will be credited to the accounts of
participants in certain Dover retirement plans as described below. The
Distribution Agent will aggregate fractional shares, other than those held by
participants in such plans, into whole shares of DEI Common Stock and sell them
on the open market at prevailing prices on behalf of holders who would otherwise
be entitled to receive such fractional share interests. Any such persons
entitled to receive at least $0.01 will receive a cash payment for their portion
of the total sale proceeds. Any persons entitled to receive less than $0.01 will
have their fractional shares canceled.
Distribution of DEI Common Stock with respect to Dover Common Stock held
in the Dover retirement plans will be credited to participant's accounts.
Fractional shares will be credited with respect to each of these plans.
The Distribution is subject to a number of conditions, including (i) a
favorable ruling of the IRS concerning the tax-free nature of the Distribution,
(ii) various regulatory approvals
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<PAGE> 18
(including declaration of effectiveness of the Registration Statement of which
this Information Statement is a part by the Securities and Exchange Commission),
and (iii) approval by Dover's Board of Directors of the final terms of the
Distribution, including without limitation, the formal declaration of a dividend
to Dover's stockholders and other specific actions necessary to the
Distribution.
The Dover Board of Directors may amend, modify or abandon the Distribution
at any time prior to the Distribution Date.
RESULTS OF THE DISTRIBUTION
Subsequent to the Distribution, which will be effective at 11:59:59 p.m.,
New York City time, on the Distribution Date, DEI will operate as an independent
elevator company, and Dover will continue to conduct its other businesses.
Immediately after the Distribution, DEI will be owned by the stockholders of
Dover.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Prior to the Distribution, Dover expects to receive a ruling from the IRS
to the effect that the Distribution will qualify as a tax-free Distribution
under Sections 355 and 368 of the Code, and, accordingly, that (i) except as
described below with respect to fractional shares, Dover stockholders will not
recognize income, gain or loss upon the receipt of shares of DEI Common Stock;
(ii) the aggregate tax basis of the shares of Dover Common Stock and DEI Common
Stock (including any fractional share interests to which a Dover stockholder is
entitled) held by a Dover stockholder after the Distribution will be the same as
the tax basis of the shares of Dover Common Stock held by such stockholder
immediately before the Distribution, and will be allocated between the shares of
DEI Common Stock and Dover Common Stock in proportion to their relative fair
market values on the Distribution Date; (iii) the holding period of the shares
of DEI Common Stock received by a Dover stockholder (including any fractional
share interests to which a Dover stockholder is entitled) will include the
holding period of the shares of Dover Common Stock with respect to which the
Distribution was made, provided that the shares of Dover Common Stock are held
as a capital asset by such stockholder on the Distribution Date; and (iv) cash
received in lieu of fractional share interests in DEI Common Stock will give
rise to gain or loss equal to the difference between the amount of cash received
and the tax basis allocable to such fractional share interests. Such gain or
loss will be capital gain or loss if the shares of Dover Common Stock are held
as a capital asset on the Distribution Date.
U.S. Treasury regulations require each Dover stockholder that receives
shares of DEI Common Stock in the Distribution to attach to the holder's U.S.
Federal income tax return for the year in which such stock is received a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution. Within a
reasonable time after the Distribution, Dover will provide each Dover
stockholder of record as of the Record Date with the information necessary to
comply with that requirement, and will provide information regarding the
allocation of basis described in clause (ii) above.
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<PAGE> 19
The foregoing is a summary of the material U.S. Federal income tax
consequences of the Distribution under the law in effect as of the date of this
Information Statement. IT DOES NOT PURPORT TO COVER ALL INCOME TAX CONSEQUENCES
AND MAY NOT APPLY TO STOCKHOLDERS WHO ACQUIRED THEIR DOVER SHARES IN CONNECTION
WITH A GRANT OF SHARES AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE
UNITED STATES, OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE.
All Dover stockholders should consult their own tax advisors regarding the
appropriate income tax treatment of their receipt of DEI Common Stock, including
the application of Federal, state, local and foreign tax laws, and the effect of
possible changes in tax law that may affect the tax consequences described
above.
LISTING AND TRADING OF DEI COMMON STOCK
There is currently no public trading market for the DEI Common Stock.
Application is expected to be made to list the DEI Common Stock on the NYSE
under the symbol "_____". It is presently anticipated that the DEI Common Stock
will be approved for listing on the NYSE prior to the Distribution Date, and
that trading will commence on a "when-issued" basis prior to the Record Date.
The term "when issued" indicates a conditional transaction in a security
authorized for issuance but not as yet actually issued. All "when-issued"
transactions are on an "if" basis, to be settled if and when the actual security
is issued and the NYSE rules the transactions are to be settled.
There can be no assurance as to the prices at which the DEI Common Stock
will trade before, on or after the Distribution Date. Until the DEI Common Stock
is fully distributed and an orderly trading market develops in the DEI Common
Stock, the price at which such stock trades may fluctuate significantly and may
be lower or higher than the respective price that would be expected for a fully
distributed issue. Prices for the DEI Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for DEI Common Stock, (ii) developments affecting DEI's
business, (iii) investor perception of DEI, and (iv) general economic and market
conditions. See "Risk Factors -- Absence of Prior Trading Market for DEI Common
Stock". As of February 27, 1998, there were 13,040 record holders of Dover
Common Stock, which approximates the number of prospective record holders of DEI
Common Stock.
Shares of DEI Common Stock issued in the Distribution will be freely
transferable, except for securities received by persons who may be deemed to be
affiliates of DEI ("Affiliates") under the Securities Act of 1933, as amended
(the "Securities Act"). Affiliates would generally include individuals or
entities that control, are controlled by, or are under common control with DEI
and will include certain officers and directors of DEI. Persons who are
Affiliates of DEI will be permitted to sell their shares of DEI Common Stock
only pursuant to an effective registration statement under the Securities Act or
an exemption from the registration requirements of the Securities Act.
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<PAGE> 20
RELATIONSHIP BETWEEN DOVER AND DEI AFTER THE DISTRIBUTION
For the purpose of governing certain of the relationships between Dover
and DEI after the Distribution, Dover and DEI will enter into the various
agreements described below. The agreements summarized below have been filed as
exhibits to the Registration Statement of which this Information Statement is a
part, and the following summaries are qualified in their entirety by reference
to the definitive agreements.
DISTRIBUTION AGREEMENT
Dover and DEI will enter into a Distribution and Indemnity Agreement (the
"Distribution Agreement") providing for, among other things, the principal
corporate transactions to effect the Distribution and certain other agreements
governing the relationship between Dover and DEI with respect to and in
consequence of the Distribution.
Subject to certain exceptions, the Distribution Agreement provides for
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of DEI with DEI and financial responsibility for the
liabilities of Dover with Dover. The Distribution Agreement also provides that
each of Dover and DEI will indemnify the other in the event of certain
liabilities arising under the federal securities laws.
In the Distribution Agreement, each of Dover and DEI has agreed to make
available to the other for a limited period certain administrative services to
assist in effecting an orderly transition following the Distribution. The party
providing such services will be entitled to reimbursement for all direct costs
of providing such services, including amounts relating to supplies,
disbursements and other out-of-pocket expenses. These costs are not expected to
be material.
The Distribution Agreement provides that, except as otherwise set forth
therein or in the other agreements between Dover and DEI relating to the
Distribution, all costs and expenses arising prior to the Distribution Date in
connection with the Distribution will be paid by Dover.
TAX SHARING AGREEMENT
Dover and DEI will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") that reflects each party's rights and obligations with respect to
payments and refunds of taxes attributable to periods beginning prior to and
including the Distribution Date and taxes resulting from transactions effected
in connection with the Distribution. The Tax Sharing Agreement will provide for
payments between the two parties for certain tax adjustments made after the
Distribution that cover pre-Distribution tax liabilities. Other provisions will
cover the handling of audits, settlements, elections, and return filing in cases
where both parties have an interest. Pursuant to the Tax Sharing Agreement, DEI
will agree to indemnify Dover for taxes imposed as a result of certain
transactions, including a sale of 50% or more of the assets of DEI or DEI
engaging in certain equity or financing transactions, that cause the loss,
directly or indirectly,
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<PAGE> 21
of the favorable tax treatment of the Distribution under Section 355 of the
Code. The Tax Sharing Agreement will also require DEI to take certain actions to
preserve the favorable tax treatment provided for in rulings to be obtained from
the IRS in respect of the Distribution. See "The Distribution -- Certain Federal
Income Tax Consequences of the Distribution" and "Risk Factors -- Potential
Taxation".
EMPLOYEE MATTERS AGREEMENT
Dover and DEI will enter into an Employee Matters Agreement (the "Employee
Matters Agreement") providing for the treatment of employee benefit matters,
primarily retirement benefits, and other compensation arrangements for certain
former and current employees of DEI.
INSURANCE ARRANGEMENTS AGREEMENT
Prior to the Distribution, DEI participated in a partially self-insured
program with Dover whereby Dover and DEI took responsibility for claims of up to
$1 million plus amounts in excess of coverage provided by commercial insurance
policies. Dover and DEI will enter into an Insurance Arrangements Agreement
providing that DEI will be responsible for all payments of claims and related
costs made with respect to the elevator business after the Distribution Date
regardless of the date of occurrence of the event which gave rise to the claim.
INTELLECTUAL PROPERTY AGREEMENT
DEI has been using the "Dover" trade name, trademark and service mark (the
"Dover Intellectual Property") on products, equipment, facilities, stationery,
advertising and promotional materials. Dover and DEI will enter into an
Intellectual Property Agreement (the "Intellectual Property Agreement") pursuant
to which Dover will grant DEI a royalty-free license to use the Dover
Intellectual Property in connection with DEI's elevator business. This license
will be perpetual, except that DEI's right to use the Dover Intellectual
Property will terminate two years from the date of the occurrence of either (i)
a Change in Control of DEI (as defined in the Intellectual Property Agreement)
or (ii) a material change in the nature of DEI's business (with such
determination to be made in the sole judgment of Dover).
OFFICE SUBLEASE
DEI's executive offices will be located in space sublet from Dover on
terms which DEI believes equivalent to market rates determined after arms-length
negotiation.
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<PAGE> 22
FINANCING
On the Distribution Date, DEI's management expects to enter into a
five-year, unsecured revolving credit facility (the "Credit Facility") with a
syndicate of commercial banks and financial institutions. The Credit Facility
will enable DEI to borrow funds at variable interest rates on a revolving credit
basis up to an aggregate amount of $250 million, subject to the terms and
conditions thereof. The Credit Facility will contain certain representations and
warranties, conditions, affirmative, negative and financial covenants, and
events of default customary for such facilities. At the time of the
Distribution, Dover Corporation will be the obligor under the Credit Facility
and will borrow approximately $175 to 200 million thereunder. When the
Distribution occurs, the proceeds of such borrowing will remain with Dover, DEI
will become the obligor under the Credit Facility and Dover will be released as
the obligor with respect thereto. After the Distribution Date, unused amounts
available under the Credit Facility will be available for DEI's working capital
requirements and general corporate purposes.
DIVIDEND POLICY
The payment and level of cash dividends, if any, declared by DEI after the
Distribution will be subject to the discretion of the DEI Board. Dividend
decisions will be based on a number of factors, including DEI's operating
results and financial requirements on a stand-alone basis as well as credit
agreement and legal restrictions relating thereto. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Liquidity and
Capital Resources".
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<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data(1) which has been derived from DEI's audited consolidated financial
statements as of and for each of the three years in the period ended December
31, 1997 and DEI's unaudited consolidated financial statements as of and for
each of the two years in the period ended December 31, 1994 and as of and for
each of the three month periods ended March 31, 1997 and 1998. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of unaudited information have been included.
The interim results of operations may not be indicative of the results for the
full year. This selected consolidated financial data should be read in
conjunction with the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
Unaudited Unaudited
Year ended Year ended Three months ended
December 31, December 31, March 31,
---------------------- ----------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- -------- --------- -------- --------- -------- --------
(in thousands except per share figures)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 703,488 $720,646 $ 751,596 $795,907 $ 852,871 $202,085 $218,575
Gross profit(2) 159,907 170,164 183,233 216,162 239,136 57,423 64,011
Operating profit(2) 47,800 38,884 48,185 80,629 90,655 22,415 24,714
Earnings before taxes on
income(2) 48,751 33,468 32,502 82,317 90,091 22,750 24,753
Taxes on income(2) 19,010 12,461 11,190 31,316 33,994 8,587 8,839
Net earnings(2) 29,741 21,007 21,312 51,001 56,097 14,163 15,912
OTHER OPERATING DATA:
Bookings 374,447 374,524 401,701 429,076 519,971 146,838 156,919
Capital Expenditures 5,214 9,189 9,251 9,987 21,941 3,204 8,860
Working Capital 76,313 65,143 77,023 89,393 109,342 94,747 123,248
BALANCE SHEET DATA (AT PERIOD END):
Total Assets 315,731 294,642 321,177 350,377 391,929 349,575 407,150
Long-term Obligations
Due to (from) Dover (60,892) 11,289 (5,615) 14,996 (1,342) 7,068 7,113
Corporation
Deferred compensation 6,403 7,304 6,062 9,532 15,008 11,820 13,517
PRO FORMA FINANCIAL DATA:
(UNAUDITED)
Net earnings 46,527 13,325
Per Share income from
continuing operations
- Basic $ 1.04 $ 0.30
- Diluted $ 1.04 $ 0.30
Long term debt 175,000
</TABLE>
(1) Dover Elevators, Inc. was formed in July 1998 to be the holding company
for Dover Elevator International, Inc. and subsidiaries as of the
Distribution Date. The financial data shown is for Dover Elevator
International, Inc and subsidiaries and does not include the results of
European Elevator operations sold by Dover Corporation in June 1997.
(2) After special charges:
<TABLE>
<CAPTION>
1994 1995 1997
------- ------- ------
<S> <C> <C> <C>
Gross profit $ -- $ 7,397 $ --
Operating profit 11,500 12,749 --
Earnings before taxes on income 11,500 30,427 3,000
Taxes on income 4,727 12,043 1,050
Net earnings 6,773 18,384 1,950
</TABLE>
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
DEI is the leading manufacturer and installer of new elevators in the
United States, and is a leading provider of post-installation elevator services
in the United States and Canada. DEI is the largest manufacturer and installer
of hydraulic elevators and a major manufacturer and installer of traction
elevators in the United States. DEI provides contract maintenance for a
significant portion of the units manufactured and installed by DEI, and also
provides contract maintenance for elevators, escalators and other types of
vertical transportation equipment manufactured by others.
DEI manufactures elevators and elevator components at two plants located
in Tennessee and Mississippi. DEI currently installs, modernizes and services
elevators throughout the United States and Canada through a network of
approximately 120 field offices run by wholly-owned subsidiaries. DEI also sells
equipment to distributors and operates joint ventures in select international
markets, including China and Australia.
DEI is a wholly-owned subsidiary of Dover. On May 7, 1998, the Board of
Directors of Dover announced a plan to distribute all of its interest in DEI to
Dover stockholders. Subsequent to the Distribution, which is subject to certain
conditions, DEI will operate as an independent elevator company and Dover will
continue to conduct its other businesses.
On or prior to the Distribution Date, DEI and Dover will enter into
certain agreements providing for the separation of the companies and governing
their relationship subsequent to the Distribution. These agreements provide for,
among other things, a license with respect to the Dover Intellectual Property,
allocation of assets, liabilities and responsibilities between them with respect
to employee benefits and compensation, allocation of certain insurance
responsibilities and allocation of tax and certain other liabilities between
them for periods prior to and after the Distribution. See "Relationship between
Dover and DEI After the Distribution".
The financial information included herein does not necessarily reflect the
results of operations and financial condition of DEI in the future or the
results of operations and financial condition of DEI had it operated as a
separate, stand-alone entity during the periods presented. This is due in part
to the historical operation of DEI as part of the larger Dover Corporation. The
financial information included herein does not reflect any changes that may
occur in the funding and operations of DEI as a result of the Distribution.
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<PAGE> 25
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET SALES
Net sales for the three months ended March 31, 1998 were $218.6 million,
representing an increase of $16.5 million or 8.2% over the same period of 1997.
Sales in the North American field operations were responsible for the majority
of the increase. The strength of the backlog at the end of 1997 fueled by a
solid new elevator market continued to have a positive impact. New elevator
production and installation revenues increased $16.4 million or 14.9% over 1997.
Domestically, new elevator pricing remains competitive despite an increase in
demand. Consequently, pricing had a minimal affect on the increase in revenues.
Repair sales declined during this period. This was offset by maintenance
revenues which increased 1.9% as the ongoing pruning of marginal service
accounts offset isolated price increases and modest growth in the number of
elevators under service.
GROSS PROFIT AND OPERATING PROFIT
As a percent of sales, gross profit for the three months ended March 31,
1998 at 29.3% was .9% points over the same period of 1997. The combination of
increased new elevator volume along with selective price increases on
maintenance contracts and the pruning of marginal maintenance contracts had the
most significant impact on gross margins. Efforts continue to be focused on
improved pricing where possible and better execution in construction and repair
work. The staged move of manufacturing operations from the Horn Lake plant to
the Middleton and Walnut plants during the quarter continued on schedule.
Consequently, lead times have not been adversely affected. The $13 million being
invested in the plant consolidation is projected to meet management's
expectations and achieve an attractive rate of return.
The selling, general and administrative expenses for the three months
ended March 31,1998 at $39.3 million exceeded the same period of 1997 by $4.3
million. As a percent of sales, these expenses increased from 17.3% in 1997 to
18.0% in 1998. The impact of the installation of SAP accounts for part of the
increase as the project had just started during the first quarter of 1997. The
Canadian field operations made a change in allocation that increased SG&A for
1998 disproportionately when compared to 1997. This change was made to achieve
more consistency in reporting. An increase in the accrual to the long term
incentive program based on improved financial performance also had an impact.
The North American field operations also continued its efforts to strengthen the
sales force infrastructure.
Operating profit for the three months ended March 31,1998 at $24.7 million
exceeded the same period of 1997 by $2.3 million. Volume had the most
significant impact on earnings for the period. Operating margins for the period
were 11.3%.
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<PAGE> 26
OTHER DEDUCTIONS/INCOME
Other income at $39K decreased $296K from 1997. The decrease was due
primarily to a larger foreign exchange loss in the Canadian field operation when
compared to the same period of the prior year.
TAXES ON INCOME
The effective corporate tax rate for the three months ended March 31,1998
of 35.7% was 2.0% points lower than the 1997 effective rate of 37.7%. This was
due principally to lower state taxes and increases in R&D and FSC credits.
BOOKINGS
Bookings (defined as new business contracted during the period) rebounded
from a slow start and continued to improve throughout the quarter. March
bookings were the best monthly results in recent history. Bookings for the three
months ended March 31, 1998 at $156.9 million were 6.9% ahead of the same period
of 1997. Domestic orders continued on a solid pace and were led by hydraulic
units. Traction orders reflected a strong performance in the U.S. market.
Nonresidential construction, after a brief retreat in January, has returned to
the elevated levels achieved during 1997. Both the commercial and public market
segments have shown increased activity during the first quarter of 1998.
Residential construction, a leading indicator of the nonresidential market, also
indicated continued growth in the near term.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales for year ended December 31, 1997 were $852.9 million,
representing an increase of $57.0 million or 7.2% over 1996. Sales in the North
American field operations were responsible for the majority of the increase. The
strength of the construction market combined with the momentum of the
reorganized field organization in its second year of operation continued to have
a positive impact. In North America, new elevator production and installation
revenues increased $58.3 million or 14.1% over 1996 while international sales
declined. Maintenance revenues, in North America, increased less than 1% as the
ongoing aggressive strategy of pruning marginal service accounts offset service
account growth.
GROSS PROFIT AND OPERATING PROFIT
As a percent of sales, gross profit for 1997 at 28.0% improved .8% points
from 1996. Increased volume combined with improving execution in new
construction had a significant impact. Selective price increases and the ongoing
reduction of marginal maintenance contracts also made a contribution, as did
cost reduction programs focused on the reduction of the fixed cost base.
The selling, general and administrative expenses at $148.5 million
exceeded 1996 by $12.9 million. Non-recurring costs in the international
operations and other one-time accruals accounted for $3.6 million of the
increase. An additional $1.9 million was spent on the installation of an SAP
integrated information system for the entire organization. This represents
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<PAGE> 27
the beginning of a three to four year program. As a percent of sales, these
expenses increased from 17.0% in 1996 to 17.4% in 1997.
Operating profit at $90.7 million exceeded 1996 by $10.0 million despite
the non-recurring costs in the international operations and other one-time
accruals. Operating leverage had a positive impact as a modest 7.2% increase in
sales, generated a 12.4% increase in operating earnings. Earnings before tax
rose to 10.6% of sales from 10.3% in 1996 despite a $3 million reserve for the
closing of the Horn Lake plant.
OTHER DEDUCTIONS/INCOME
Other deductions at $564K increased $2.3 million from 1996. The increase
was due primarily to a $3 million reserve for the Horn Lake plant closing as
noted above.
TAXES ON INCOME
The effective corporate tax rate of 37.7% in 1997 was 0.3% points lower
than the 1996 effective rate of 38.0% due principally to an increase in the
research and development credit and FSC credits.
BOOKINGS
Market conditions in an already strong hydraulic market improved over 1996
and the traction market also expanded slightly during the year. Bookings for the
year were 21% ahead of 1996. New elevator units booked were the highest on
record. Domestic bookings were responsible for the results.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales for year ended December 31, 1996 were $795.9 million,
representing an increase of $44.3 million or 5.9% over 1995. Sales in the North
American field operations had the most significant impact and were driven by a
combination of new elevator installation and maintenance sales. While market
conditions in the hydraulic market improved, the reorganization of field
operations under a new management had the most significant impact on sales. In
the area of new elevator installation, a more focused aggressive selling effort
in the hydraulic market was chiefly responsible as only modest gains in the
traction market were achieved. Efforts in service sales were concentrated on a
more assertive selling effort to improve the service base while generating more
repair business.
GROSS PROFIT AND OPERATING PROFIT
As a percent of sales, gross profits for 1996 at 27.2% improved 2.8%
points from 1995. In the North American field operations, gross profits improved
from a combination of factors. In 1995, gross profits were negatively affected
by $7.4 million of non-recurring charges, the majority of which were due to the
adoption of a new method of measuring the percentage of completion for new
elevator installations and repairs. Increased volume along with efficiencies in
new elevator installations had a positive impact. Service gross profits also
improved due to
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<PAGE> 28
the elimination of marginal maintenance contracts and modest price increases on
a limited number of contracts. The fixed cost base reduction initiative, driven
primarily by employee reductions in late 1995, also had a positive affect.
The selling, general and administrative expenses at $135.5 million were
virtually unchanged from 1995. However, 1995 included special charges of $5.3
million. Ongoing efforts to reduced the fixed cost base were offset by an
increase in the North American selling expense as the strategy to strengthen the
sales force infrastructure continued.
Operating profit at $80.6 million exceeded 1995 by $32.4 million or 67.3%.
The impact of the special charges of $12.7 million taken in 1995 had a notable
impact on the gain. The balance was due to the impact of operating leverage
where an increase in volume was leveraged against a reduced cost structure.
Adjusting for the special charges, the 5.9% increase in sales generated a 32.3%
increase in operating profit.
OTHER DEDUCTIONS/INCOME
Other income at $1.7 million improved $17.4 million from 1995 due
primarily to non-recurring costs of $17.7 million that were taken in 1995. The
majority of these costs were related to the Canadian plant which was not only
closed but absorbed a write down to market value.
TAXES ON INCOME
The effective corporate tax rate of 38.0% in 1996 was 3.6% points higher
than the 1995 effective rate of 34.4% due principally to a change in foreign
taxes. In 1995, a net $3.9 million credit was booked due in large part to the
closing of the Canadian manufacturing facility and write down of the property.
BOOKINGS
Bookings at $429.1 million increased $27.4 million or 6.8% over 1995. The
North American hydraulic market continued to improve throughout the year and,
along with a more aggressive selling effort, was chiefly responsible for the
increase. Only modest gains in the traction market were achieved.
LIQUIDITY AND CAPITAL RESOURCES
The most significant component of DEI's investment is working capital.
Excluding cash and insurance accruals this amounted to $162 million or 19% of
sales at the end of 1997. Changes to this investment are primarily driven by the
real estate construction market. DEI also requires capital for replacement and
improvements of existing plant, equipment, and processes. Net property, plant,
and equipment was $48.2 million (6% of sales) at the end of 1997. The accrued
insurance liability represents the excess of accruals (charged to insurance)
over actual payments. In recent years, accruals and payments have been
approximately in balance. Cash generated from operations is the principal source
of funding available and provides strong
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<PAGE> 29
liquidity to meet DEI's operational cash needs. Cash and cash equivalents
totaled $28.4 million at March 31, 1998, compared with $21.7 million at December
31, 1997.
Operating activities generated $7.9 million in after tax cash during the
first three months of 1998 as compared to $8.0 million of cash provided in the
first quarter of the prior year. On a historical basis, DEI has generated net
cash after taxes from operations of $53.5 million, $55.5 million, and $37.0
million during the fiscal years ended December 31, 1997, 1996, and 1995,
respectively. The improvement in 1996 was principally driven by an increase in
net income.
Cash flows used in investing activities during the first three months
ended March 31, 1998 at $9.7 million is related primarily to capital
expenditures for plant and equipment for the factories. DEI expects capital
expenditures for 1998 to reach $20 million but decline to a pace of $10 to $15
million for each of the next three years and more in line with depreciation. The
expenditures will focus on continuing improvements or replacements of capital
equipment in the factories along with some of the cost of converting to an
integrated company-wide information system. Historically, investing activities
have also focused on capital expenditures for plant and equipment. This has been
done in an effort to achieve world class manufacturing techniques and processes
in the factories by a commitment to new technology. Investing activities for
1997, 1996, and 1995 have been $20.6 million, $9.8 million, and $8.4 million,
respectively. The majority of the investing activity is related to capital
expenditures to improve operating efficiencies in the field and factory.
Dover Corporation, the parent, has historically served as the primary
source of financing for DEI. Under the parent's cash management procedures, DEI
has advanced cash not needed in its business to the parent either through an
advance account or as dividends. Historically, DEI has been a generator of cash,
providing its parent with $32.5 million, $40.8 million, and $22.8 million in
1997, 1996, and 1995, respectively. In the 1998 first quarter, DEI was a net
user of parent cash of $8.5 million due to increased working capital
requirements and larger than normal capital expenditures. Management expects
that DEI will be a net generator of cash for the full year 1998.
On the Distribution Date, DEI's management expects to enter into a
five-year, unsecured revolving credit facility (the "Credit Facility") with a
syndicate of commercial banks and financial institutions. The Credit Facility
will enable DEI to borrow funds at variable interest rates on a revolving credit
basis up to an aggregate amount of $250 million, subject to the terms and
conditions thereof. At the time of the Distribution, Dover Corporation will be
the obligor under the Credit Facility and will borrow approximately $175 to 200
million thereunder. When the Distribution occurs, the proceeds of such borrowing
will remain with Dover, DEI will become the obligor under the Credit Facility
and Dover will be released as the obligor with respect thereto. After the
Distribution Date, unused amounts available under the Credit Facility will be
available for DEI's working capital requirements and general corporate purposes.
Management believes that DEI's strong free cash flow and available borrowings
under the Credit Facility will be sufficient to meet its debt service
obligations, capital expenditure requirements and possible distributions in the
form of dividends to equity holders. Dividend decisions will
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<PAGE> 30
be based on a number of factors, including DEI's operating results and financial
requirements as well as credit agreements and legal restrictions relating to
those agreements.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF YEAR 2000
DEI has established a plan for identifying, renovating, testing, and
implementing solutions for Year 2000 processing. Except for one type of system,
DEI's elevator controllers are not designed to be "date aware". Because these
elevator controllers are not aware of the actual date or time of day, DEI
expects there will be no operational problems arising from the effects of the
year 2000 date change on the Company's controllers. The system which is "date
aware" was provided with a time clock board to allow optional control of group
peak operation activation time. Only time-of-day and day-of-week functionality
exist. The time clock board and the elevator system have been successfully
tested to handle the date rollover.
DEI is currently in the process of implementing a plan that will make all
of the Company's information systems Year 2000 compliant. The plan includes the
implementation of an SAP system, a new integrated information system, commencing
with the factories. An upgrade of the existing field information system to be
Year 2000 compliant is in process and is expected to be completed by year end,
followed later by conversion to the new SAP Year 2000 compliant integrated
system.
DEI has also initiated communications with suppliers to determine the
extent to which DEI may be vulnerable to such parties' failure to make their
systems Year 2000 compliant. There can be no guarantee that the systems of other
companies on which DEI's operations rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
DEI's systems, would not have material adverse effect on DEI. However, based on
its current assessment, management believes that the Year 2000 issue will not
have a material adverse impact on DEI's future results of operations or
financial conditions, although there can be no assurance that such will be the
case.
CYCLICALITY
Historically, new elevator sales by DEI have been subject to cyclical
variations based, among other things, on general economic conditions and, in
particular, on conditions in the real estate construction industry. During
periods of expansion in real estate construction activity, DEI has generally
benefited from increased new building activity and demand for new elevator
installations. Conversely, during recessionary times, DEI has been adversely
affected by reduced demand for new installations. However, the majority of DEI's
earnings are derived from its participation in the elevator service sector,
where volume and pricing are generally less affected by the state of the real
estate construction industry. Nevertheless, there can be no assurance that a
decline in general economic conditions or the real estate construction industry
will not have a material adverse impact on DEI. See "Risk Factors - Cyclicality
of the Real Estate Construction Industry". FMI(R), an established construction
industry management consulting firm, has reported that the value of new
nonresidential real estate construction put in
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<PAGE> 31
place in the United States increased approximately 29% from 1994 to 1997, and
forecasts that new nonresidential activity will remain strong, at least through
1999. Management of DEI believes that the real estate construction market in
general is in a mature stage of expansion and expects only moderate growth over
the next two years.
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<PAGE> 32
BUSINESS
OVERVIEW
DEI is the leading manufacturer and installer of new elevators in the
United States, and is a leading provider of post-installation elevator services
in the United States and Canada. DEI is the largest manufacturer and installer
of hydraulic elevators and a major manufacturer and installer of traction
elevators in the United States and Canada. DEI provides contract maintenance for
a significant portion of the units manufactured and installed by DEI, and also
provides contract maintenance for elevators, escalators and other types of
vertical transportation equipment manufactured by others.
DEI manufactures a large selection of pre-engineered and custom designed
elevators and elevator components at two plants located in Tennessee and
Mississippi. DEI currently installs, modernizes and services elevators
throughout the United States and Canada through a network of approximately 120
field offices run by wholly-owned subsidiaries. DEI also sells equipment to
distributors and operates joint ventures in select international markets,
including China and Australia.
DEI plans to pursue a focused-growth strategy designed to achieve both
increased revenue and increased earnings. The key elements of this strategy
include: maintaining DEI's leadership in the U.S. hydraulic market, continuing
DEI's efficient operations, the pursuit of select international operations and
consideration of acquisition opportunities.
DEI, through its predecessor Rotary Lift Company ("Rotary Lift"), began as
a rotary automobile lift manufacturer in 1925, developed the Oildraulic (R)
hydraulic elevator in 1937 and sold automotive lift and elevator equipment
primarily to independent distributors who installed and serviced the equipment.
In 1948, DEI began its entry into the hydraulic elevator installation and
service business. Since that time, DEI has expanded its product range and
established its proprietary distribution and service network throughout the
United States and Canada.
Dover Elevators, Inc. was incorporated on July 7, 1998 in Delaware to
serve as a holding company for all of Dover's elevator businesses. DEI's
principal executive offices are located at 280 Park Avenue, New York, New York
10017, and its telephone number is (212) 599-4310.
INDUSTRY
GENERAL
The U.S. elevator market, from which DEI derives most of its revenues, is
estimated at approximately $3 billion in 1997. Of this, approximately $1 billion
represents production and installation of new hydraulic and traction elevators
(which are defined below) and the rest was maintenance, repair and modernization
of existing elevators. As a general rule, more than half of the cost of a new
elevator is spent on its installation (primarily labor). Similarly, the largest
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<PAGE> 33
cost elements in elevator service activities are the wages and benefits of
service technicians. Consequently, effective training, organization and support
of the "field" organization are key competitive factors in the elevator
industry.
DEI derived approximately 60% of its total 1997 revenue from production
and installation of elevators. DEI estimates the 1997 U.S. market for hydraulic
elevators at approximately 16,000 units with an aggregate sales price close to
$700 million. DEI has been the leader in this market for over 30 years with its
1997 share over 40% -- roughly twice that of the next largest participant
(Otis). DEI had about 30% of the approximately 3,000 unit U.S. traction elevator
market in 1997 - second only to Otis. The other major participants in the new
elevator market in the United States are Kone, Schindler and Thyssen, but DEI is
the largest factor in this market, measured in both units and dollars.
The elevator service market is somewhat more fragmented, with many small,
local firms which compete on a price basis, generally for older, easy to
maintain equipment, as well as the manufacturers which compete on the basis of
their work quality and technical resources and capture a substantial majority of
the elevator service business. DEI has approximately 100,000 elevators under
service, a number that has grown over time as DEI's installed base has expanded.
The Company also services other manufacturers' equipment ("foreign" service),
but this is less profitable than servicing its own equipment. The terms of DEI's
maintenance contracts typically range from one to five years.
The world-wide elevator market is much larger than North America, but the
importance of local installation and services, and differences in elevator
preferences and standards, makes it more of a series of regional markets that a
single global one. DEI's relative position in the U.S. market has been
essentially as described above for at least 15 years, despite the efforts of
larger (in revenues) international firms to gain market share at DEI's expense.
TYPES OF ELEVATORS
There are two primary types of elevators: hydraulic elevators and traction
elevators.
Hydraulic Elevators
Hydraulic elevators use oil under pressure in a cylinder equipped with a
plunger or piston which, in effect, pushes the elevator car at speeds up to 200
feet per minute. Less costly to manufacture and install than traction elevators
but with physical limitations on speed and travel distance, these elevators are
commonly used in low-rise buildings from two to seven floors. The average
installation cycle for a hydraulic elevator is approximately nine months from
the date of contract to the completed installation.
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<PAGE> 34
Traction Elevators
Traction elevators use electric motor/cable systems to pull the elevator
car up, and can be either geared or gearless. Geared units use a hoisting
machine with a reduction gear and a high speed motor and can operate at speeds
from 25 to 500 feet per minute. Geared units are typically used in mid-rise
buildings (up to 16 stories) and in low-rise buildings demanding greater speed
than hydraulic elevators. Gearless units use a hoisting machine with a large,
directly-connected, slow-speed motor and no reduction gear, and can operate at
speeds from 400 to 2,000 feet per minute. Gearless units are typically used in
high-rise buildings (17 or more stories). The average installation cycle is
approximately 18 months for a traction elevator.
ELEVATOR INDUSTRY ACTIVITIES
The elevator industry can be divided conceptually into two types of
activity: elevator systems and elevator services, although there are substantial
"shared" internal overhead costs and business and technology linkages. DEI
currently operates as a unitary business within Dover.
Elevator Systems
Systems include the manufacture and installation of new elevator
equipment. Because contracts are generally awarded at the time of the
commencement of building construction, there is a lead time between the time a
contract for new installation is entered into and the time when manufacture,
construction and installation of the elevator is completed, the length of which
depends on the type of elevator. This lead time results in significant backlog.
However, the majority of cost associated with this backlog is related to
installation activities which are difficult to estimate and control. In
addition, because new installations primarily result from new building
construction, this sector of the industry is dependent on activity in the real
estate construction industry and shares that industry's cyclical swings.
Substantially all of systems work in the United States is performed by DEI and
the other four leading elevator manufacturers -- Kone, Otis, Schindler and
Thyssen.
Elevator Services
Services provided include maintenance, repairs, and modernization of
existing elevator equipment.
Maintenance and Repairs. Maintenance includes the servicing and repair of
existing elevator equipment as outlined by a maintenance agreement. Maintenance
is conducted by the major elevator manufacturers as well as by independent
contractors. Manufacturers and independent contractors are generally able to
maintain and repair older elevators manufactured by other third party
manufacturers.
Maintenance contracts are generally of two types: basic contracts, which
do not cover repairs, and full service contracts, which include repairs. Under
both types of contracts, an
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<PAGE> 35
elevator mechanic makes routine periodic inspections of the equipment. A
maintenance contract typically has a term of one to five years. Maintenance fees
are based on the type of elevator covered and its usage. Repairs not covered
under a maintenance agreement are billed separately for each occurrence, and are
a significant profit center. Because maintenance of an elevator is essential to
its proper operation, the maintenance sector of the elevator industry is less
affected by the cyclicality of the real estate construction industry.
Modernization. Modernization entails the upgrade of existing installations
and can range from simple cosmetics (such as a new or rebuilt car interior) and
small equipment upgrades (such as repair work) to full replacement of all
operating mechanisms (including new signal fixtures, wiring, and door operating
system). Modernization is undertaken to upgrade old elevators, enhance
performance capability and bring elevators into compliance with local building
codes and other regulation (such as the Americans with Disabilities Act).
STRATEGY
DEI's management believes that the Company's strengths are its ability to
manage field operations and manufacture elevators better than its competitors.
These advantages, together with a superior hydraulic elevator product, translate
to improved customer satisfaction and a stronger market position. The Company's
forward strategy will capitalize on these strengths, applying them in pursuit
both of organic growth, and of growth through acquisition or strategic alliance,
in the elevator business. The Company has invested in recent years to improve
profitability and expects that further gains in operating profits will be
available. The Company expects to supplement this profit growth through possible
acquisitions financed either by cash or stock. Absent such acquisitions, the
Company would expect to use cash flow from operations to reduce debt. In the
longer term, the Company may consider the acquisition of businesses related to
the elevator business.
MANUFACTURING
FACILITIES
DEI owns or leases 5 manufacturing, 40 warehouse and 200 sales and service
facilities in 193 locations in the United States and Canada and 26 locations in
other parts of the world, including a small manufacturing facility under
construction in Shanghai, all of which together comprise 312,000 square feet of
owned and 2,015,000 square feet of leased space with lease terms expiring in
from 1 to 61 years. DEI manufactures elevator components primarily at two plants
located in Middleton, Tennessee and Walnut, Mississippi. The manufacturing
operations at DEI's Horn Lake, Mississippi plant will be transferred to the
Middleton and Walnut plants as of July 15, 1998 in an effort to improve
operating efficiencies, though the administrative and research and development
facilities will remain at Horn Lake. The Middleton and Walnut plants are
currently being expanded in conjunction with the consolidation and management
expects the expansion to be completed prior to July 15, 1998. With this
expansion, DEI's facilities will be
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<PAGE> 36
adequate for its purposes for the foreseeable future. The following table sets
forth information on these three facilities.
<TABLE>
<CAPTION>
Facility Square Footage(1) Primary Components Made Owned or Leased
- ----------------------- ----------------- ---------------------------- -----------------
<S> <C> <C> <C>
Middleton, TN 515,000 entrances, cab interiors, signal Leased (2)
fixtures, platforms, control
valves and jacks
Walnut, MS 97,610 controllers and power units Owned
Horn Lake, MS 110,800(3) (3) Leased (4)
</TABLE>
(1) Includes plant, office and research and development space.
(2) The lease expires on October 31, 2014 and, unless otherwise terminated,
will be automatically renewed for up to three additional terms of 15
years.
(3) As of July 15, 1998, manufacturing operations conducted in a 386,300 sq.
ft. manufacturing facility will be vacated and subleased to an
unaffiliated third party. The 110,800 sq. ft. administrative and research
and development facilities will remain open.
(4) DEI owns the underlying land and leases the facilities. The lease expires
on August 1, 1999 and, unless otherwise terminated, will be automatically
renewed for six additional terms of ten years each. In connection with the
closing of manufacturing operations conducted at the Horn Lake plant, DEI
will sublease the manufacturing facility to an unaffiliated third party.
MATERIALS
DEI manufactures almost all major elevator components required for its new
elevator construction. Principal materials used by DEI in its various
manufacturing processes include stainless steel, lumber and cold and hot roll
steel. DEI is not dependent on any third party supplier for any components or
materials and substantially all components and materials are normally available
from multiple suppliers. Current and potential suppliers are evaluated on a
regular basis on their ability to meet DEI's requirements and standards.
RESEARCH AND DEVELOPMENT
Technology is a significant component in DEI's elevators, including
technology used in microprocessor control systems, speed-control and
computer-based monitoring systems. DEI's research and development activities are
focused on the development of new products and the enhancement and support of
existing products. DEI also works with customers on a contract basis to custom
design products. DEI has lab and test tower facilities for testing its elevator
products. DEI regularly spends between $7 million and $10 million per year on
research and development activities.
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<PAGE> 37
BACKLOG
DEI had approximately $340 million of backlog for new (primarily
hydraulic) elevator and modernization work as of March 31, 1998 and
approximately $312 million as of March 31, 1997. DEI expects that the majority
of the backlog will be filled by December 31, 1998, although there can be no
assurance that such backlog orders will be filled within that time frame.
DISTRIBUTION AND MARKETS
DEI's distribution operations (including elevator systems and service
activities) are divided into the North America Operations (defined to include
only the United States and Canada) and the International Operations. The North
America Operations contributed approximately $806 million to DEI's sales and all
of DEI's earnings in 1997, while the International Operations contributed
approximately $47 million to DEI's sales in 1997.
NORTH AMERICA OPERATIONS
DEI distributes its elevators and components through a network of
approximately 120 field offices throughout the United States and Canada. DEI
also makes a small percentage of its elevator sales through independent
distributors
Management believes that DEI is a leading installer and servicer of
elevators in each of the regions in which it operates in the United States.
Because hydraulic elevators comprise the majority of DEI's unit sales, DEI has
greater sales in suburban areas, smaller cities and towns than in large city
centers with primarily high-rise buildings. However, DEI is not dependent on any
particular market for its revenues.
INTERNATIONAL OPERATIONS
DEI has wholly-owned subsidiaries in Thailand and China and joint ventures
in Australia, Hong Kong, Malaysia and the Czech Republic. Sales to independent
distributors accounted for approximately 38% of DEI's sales outside North
America in 1997. Dover sold substantially all its European elevator operations
in June 1997, and none of such operations are reflected in any description of,
or financial statements related to, DEI's operations in this Information
Statement.
CUSTOMERS
DEI's primary customers are developers and general contractors for new
real estate construction and building owners and managers for service and
modernization. DEI is not dependent on any particular customer or group of
customers for its revenues and in 1997 no customer accounted for more than 10%
of DEI's sales.
When DEI is awarded a new elevator construction contract, DEI and the
customer will typically enter into a written agreement detailing the elevator
specifications and the projected
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<PAGE> 38
installation date. Billing for a new installation is done on a "progress" basis
with a portion of each payment retained by the customer until completion.
Payments begin upon receipt of equipment and are then made in installments over
the course of the installation. Maintenance contracts are generally payable in
monthly installments. Fees for repairs are payable within 30 days after they are
completed.
COMPETITION
The elevator industry worldwide has undergone a period of consolidation,
involving joint ventures and acquisitions among both larger elevator companies
and smaller independent distributors. Competition in each of DEI's markets is
generally based on cost, customer service and technology. DEI competes for new
construction in the United States, primarily with the other four leading
elevator manufacturers -- Kone, Otis, Schindler and Thyssen. These four
manufacturers, together with DEI, accounted for the majority of sales of new
elevator installations in North America in 1997. DEI also competes to a lesser
degree with small, locally-based independent companies. DEI competes not just
for customers, but also for employees. DEI and its four principal competitors
are parties to a national union contract which generally requires the companies
to hire and employ hourly workers from a common pool. See "Risk Factors --
Competition" and "Risk Factors - Unionized Labor Force".
INTELLECTUAL PROPERTY
DEI will have a royalty-free license to use the Dover trade name,
trademark and service mark in conjunction with its elevator business pursuant to
the Intellectual Property Agreement. See "Relationship Between Dover and DEI
After the Distribution -- Intellectual Property Agreement". DEI also has
registered certain marks including EntryPlus(R), SoundNet(R), HelpLink(R) and
Oildraulic(R) through a wholly-owned subsidiary. DEI currently licenses from
Dover, and upon consummation of the Distribution will own through a wholly-owned
subsidiary, a number of patents and trademarks relating to the products it
manufactures that have been obtained over a number of years. These patents and
trademarks have been of value in the growth of DEI's business and will continue
to be of value in the future. DEI does not regard any portion of DEI's business
as being dependent on any single patent or group of patents.
EMPLOYEES
As of March 31, 1998, DEI had a total of 6,870 employees of whom more than
5,000 are associated with field activities. Approximately 60% of DEI's employees
are represented by labor unions and the largest portion are represented by the
International Union of Elevator Contractors under a labor contract expiring in
July 2002. This is a national labor contract, negotiated by an industry
management committee and its terms are substantially the same for all five major
elevator companies, including DEI. DEI considers its relations with its
employees and union representatives to be satisfactory. See "Risk Factors --
Unionized Labor Force".
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<PAGE> 39
ENVIRONMENTAL MATTERS
DEI generates hazardous and non-hazardous waste in the normal course of
its manufacturing operations. As a result, DEI is subject to a wide range of
federal, state, local and foreign environmental laws, DEI maintains an
environmental compliance program and believes that it is in compliance in all
material respects with all applicable environmental laws. Compliance with such
requirements has not had, and is not expected to have, a material adverse impact
on DEI's capital expenditures, earnings or competitive position.
GOVERNMENT AND OTHER REGULATION AND SAFETY CODES
Elevators are a highly regulated form of transportation. The U.S. elevator
industry is regulated primarily by a safety code established and updated by the
American Society of Mechanical Engineers. The ASME A17 Code sets the rules and
guidelines for the workings, inspection, testing and other aspects of safe use
of elevators and is updated annually. In addition to the ASME A17 Code,
elevators are required to conform to the requirements of municipalities and
states, as well as those of the National Electrical Code, and numerous life
safety codes developed by either the National Fire Prevention Association
(NFPA), Building Officials and Code Administrators (BOCA), Uniform Building Code
(UBC) or International Conference of Building Officials (ICBO). Many municipal
or state and building codes use the ASME A17 Code as a basis and add further
requirements.
The elevator industry is also subject to occupational and workplace safety
regulations as regulated by the Occupational Safety and Health Administration.
The use of safety harnesses, protective clothing and barriers as well as
mandatory education and other programs are emphasized in order to minimize the
number of field related accidents.
DEI strongly emphasizes on-going compliance with all regulations related
to elevator, occupational and workplace safety. In addition, DEI actively
sponsors individual employees who are members of the ASME A17 Code committee and
thus assists in the development and enforcement of elevator safety requirements.
LEGAL PROCEEDINGS
DEI's business entails an inherent risk of liability. DEI is routinely
involved in resolving claims relating to elevator incidents. In general, these
claims relate to individuals who claim injury entering or exiting an elevator,
typically "door closure" or "misleveling" claims. Most of such claims are
resolved prior to trial. Management of DEI believes it has adequate insurance
(through self-insurance and commercial insurance policies) for these claims. See
"Risk Factors -- Liability and Insurance" and "Relationship Between Dover and
DEI After the Distribution -- Insurance Arrangements Agreement".
The Horn Lake plant employees belong to the United Steel Workers union
and, as a result of DEI's plan to close the Horn Lake plant, have filed an
unfair labor practice claim. The
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<PAGE> 40
union is claiming that DEI did not bargain in good faith over the decision to
close the Horn Lake plant. The claim is currently being investigated by the
National Labor Relations Board (the "NLRB") at the regional level. If a decision
is ultimately rendered in favor of the union, the NLRB could order DEI to
reinstate the plant. Although no assurance can be given that the claim will be
dismissed or that the NLRB will not order DEI to reinstate the plant, management
of DEI believes that the unfair labor practice claim is not meritorious and that
any resolution of such claim will not materially adversely affect DEI.
DEI is also involved in various other legal proceedings which have arisen
in the normal course of its operations. The outcome of these proceedings, if
determined adversely to DEI, is unlikely to have a material effect on DEI.
YEAR 2000
DEI has established a plan for identifying, renovating, testing, and
implementing solutions for Year 2000 processing. Except for one type of system,
DEI's elevator controllers are not designed to be "date aware". Because these
elevator controllers are not aware of the actual date or time of day, there will
be no operational problems associated with the year 2000 date change. The system
which is "date aware" was provided with a time clock board to allow optional
control of group peak operation activation time. Only time-of-day and
day-of-week functionality exist. The time clock board and the elevator system
have been successfully tested to handle the date rollover.
DEI is currently in the process of implementing a plan that will make all
of its information systems Year 2000 compliant. The plan includes the
implementation of an SAP system, a new integrated information system, commencing
with the factories. An upgrade of the existing field information system to be
Year 2000 compliant is in process and is expected to be completed by year end,
followed later by conversion to the new SAP Year 2000 compliant integrated
system.
DEI has also initiated communications with suppliers and customers to
determine the extent to which DEI may be vulnerable to such parties' failure to
make their systems Year 2000 compliant. There can be no guarantee that the
systems of other companies on which DEI's operations rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with DEI's systems, would not have material adverse effect on
DEI. However, based on its current assessment, management believes that the Year
2000 issue will not have a material adverse impact on DEI's future results of
operations or financial conditions, although there can be no assurance that such
will be the case.
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<PAGE> 41
MANAGEMENT
THE BOARD OF DIRECTORS OF DEI
At the time of the Distribution, DEI's Board is expected to consist of at
least six directors to be appointed prior to the Distribution. The name, age and
business background of each person who is expected to become a director of DEI
on the Distribution Date and who is identified and who agrees to serve will be
set forth in an amendment to this Information Statement.
BOARD COMPENSATION AND BENEFITS
DEI intends to provide compensation to its non-employee Directors in
amounts to be determined prior to the Distribution and to be set forth in an
amendment to this Information Statement.
COMMITTEES OF THE BOARD
It is anticipated that DEI will establish Audit, Compensation and
Executive Committees. It is also anticipated that all members of the Audit and
Compensation Committees will be non-employee Directors.
Audit Committee. The Audit Committee will: (i) annually recommend to the
Board the appointment of independent auditors; (ii) review with management and
such auditors the audit plan and results of the auditing engagement; and (iii)
review management's program for ensuring the adequacy of DEI's system of
internal accounting controls.
Compensation Committee. The Compensation Committee will approve
compensation for corporate executive officers, grants, awards and payouts under
the stock option plan and performance program and compensation plan changes. The
Compensation Committee will also review and approve certain compensation to
corporate officers to the extent necessary for such compensation to be
deductible by the Company pursuant to the Code.
Executive Committee. The Executive Committee will be generally empowered
to act unanimously on behalf of the Board and will meet or otherwise take action
on an as needed basis between the regularly scheduled Board meetings.
EXECUTIVE OFFICERS
The name, age, proposed title upon consummation of the Distribution and
business background of each person who is expected to become an executive
officer of DEI on the Distribution Date are set forth below.
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<PAGE> 42
<TABLE>
<CAPTION>
Name Age Background
- ---- --- ----------
<S> <C> <C>
Nigel P. Davis 49 President, Dover Elevator International, Inc.
President and Chief since October 1995; prior to that, Executive
Executive Officer Vice President, Dover Elevator International,
Inc. since September 1995; prior to
that, Managing Director of Hammond &
Champness, Ltd., London, England (an
elevator service company owned by
Dover until 1997) since September
1986.
Gary S. Bailey 62 Vice President, Dover Elevator International,
Vice President Inc. since October 1995; President, Miami
Elevator Company since 1960.
Stephen M. Bailey 66 Vice President, Dover Elevator International,
Vice President Inc. since October 1995; Chairman, Miami
Elevator Company since 1957.
Gregory R. Bottom 41 Vice President - Marketing, Dover Elevator
Vice President International, Inc. since May 1998; prior to
that, Southwest Marketing Area
Manager since November 1995 and
President, Arizona Elevator, Inc.
since May 1995; prior to that,
Marketing Manager, Miami Elevator
Company since January 1994; prior to
that, Regional Sales Manager and
District Sales Manager of Miami
Elevator Company since June 1989;
prior to that, District Sales Manager
and Sales Representative, Arizona
Elevator, Inc. since November 1982;
prior to that, Sales Trainee and
Sales Representative, Miami Elevator
since June 1981.
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
Name Age Background
- ---- --- ----------
<S> <C> <C>
Paul A. Nickel 52 Vice President - Finance for Dover Elevator
Vice President - Finance and International, Inc. since October 1995; prior to
Secretary that, Vice President - Finance for Dover
Elevator Systems, Inc. since 1993;
prior to that, Vice President -
Finance, Mile High Equipment Co.
(commercial ice machine manufacturer)
since 1991; prior to that, Chief
Financial Officer, Computer Rental
Corp. of America (PC computer rental
and leasing) since 1989; prior to
that, Vice President of Finance,
Dover Industries, Inc. (a Dover
subsidiary) since 1985; prior to
that, Treasurer, Dieterich Standard
Corporation (flow measurement system
manufacturer and Dover subsidiary at
that time) since 1976.
Johnny R. Abdon 46 Vice President - Manufacturing, Dover
Vice President-Manufacturing Elevator International, Inc. since May 1998;
prior to that, Vice President -
Manufacturing, Dover Elevator
Systems, Inc. since 1991; prior to
that, Plant Manager of the Middleton,
TN plant since July 1986; prior to
that, Plant Superintendent at
Dover/Cincinnati, Ohio plant from
June 1985-June 1986; prior to that,
Supervisor and Quality Manager at
Dover/Cincinnati, Ohio Plant since
October 1980.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for Nigel
P. Davis, who will be President and Chief Executive Officer of DEI following the
Distribution, and the four other executive officers (the "Named Executive
Officers") following the Distribution who, based on employment with DEI or its
subsidiaries, were the most highly compensated executive officers for the year
ended December 31, 1997. Information set forth in the table reflects
compensation earned by such individuals for services with elevator business
subsidiaries of Dover. The principal position set forth for each Named Executive
Officer reflects his position as of the Distribution Date.
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<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Underlying
Name and Principal Options LTIP All Other
Position Year Salary Bonus(1) (#)(3) Payouts Compensation (4)
- ------------------ ------ -------- --------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Nigel P. Davis 1997 $450,000 $270,000 14,782 $443,640 $ 4,886
President and Chief 1996 390,000 260,000 13,458 0 2,314
Executive Officer 1995 270,222(2) 175,000 8,904 0 4,529
Gary S. Bailey 1997 250,000 200,000 5,866 447,829 27,600
Vice President 1996 230,000 200,000 5,670 131,936 27,600
1995 195,000 80,000 7,956 144,987 27,600
Stephen M. Bailey 1997 250,000 200,000 5,866 447,829 27,600
Vice President 1996 230,000 200,000 5,670 131,936 27,600
1995 195,000 80,000 7,956 144,987 27,600
Gregory R. Bottom 1997 138,269 34,975 0 0 27,600
Vice President 1996 110,004 25,187 0 0 22,189
1995 100,908 21,133 0 0 15,319
Paul A. Nickel 1997 180,000 100,000 4,224 238,842 4,886
Vice President-Finance 1996 150,000 100,000 3,698 30,303 3,727
and Secretary 1995 104,000 25,000 4,244 0 2,459
</TABLE>
(1) Bonuses were determined by the Compensation Committee of the Board of
Directors of Dover on the basis of performance. Cash bonuses for the calendar
years shown have been listed in the year earned, and were generally paid in
February of the following calendar year.
(2) Mr. Davis served until August 31, 1995 as Managing Director of Hammond &
Champness, Ltd., a former subsidiary of Dover which conducts elevator operations
in the United Kingdom. Salary for his services during the first 8 months of 1995
has been converted into U.S. dollars from British pounds using an average
exchange rate during 1995 (the "Federal Reserve Rate") of $1.5785 per British
Pound (as published by the Federal Reserve Bank of New York). As of September 1,
1995, Mr. Davis was employed by Dover Elevator International, Inc. in the United
States.
(3) Represents Dover Common Stock underlying stock options granted under the
Dover Corporation 1995 Incentive Stock Option Plan (the "Dover 1995 Stock Option
Plan").
(4) Represents contributions by Dover or its affiliates to the Dover Corporation
Retirement Savings Plan with respect to Messrs. Davis and Nickel and to the
Miami Elevator Company Money Purchase Plan and Trust (the "Miami Elevator Plan")
with respect to Messrs. G. Bailey, S. Bailey and Bottom.
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<PAGE> 45
The following tables disclose information regarding stock options granted
to the Named Executive Officers in respect of shares of Dover Common Stock under
the Dover 1995 Stock Option Plan.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise or Grant Date
Options Granted Fiscal Year Base Price Expiration Present Value
Name (#)(1) (2) ($/Sh) Date ($)(3)
- ------------------ --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Nigel P. Davis 14,782 1.55 24.72 2/6/07 73,762
Gary S. Bailey 5,866 0.61 24.72 2/6/07 29,271
Stephen M. Bailey 5,866 0.61 24.72 2/6/07 29,271
Gregory R. Bottom 0 -- -- -- 0
Paul A. Nickel 4,224 0.44 24.72 2/6/07 21,078
</TABLE>
(1) All options granted to the Named Executive Officers were granted at the
prevailing market price of Dover Common Stock on the date of grant. The options
become exercisable on February 6, 2000. Options which are not exercisable as of
the Distribution Date will be converted into options to acquire DEI Common Stock
as of such Date. See "--Dover Stock Option Plan Conversion" for a discussion of
the treatment of these options as a result of the Distribution. The options
listed in this table do not reflect the adjustments discussed in such section.
(2) Percent of total options granted based on total options granted to Dover
employees.
(3) The Black-Scholes model used to calculate the hypothetical values at date of
grant considers the following factors to estimate the option's present value:
the stock's historic volatility calculated using the average daily market price
of Dover's Common Stock over a suitable current period, the expected life of the
option, risk-free interest rates and the stock's expected dividend yield. The
assumptions used in the model for this valuation were: average stock price
volatility 16.65%; expected life 6 years; risk-free interest rate of 6.06%; and
an expected dividend yield of 1.1%. This resulted in a discounted per share
value of $7.12 (29% of the option price). The Black-Scholes model assumes that
an option is not cancelable and that it can be sold at any time for cash. Since
those assumptions are not applicable here, the above grant date values have been
reduced by 20% based upon its historical cancellation rates and another 10%
based upon the expectation that, except in cases of unusual need, shares
acquired through the exercise of options are to be held by participants for the
duration of their employment with Dover. This resulted in a final grant date
present value of $4.99 per share.
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<PAGE> 46
AGGREGATED STOCK OPTION
EXERCISES IN 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Year-End
Options at Year- End (1)($)
(#)
Shares
Acquired on Value Realized Unexercisable Unexercisable
Name Exercise (#) (1)($) Exercisable (2) Exercisable (2)
- -------------------- ------------- ------ ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nigel P. Davis 0 -- 36,609 37,144 805,548 379,915
Gary S. Bailey 4,360 44,281 -- 19,492 -- 232,187
Stephen M. Bailey 4,360 44,281 -- 19,492 -- 232,187
Gregory R. Bottom 0 -- -- -- -- --
Paul A. Nickel 0 -- 2,760 12,166 47,251 137,531
</TABLE>
(1) Calculated by determining the difference between the exercise price and the
average of high and low market price of Dover Common Stock (as reported on the
New York Stock Exchange - Composite Transactions) for the exercise dates or
December 31, 1997, as the case may be.
(2) Options which are not exercisable as of the Distribution Date will be
converted into options to acquire DEI Common Stock as of such date. See "--Dover
Stock Option Plan Conversion" for a discussion of the treatment of these options
as a result of the Distribution. The options listed in this table do not reflect
the adjustments discussed in such section.
RETIREMENT PLANS
Many DEI salaried employees have been participants in the Dover
Corporation Salaried Pension Plan (the "Dover Salaried Plan") prior to the
Distribution Date. On or prior to the Distribution Date, DEI and its
participating subsidiaries expect to adopt the Dover Elevators, Inc. Salaried
Pension Plan (the "DEI Salaried Plan"), which is expected to be substantially
comparable to the Dover Salaried Plan. Assets in respect of the accrued benefits
of DEI employees and former employees are expected to be transferred from the
Dover Salaried Plan to the DEI Salaried Plan. A separate defined benefit plan
covering hourly employees of DEI is expected to be adopted by DEI on or prior to
the Distribution Date to provide benefits substantially comparable to the
benefits which such hourly employees were receiving from the Dover plan in which
they previously were participating, and, to the extent applicable, assets in
respect of the accrued benefits of DEI employees and former employees in such
Dover plans are expected to be transferred from such Dover plan to the DEI plan.
DEI also expects to adopt on or prior to the Distribution Date, unfunded
supplemental executive retirement plans and other similar unfunded retirement
programs ("SERPs") which provide supplemental retirement benefits, in amounts to
be determined, for eligible employees, including certain officers of DEI and its
subsidiaries. Payments under the SERPs under
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<PAGE> 47
consideration are expected to generally be made over a period of time after
retirement to such officers and other plan participants.
Benefits under defined benefit plans and related SERPs for executives are
expected to be based generally upon (i) final average compensation, defined as
the highest 60 months of compensation out of the last 120 months and (ii) the
years of benefit service. Compensation for plan purposes includes salary and
annual bonus but excludes any payments under the cash performance award program
or stock option awards. Years of benefit service, in certain instances, may
include some prior service with Dover or DEI. Generally, vesting occurs after
completion of five years of employment subsequent to age 18. The following table
shows the estimated annual benefits payable upon retirement to persons in the
specified remuneration and years of service classifications. The years of
covered employment for DEI plans for eligible persons named in the Summary
Compensation Table are: Nigel P. Davis, 3, Stephen M. Bailey, 0, Gary S. Bailey,
0, Gregory R. Bottom, 0 and Paul A. Nickel, 5. All of these persons will be
vested as of the Distribution. The benefit amounts listed in the table include
the annuitized portion of the defined contribution accumulation attributable to
company contributions and one half of the social security benefits to which the
covered employee may be entitled. Benefits under the defined benefit plans are
expected to be similar to the benefits shown in the table.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 100,000 30,000 40,000 50,000 60,000 60,000
200,000 60,000 80,000 100,000 120,000 120,000
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
500,000 150,000 200,000 250,000 300,000 300,000
600,000 180,000 240,000 300,000 360,000 360,000
700,000 210,000 280,000 350,000 420,000 420,000
800,000 240,000 320,000 400,000 480,000 480,000
900,000 270,000 360,000 450,000 540,000 540,000
1,000,000 300,000 400,000 500,000 600,000 600,000
</TABLE>
Mr. Davis participated in a defined benefit retirement plan during the
period of his employment with Hammond & Champness, Ltd., under which plan he had
accrued an annual benefit, as of August 31, 1995, equal to $56,400 (which has
been converted into U.S. dollars from British pounds using the Federal Reserve
Rate). Messrs. S. Bailey, G. Bailey and Bottom participated in the Miami
Elevator Plan, a defined contribution plan, prior to its termination
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which is expected to occur approximately July 15, 1998. The account balances
accrued with respect to employer contributions made under the Miami Elevator
Plan for Messrs. S. Bailey, G. Bailey and Bottom as of June 30, 1998, were
$4,439,081, $4,439,081 and $348,820, respectively.
CHANGE OF CONTROL PROVISIONS
On or prior to the Distribution Date, DEI is expected to enter into
agreements with Mr. Davis and other officers, including the other Named
Executive Officers, designed to encourage each such officer to continue to carry
out his duties with DEI in the event of a potential change of control of DEI.
Such agreements are expected to be substantially comparable to similar
agreements in effect as of the Distribution Date between certain of such
officers and Dover. For purposes of these agreements, a "change of control"
occurs generally when (a) a person becomes beneficial owner of 20% or more of
DEI Common Stock, (b) as a result of a business combination or tender offer, a
majority of the Board of Directors changes, or (c) the stockholders approve a
merger or other business combination, as a result of which DEI ceases to be an
independent public company. The agreements provide that if within eighteen (18)
months following a change of control of DEI the officer's employment is
terminated either by DEI for other than "cause" or "disability" or by such
officer for "good reason" (all as defined in the agreements), then such officer
will receive a lump sum payment equal to three times the highest base salary and
annual bonus (but not a bonus under any cash performance program or any other
compensation) received by such officer from DEI or Dover in any of the most
recent five years. The severance amounts to be paid may be subject to reduction
if the officer, at the time of termination, is within 36 months from his normal
retirement age. In addition, upon termination, all cash performance awards
outstanding will immediately vest and be paid to the officer and all stock
options which have been held by the officer for more than six months will
immediately vest and become exercisable. Also, in the event of a change of
control, the present value of certain unfunded deferred compensation plans,
including the SERPs, will be paid immediately to each of such officers in a lump
sum.
The Code imposes excise taxes on, and limits the deductibility of, certain
compensatory payments made by a corporation to or for the benefit of certain
individuals if such payments are contingent upon certain changes in the
ownership or effective control of the corporation or in the ownership of a
substantial portion of the assets of the corporation, and have an aggregate
present value of at least three times the individual's annualized includable
compensation for the base period, as defined in the Code. Although payments by
DEI would not be expected to reach this amount in most cases, executives who
became subject to these excise taxes will be "grossed-up" for such taxes.
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PERFORMANCE PROGRAM
DEI expects to adopt, effective immediately following the Distribution
Date, the 1998 Dover Elevators, Inc. Performance Program (the "Performance
Program"), which is an executive incentive compensation plan under which bonuses
will be awarded. The aggregate amount of such bonus awards will be determined
based on the achievement of performance objectives established by the
Compensation Committee. The allocation of bonuses among the participants will
depend on each participant's position and individual performance.
DEI intends to take such actions as are reasonably necessary and permitted
by U.S. tax laws for such compensation to be deductible for Federal income tax
purposes.
INCENTIVE STOCK OPTION PLAN
Prior to the Distribution Date, DEI expects to adopt the 1998 Dover
Elevators, Inc. Incentive Stock Option Plan (the "Stock Option Plan") pursuant
to which DEI may grant certain salaried officers and other salaried key
employees of DEI and its subsidiaries options to purchase DEI Common Stock. The
Stock Option Plan is expected to be approved prior to the Distribution by Dover
as sole stockholder of DEI. The Stock Option Plan provides for the grant of
stock options that qualify as incentive stock options ("ISOs") under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options ("NQSOs"). The Stock Option Plan will assist DEI in developing and
maintaining management capable of assuring DEI's future success by providing
certain salaried officers and other salaried key employees of DEI long-range
inducement to remain with DEI and to increase their efforts to success.
Under the Stock Option Plan, DEI's Board of Directors is authorized to
grant options to purchase up to an aggregate of 2.3 million shares of Common
Stock. The Compensation Committee, or the Board, if there is no Compensation
Committee (the "Committee") has sole and complete authority to determine the
individuals eligible to receive stock options under the Stock Option Plan. The
Committee has authority to determine the number of stock options to be granted
to eligible individuals and to determine the terms and conditions under which
grants will be made (including limitations, restrictions or prohibitions upon
the exercise of stock options). The Committee will determine the period for
which each stock option may be exercisable, but in no event may a stock option
be exercisable more than 10 years from the date of grant thereof. The number of
shares available under the Stock Option Plan and the exercise price of options
granted under the Stock Option Plan are subject to adjustments that may be made
by the Committee to reflect stock splits, stock dividends, recapitalizations,
mergers, or other major corporate action.
Except as described below with respect to the grant of substitute options
to replace certain Dover options held by DEI employees, the exercise price for
options granted under the Stock Option Plan shall be such price as is determined
by the Committee in its sole discretion, provided that the exercise price must
be at least equal to the fair market value of the shares
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<PAGE> 50
subject to such option on the date of grant. The exercise price may be paid in
cash or in shares of Common Stock. Options granted under the Stock Option Plan
become exercisable after three years, except that, if there is a change in
control of DEI, all such stock options shall become immediately exercisable.
Options granted under the Stock Option Plan cannot be granted for more than
150,000 shares annually to any single recipient.
The Board of Directors is authorized to terminate, suspend or amend the
Stock Option Plan; provided, that the amendment or termination cannot affect the
validity of any then outstanding stock option previously granted under the Stock
Option Plan, and provided further that the Board of Directors cannot without
stockholder approval: (a) increase the maximum number of shares covered by the
Stock Option Plan or change the class of employees eligible to receive stock
options; or (b) reduce the stock option price for ISO's below the fair market
value of the DEI Common Stock on the date of the grant of such stock option; or
(c) extend beyond 10 years from the date of the grant the period within which a
stock option may be exercised. The Stock Option Plan will have a term of ten
years and no option may be granted after its termination date. Options granted
prior to the termination date may be exercised in accordance with their terms
beyond the termination date.
Under the Stock Option Plan, executive officers of the Company will be
granted non-qualified stock options as determined by DEI prior to the
Distribution Date (in addition to the conversion of Dover stock options held by
certain of such officers as described in "--Dover Stock Option Plan Conversion"
below). It is intended that such options will be granted effective upon the
Distribution Date with an exercise price equal to the average closing price of
DEI's Common Stock for a period of trading days after the Distribution Date to
be determined prior to the Distribution Date.
Federal Income Tax Consequences
The Stock Option Plan is not qualified under Section 401(a) of the Code.
In accordance with Sections 83, 421 and 422 of the Code and the regulations
thereunder, the following are the tax consequences with respect to the receipt
and exercise of the options:
Under Section 422 of the Code, no regular income tax consequences result
from the grant of an ISO or the exercise of an ISO by the employee provided the
employee continues to hold the stock acquired on the exercise of an ISO for the
requisite holding periods described below. The employee will be taxed only upon
the sale or disposition of the stock acquired under an ISO and the gain
recognized at that time will be long-term capital gain. The holding period
requirements necessary for ISO treatment are as follows: (i) such shares must
not have been disposed of within two years from the date the ISO was granted,
and (ii) such shares must have been held for at least one year from the date the
shares were transferred to the employee upon the exercise of the ISO. In
addition, to receive ISO treatment, the option holder generally must be an
employee of DEI or a subsidiary of DEI from the date the stock option was
granted until three months before the date of exercise.
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<PAGE> 51
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock.
If an employee disposes of stock acquired through exercise of an ISO
before expiration of the applicable holding periods, the employee will realize
compensation income on the date of disposition measured by the lesser of: (i)
the fair market value of the stock on the date of exercise of the ISO minus the
option price or (ii) the amount realized on disposition minus the option price.
Any additional gain would be treated as either long-term or short-term capital
gain, depending on whether or not the stock was held by an employee for at least
one year prior to sale or disposition. A deduction is allowable to DEI only to
the extent that an employee has to include any portion of a gain on disposition
as compensation income.
Gain realized by an employee upon the disposition of stock acquired
through the exercise of an ISO is taxable in the year of disposition, but such
income is not subject to income tax withholding if the requisite holding periods
have been satisfied. If either of the holding periods is not satisfied, however,
the disposition of the stock may result in taxable income to the employee as
additional compensation which is subject to withholding. Arrangements must be
made by the employee at that time to reimburse DEI at the rate of 28% of that
compensation, as determined by DEI, to satisfy DEI's withholding tax liability
for Federal income taxes, in addition to social security taxes and any state or
local government withholding taxes.
With regard to NQSO's, the participant will recognize ordinary income at
the time of the exercise of the option in an amount equal to the difference
between the exercise price and the fair market value of the shares received on
the date of exercise. Such income will be subject to withholding. Arrangements
must be made by the employee at that time to reimburse DEI at the rate of 28% of
that compensation, as determined by DEI, to satisfy DEI's withholding tax
liability for Federal income taxes and in addition for social security taxes and
any state and local withholding taxes. When the participant disposes of shares
acquired upon the exercise of the option, any amount received in excess of the
fair market value of the shares on the date of exercise will be treated as long
or short-term capital gain, depending upon the holding period of the shares. If
the amount received is less than the fair market value of the shares on the date
of exercise, the loss will be treated as long or short-term capital loss,
depending upon the holding period of the shares.
DOVER STOCK OPTION PLAN CONVERSION
Pursuant to the Distribution Agreement, DEI will grant substitute options
under the Stock Option Plan to replace outstanding unexercisable options held by
DEI employees under the Dover 1995 Stock Option Plan at the Distribution Date.
Unexercisable options include only those options awarded under the Dover 1995
Stock Option Plan during 1996 and later years and,
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<PAGE> 52
in the case of the Named Executive Officers, are as indicated in the column
entitled "Number of Securities Underlying Unexercised Options at Year-End -
Unexercisable" in the table entitled "Aggregated Stock Option Exercises in 1997
and Year-End Values" above. Other key employees as a group have 59,934
outstanding unexercisable options. Stock options awarded under the Dover
Corporation 1984 Incentive Stock Option Plan (the "Dover 1984 Stock Option
Plan") and prior to 1996 under the Dover 1995 Stock Option Plan are exercisable
and, in the case of the Named Executive Officers, are as indicated as
"Exercisable" in the table referred to in the preceding sentence. The exercise
price for each substituted option granted by DEI will be determined in a manner
designed to provide the option holder with a value equal to the value of the
Dover options immediately prior to the Distribution Date pursuant to a formula
to be determined prior to the Distribution Date. A substitute option will have
the same vesting status and remaining exercise period as the corresponding Dover
option. Exercisable options held by DEI employees at the Distribution Date will
expire as of the Distribution Date, in the case of options granted under the
Dover 1984 Stock Option Plan, and three months after the Distribution Date, in
the case of options granted under the Dover 1995 Stock Option Plan, if not
sooner exercised for Dover Common Stock. Options under the Dover 1984 Stock
Option Plan and the Dover 1995 Stock Option Plan, except those converted to DEI
stock options, will be adjusted to reflect the value of the DEI spin-off.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF DEI
The following table sets forth information with respect to the shares of
DEI Common Stock which are expected to be beneficially owned as of the
Distribution Date by each person known by DEI to beneficially own more than 5%
of the outstanding shares of Dover Common Stock. The projections are based upon
the number of shares of Dover Common Stock held February 27, 1998. Information
with respect to the shares of DEI Common Stock which are expected to be
beneficially owned as of the Distribution Date by each of DEI's proposed
directors, by each of the Named Executive Officers of DEI and by all directors
and executive officers of DEI as a group will be disclosed in an amendment to
this Information Statement. Effective on the Distribution Date, certain
executive officers of DEI will have certain Dover stock options converted into
options to acquire DEI Common Stock. See "Management -- Dover Stock Option Plan
Conversion". In addition, certain executive officers of DEI will be granted
options to acquire DEI Common Stock on or about the Distribution Date. These
converted options and new grants are not reflected in this table.
<TABLE>
<CAPTION>
Amount and Nature of
Name Beneficial Ownership Percentage
---- -------------------- ----------
<S> <C> <C>
Magalen O. Bryant 2,067,850 (1) 5.2
Post Office Box 247 239,150 (2)
Middleburg, VA 22117
</TABLE>
(1) Includes 60,992 shares, held by a corporation over which she has control.
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(2) Held in a trust of which she is a co-trustee sharing voting and investment
powers and in which she disclaims any beneficial interest.
DESCRIPTION OF CAPITAL STOCK
DEI's authorized capital stock consists of 150,000,000 shares of DEI
Common Stock, par value $0.01 per share, and 50,000,000 shares of preferred
stock, par value $100 per share ("DEI Preferred Stock"). Based on 223 million
shares of Dover Common Stock outstanding as of March 31, 1998 and a distribution
ratio of one share of DEI Common Stock for every five shares of Dover Common
Stock, it is expected that approximately 44,597,500 shares of DEI Common Stock
will be distributed to holders of Dover Common Stock. All of the shares of DEI
Common Stock issued in the Distribution will be validly issued, fully paid and
non-assessable. No Preferred Stock will be distributed to Dover stockholders in
connection with the Distribution.
The following summary description of DEI's capital stock is qualified in
its entirety by reference to the Certificate of Incorporation and the Bylaws
which are filed as exhibits to the Registration Statement of which this
Information Statement is a part.
COMMON STOCK
The holders of DEI Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including election of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Board with respect to any series of DEI Preferred Stock, the holders of
such shares exclusively will possess all voting power. The Certificate of
Incorporation does not provide for cumulative voting for directors. Subject to
any preferential rights of any outstanding series of DEI Preferred Stock, the
holders of DEI Common Stock will be entitled to such dividends as may be
declared by the Board from time to time from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of DEI available
for distribution to such holders. See "Certain Antitakeover Effects of Certain
Provisions of the Certificate of Incorporation, the Bylaws, Delaware Law and
the Rights Agreement".
DIRECT REGISTRATION SYSTEM
DEI will participate in the Direct Registration System ("DRS") for the DEI
Common Stock. Under the DRS, which will be operational at the time of the
Distribution, the transfer agent will establish a book-entry account for each
stockholder of record of Dover who is entitled to receive shares of DEI Common
Stock in the Distribution. Commencing on or about the Distribution Date, the
Distribution Agent will begin mailing account statements reflecting ownership of
shares of DEI Common Stock. The mailing will also contain certain additional
information concerning the DRS.
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<PAGE> 54
The DRS permits each stockholder to maintain the registration of his or
her shares of DEI Common Stock in his or her own name without the need for DEI
to issue, or for the stockholder to maintain or store, a physical stock
certificate. DEI believes that DRS will enable DEI to reduce the costs of
maintaining stockholder accounts and will enable stockholders to eliminate the
costs of storing and safeguarding stock certificates and facilitate the timely
settlement of trading in DEI Common Stock. Any stockholder who would like to
receive a physical stock certificate evidencing his or her shares of DEI Common
Stock will be able to obtain a certificate at no charge by contacting the
transfer agent.
PREFERRED STOCK
Under the Certificate of Incorporation, the Board will be authorized to
provide for the issuance of preferred stock, in one or more series, and to
determine for each such series the designations, voting powers, preferences and
rights of such series, and such qualifications, limitations or restrictions
thereof, as the Board shall determine and as permitted by Delaware Law". See
"Certain Antitakeover Effects of Certain Provisions of the Certificate of
Incorporation, the Bylaws, Delaware Law and the Rights Agreement". The Board
will designate a series of preferred stock in connection with the adoption of
the Rights Agreement. See "--Rights Agreement".
DIVIDENDS
The payment and level of cash dividends, if any, declared by DEI after the
Distribution will be subject to the discretion of the Board. Dividend decisions
will be based on a number of factors, including DEI's operating results and
financial requirements on a stand-alone basis as well as credit agreement and
legal restrictions relating thereto.
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<PAGE> 55
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, THE BYLAWS, DELAWARE LAW AND
THE RIGHTS AGREEMENT
The Certificate of Incorporation, the Bylaws, Delaware law and the Rights
Agreement contain provisions that could make the acquisition of control of DEI
in a transaction not approved by the Board more difficult or expensive. The
description set forth below is intended as a summary only and is qualified in
its entirety by reference to the Certificate of Incorporation, the Bylaws and
the Rights Agreement, which are filed as exhibits to the Registration Statement
of which this Information Statement is a part.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate of Incorporation provides that the number of directors
will be fixed from time to time in the manner provided in the Bylaws, but in no
event shall be less than three. The Certificate of Incorporation also provides
that the remaining director or directors, although less than a quorum, may fill
any vacancies on the Board or reduce their number by the number of such
vacancies on the Board, provided such reduction does not reduce the Board to
less than three directors. Additionally, if any stockholder (other than a
subsidiary of DEI or benefit plan of DEI or a subsidiary) beneficially owns 40%
or more (a "Substantial Stockholder") of the DEI stock entitled to vote for the
election of directors ("Voting Shares"), the size of the Board may not be
changed by the Board or the stockholders. Accordingly, a stockholder could be
prevented from enlarging the Board and filling the new directorships with such
stockholder's own nominee.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation provides that, subject to the rights of
any holders of DEI Preferred Stock to elect additional directors under specified
circumstances, stockholder action
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<PAGE> 56
can be taken only at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. The Bylaws provide
that special meetings of stockholders can be called only by order of the Board
or the Executive Committee. Stockholders are not permitted to call a special
meeting or to require that the Board call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by DEI.
The provision of the Certificate of Incorporation prohibiting stockholder
action by written consent may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called at the order of the Board or the Executive Committee. These provisions
would also prevent the holders of a majority of the voting power of the shares
of capital stock of DEI entitled to vote generally in the election of directors
(the "Voting Stock") from unilaterally using the written consent procedure to
take stockholder action and from taking action by consent. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Board by calling a special meeting of stockholders prior to
the time the Board or the Executive Committee believes such consideration to be
appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of stockholders of DEI (the "Stockholder Notice
Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder who has
given timely written notice to the Secretary of DEI prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
DEI. The Stockholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Chairman of the Board or by a stockholder who has given
timely written notice to the Secretary of DEI of such stockholder's intention to
bring such business before such meeting. Under the Stockholder Notice Procedure,
for notice of stockholder nominations to be made at an annual meeting to be
timely, such notice must be received by DEI not less than 90 days nor more than
120 days prior to the annual meeting; provided that in the event that less than
70 days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice must be received not later than the close of
business on the 10th day following the date of such notice or public disclosure.
Under the Stockholder Notice Procedure, a stockholder's notice to DEI
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating stockholder, the class and number of shares of stock of DEI which are
owned by such stockholder, and all information regarding the proposed nominee
that would be required to be included in a proxy statement soliciting proxies
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<PAGE> 57
for the proposed nominee. Under the Stockholder Notice Procedure, a stockholder
notice relating to the conduct of business other than the nomination of
directors must contain certain information about such business and about the
proposing stockholder, including, without limitation, a brief description of the
business the stockholder proposed to bring before the meeting, the reasons for
conducting such business at such meeting, the name and address of such
stockholder, the class and number of shares of stock of DEI beneficially owned
by such stockholder, and any material interest of such stockholder in the
business so proposed. If the Chairman of the Board or other officer presiding at
a meeting determines that a person was not nominated, or other business was not
brought before the meeting, in accordance with the Stockholder Notice Procedure,
such person will not be eligible for election as a director, or such business
will not be conducted, as the case may be, at such meeting.
By requiring advance notice of nominations by stockholders, the
Stockholder Notice Procedure will afford the Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by the Board, to inform stockholders about such qualifications.
By requiring advance notice of other proposed business, the Stockholder
Notice Procedure will also provide a more orderly procedure for conducting
annual meetings of stockholders and, to the extent deemed necessary or desirable
by the Board, will provide the Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations as to the Board's position regarding
action to be taken with respect to such business, so that stockholders can
better decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the Bylaws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to DEI and its stockholders.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Under Delaware Law, the stockholders of a corporation have the right to
adopt, amend or repeal the Bylaws and, with the approval of the board of
directors, the certificate of incorporation of that corporation. In addition, if
the certificate of incorporation so provides, the Bylaws may be adopted, amended
or repealed by the board of directors. The Certificate of Incorporation provides
that the affirmative vote of the holders of at least 80 percent of the voting
power of the outstanding shares of Voting Stock, voting together as a single
class, is required to amend provisions of the Certificate of Incorporation
relating to the prohibition of stockholder action without a meeting, the
restriction on change in the size of the Board
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<PAGE> 58
when a Substantial Stockholder exists, the repurchase of stock by the Company
and the business combination provisions; provided that such 80% vote is not
required for any amendment recommended by the majority vote of the Board when
there is no Interested Stockholder (as defined in the Certificate of
Incorporation) or Substantial Stockholder or (with respect to the business
combination provisions) 80% of the Continuing Directors (as defined below) or,
in the event there is no Related Person (as defined below) at the time of such
amendment, by the majority vote of the Board. All other provisions of the
Certificate of Incorporation may be amended by the vote of the holders of a
majority of the voting power of the outstanding shares of Voting Stock. The
Certificate of Incorporation further provides that the Bylaws may be amended by
the Board or by the affirmative vote of the holders of at least 80 percent of
the voting power of the outstanding shares of Voting Stock, voting together as a
single class. These 80 percent voting requirements will have the effect of
making more difficult any amendment by stockholders of the Bylaws or of any of
the provisions of the Certificate of Incorporation described above, even if a
majority of DEI's stockholders believe that such amendment would be in their
best interests.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board to establish one or
more series of DEI Preferred Stock and to determine, with respect to any series
of DEI Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Board may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative and the dividend rate of the series, (iv) the dates at which
dividends, if any, will be payable, (v) the redemption rights and price or
prices, if any, for shares of the series, (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series,
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of DEI,
(viii) whether the shares of the series will be convertible into shares of any
other class or series, or any other security, of DEI or any other corporation,
and, if so, the specification of such other class or series or such other
security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and conditions upon which such conversion may be made, (ix)
restrictions on the issuance of shares of the same series or of any other class
or series, and (x) the voting rights, if any, of the holders of such series.
DEI believes that the ability of the Board to issue one or more series of
DEI Preferred Stock will provide DEI with flexibility in structuring possible
future financings and acquisitions, and in meeting other corporate needs which
might arise. The authorized shares of DEI Preferred Stock, as well as shares of
DEI Common Stock, will be available for issuance without further action by DEI's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which DEI's securities may
be listed or traded. The NYSE currently requires stockholder approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could
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result in an increase in the number of shares of common stock, or in the amount
of voting securities outstanding, of at least 20 percent. If the approval of
DEI's stockholders is not required for the issuance of shares of DEI Preferred
Stock or DEI Common Stock, the Board may determine not to seek stockholder
approval.
Although the Board has no intention at the present time of doing so, it
could issue a series of DEI Preferred Stock that could, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Board will make any determination to issue such shares
based on its judgment as to the best interests of DEI and its stockholders. The
Board, in so acting, could issue DEI Preferred Stock having terms that could
discourage an acquisition attempt through which an acquirer may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of DEI's stockholders might believe to be
in their best interests or in which stockholders might receive a premium for
their stock over the then current market price of such stock.
REPURCHASE OF STOCK
The Certificate of Incorporation requires that any purchase by the Company
or its subsidiaries of Voting Shares from a stockholder owning 5% or more of the
Voting Shares for less than four years and certain other Interested Stockholders
(as defined in the Certificate of Incorporation) must be approved by a majority
of stockholders other than the Interested Stockholder if the price to be paid is
in excess of the then current market price of such Voting Shares. This could
prevent a controlling or other significant stockholder from selling Voting
Shares to the Company on terms favorable to such stockholder and could,
accordingly, discourage stockholders from attempting to accumulate large
stockholdings or from attempting to gain control of the Company.
BUSINESS COMBINATIONS
Provisions of Article Tenth of the Certificate of Incorporation ("Article
Ten") places certain limitations on DEI's ability to effect a business
combination with an owner (except certain affiliates of DEI) of 15% or more of
DEI Common Stock or other Related Person (as each such term is defined therein).
Article Ten's limitations apply to a sale of significant assets to a Related
Person, merger or consolidation with or into a Related Person, the sale of
securities to a Related Person and certain other Business Combinations (as
defined in Article Ten) involving or proposed by a Related Person.
In order to comply with Article Ten, any Business Combination with respect
to a Related Person must be approved by the holders of at least 80% of the
outstanding voting stock of DEI, unless an exception under Article Ten is
applicable. If an exception is applicable, the Business Combination would still
need the approval of stockholders required by Delaware Law or any other
provisions of the Certificate of Incorporation, Bylaws or the terms of any
outstanding Preferred Stock or agreement to which DEI may be a party at the
time. See "-- Delaware Law" below.
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Article Ten contains exceptions where the Business Combination was
approved by the Board of Directors at a time when the Related Person owned less
than 5% of the DEI Common Stock, where the Business Combination was approved by
a majority of the members of the Board of Directors (each a "Continuing
Director") who were first elected or appointed before the Related Person became
a Related Person (or any successor to such a Director who is not affiliated with
the Related Person and who was recommended or elected by a majority of the
Continuing Directors), or where the Business Combination satisfies certain "Fair
Price" provisions.
To comply with the Fair Price provisions, a Business Transaction must meet
specific substantive and procedural criteria set forth in Article Ten. These
include: (i) that the value of consideration received for DEI Common Stock and
Preferred Shares (as hereinafter defined) be the higher of its liquidation
preference, the highest price paid by the Related Person for such stock or the
market price times the percentage increase (expressed as a decimal, but not less
than 1) in the market price of such stock from the time the Related Person began
purchasing to the time the Related Person paid its highest price for such stock,
(ii) the consideration paid for any class of voting stock of DEI be in either
the same form paid by the Related Person or, where the Related Person paid in
different ways, cash or in the form used by the Related Person to purchase its
largest block of such voting stock, (iii) after the Related Person became a
Related Person, no oppression of other shareholders occurred as measured by
specified criteria (such as continued proportional representation by Continuing
Directors and continued regular dividends on the DEI Common Stock and Preferred
Shares, representation) and the Related Person has not acquired any additional
voting stock of DEI or received any disproportionate benefit from DEI, (iv) the
Related Person must file a proxy or information statement responsive to the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") describing the Business Combination and including the recommendation of
the Continuing Directors and, at the request of the Continuing Directors, an
investment bank's opinion as to the fairness of the Business Combination to the
stockholders other than the Related Person.
Article Ten further provides that it may not be amended without the
approval of holders of at least 80% of the outstanding voting stock of DEI
unless recommended by a majority of the Continuing Directors (or the Board of
Directors if there is no Related Person at the time of amendment).
Article Ten is designed to encourage a potential acquiror to negotiate
directly with the Board of Directors, as representative of DEI and its
stockholders generally, before pursuing an acquisition of control of DEI and to
ensure that the stockholders are fully informed with respect to any action they
are asked to take in connection with a Business Combination. Where a Related
Person will not or cannot obtain prior Board approval for a Business
Combination, Article Ten is designed to ensure that the consideration paid in a
Business Combination meets minimum standards for fairness and that the Related
Person cannot use its stock ownership to engage in self-dealing or to circumvent
or lessen the protections afforded by Article Ten.
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DELAWARE LAW
Similar to Article Ten of the Certificate of Incorporation, Section 203 of
the Delaware Law places certain limitations on DEI's ability to effect a
business combination with an owner (except certain affiliates of DEI) of 15% or
more of DEI Common Stock and certain other persons (an "interested
stockholder"). The Delaware Law limitations apply to a sale of 10% or more of
the assets of DEI to an interested stockholder, merger or consolidation with or
into an interested stockholder, any transaction resulting in an increase in the
interested stockholder's proportional ownership of DEI and certain other
business combinations involving an interested stockholder specified in Delaware
Law. No such business combination may occur with any interested stockholder for
a three-year period following the date that such stockholder becomes an
interested stockholder unless (i) prior to such date, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares); or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66- 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who could be an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation does not exclude DEI from the
restrictions imposed under Section 203 of Delaware Law. It is anticipated that
the provisions of Section 203 of Delaware Law may encourage companies interested
in acquiring DEI to negotiate in advance with the Board of DEI, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approves either the business combination or the transaction which
results in the stockholder becoming an interested stockholder.
RELATIONSHIP OF ARTICLE TEN TO SECTION 203
Each of Article Ten and Section 203 should encourage any person interested
in acquiring DEI to negotiate in advance with the Board of Directors since the
higher stockholder voting requirements imposed would not be invoked if, (i) in
the case of Article Ten, such person obtains the approval of a majority of the
Continuing Directors for the proposed business combination transaction, and (ii)
in the case of Section 203, such person, prior to acquiring 15% of DEI's Voting
Stock, obtains the approval of the Board for such stock acquisition or for the
proposed business combination transaction. As stated above, in the event of a
proposed acquisition of DEI, the Board of DEI believes that the interests of
DEI's stockholders will best be served by a transaction that results from
negotiations based upon careful consideration of the proposed terms, such as the
price to be paid to minority stockholders, the form of consideration paid and
tax effects of the transaction.
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The protection afforded the remaining stockholders by Section 203 is
stronger in some respects than the protection that would be afforded by Article
Ten in situations in which the provisions of both apply. This is because, unless
the requisite Board or stockholder approval is obtained or the acquiror succeeds
in obtaining at least 85% of the target corporation's voting stock in the
initial transaction, Section 203 would delay for three years any of the
specified business combination transactions which could be used by an acquiror
to eliminate such remaining stockholders, use the assets of the company to
finance its acquisition or otherwise abuse its equity position. Article Ten
would merely require that the specified minimum price and procedural conditions
be satisfied. Nonetheless, Article Ten has been included in the Certificate of
Incorporation for several reasons.
First, the term "Business Combination" is defined differently in Article
Ten than it is in Section 203 and, as a result, Article Ten may afford
protection to DEI's stockholders in certain situations in which Section 203
would not apply.
Second, although the constitutionality of Section 203 has so far been
upheld in the courts, it is possible that a higher court might yet find Section
203 to be unconstitutional. If Section 203 were to be challenged and struck down
as unconstitutional prior to or in connection with any acquisition of DEI,
Article Ten would continue to afford its protections to stockholders.
Neither Article Ten nor Section 203 will prevent a hostile takeover of
DEI. They may, however, make more difficult or discourage a takeover of DEI or
the acquisition of control of DEI by a significant stockholder and thus the
removal of incumbent management. Such effect will be enhanced by the fact that
DEI will have a Rights Agreement. Some stockholders may find this
disadvantageous in that they may not be afforded the opportunity to participate
in takeovers which are not approved by the Continuing Directors but in which
they might receive, for at least some of their shares, a substantial premium
above the market price at the time of a tender offer or other acquisition
transaction. Article Ten should not prevent or discourage transactions in which
the acquiring person is willing to negotiate in good faith with the Board and is
prepared to pay the same price to all stockholders of each class of DEI's voting
stock.
RIGHTS AGREEMENT
As of the Distribution Date, the Board of DEI will have adopted a Rights
Agreement (the "Rights Agreement") under which the Board will declare a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
DEI Common Stock. Each share of DEI Common Stock distributed in the Distribution
will have attached to it (as described below) an associated Right. Rights are
issuable in respect of all shares of DEI Common Stock issued prior to the
earliest of (i) the Rights Distribution Date (as defined below), (ii) the date
on which the Rights are redeemed or exchanged as discussed below or (iii) the
tenth anniversary of the date of the Rights Agreement. Each Right entitles the
registered holder to purchase from DEI shares of Series A Junior Participating
Preferred Stock, par value $100 per share (the "Preferred Shares"), of DEI in an
amount and at a price (the "Purchase Price") to be determined prior to the
Distribution. The terms of the Rights are set forth in the Rights Agreement.
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The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the shares of DEI Common Stock. The Rights Distribution Date
is the earlier to occur of (i) a public announcement that, without the prior
consent of the Board, a person or group, including any affiliates or associates
of such group (an "Acquiring Person") has acquired or obtained the right to
acquire ownership of 15 percent or more of the outstanding shares of DEI Common
Stock or (ii) ten business days (or such later date as the Board may determine)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer which would result in the beneficial ownership by a
person or group of 15 percent or more of the outstanding shares of DEI Common
Stock without the prior written consent of the Board. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights ("Right Certificate") will be mailed to holders of record of the shares
of DEI Common Stock as of the close of business on the Rights Distribution Date
and such separate Rights Certificate alone will evidence the Rights.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of DEI Common Stock having an average market value during
a specified time period of two times the exercise price of the Right. At any
time prior to the time a person or group of affiliated or associated persons
becomes an Acquiring Person, the Board may redeem the Rights in whole, but not
in part, at a price of $.0125 per Right (the "Redemption Price"). The redemption
of the Rights may be made effective at such time on such basis with such
conditions as the Board in its sole discretion may establish.
If the Rights are not redeemed as provided above and in the event that DEI
is acquired in a merger or other business combination transaction or 50 percent
or more of its consolidated assets or earning power are sold after a person or
group has become an Acquiring Person, each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50 percent or more of the
outstanding shares of DEI Common Stock, the Board of Directors of DEI may
exchange the Rights (other than Rights owned by such person or group all of
which will have become void), in whole or in part, at an exchange ratio of one
share of DEI Common Stock per Right (subject to adjustment).
Preferred Shares which are purchasable under the Rights Agreement will not
be redeemable. Each Preferred Share will be entitled to an aggregate dividend of
4,000 times the dividend declared per share of DEI Common Stock but in no event
shall such minimum preferential quarterly payment be less than $10 per share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to an aggregate payment of 4,000 times the
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payment made per share of DEI Common Stock, but in no event shall they receive
less than $100 per share. Each Preferred Share will have one vote, voting
together with the shares of DEI Common Stock. Finally, in the event of any
merger, consolidation, or other transaction in which shares of DEI Common Stock
are exchanged, each Preferred Share will be entitled to receive 4,000 times the
amount received per share of DEI Common Stock. These rights are protected by
customary antidilution provisions.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of DEI, including, without limitation, the right to vote
or to receive dividends. While the distribution of the Rights is not taxable,
stockholders may recognize taxable income upon the occurrence of subsequent
events - for example, upon the redemption, sale, or other disposition of the
Rights, or upon the Rights becoming exercisable with respect to an acquiror's
stock whether or not exercised. The Rights will expire on the tenth anniversary
of the date of the Rights Agreement (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by DEI.
The terms of the Rights may be amended by the Board without the consent of
the holders of the Rights in order to (i) cure any ambiguity, (ii) to correct or
supplement any provision of the Rights Agreement which may be defective or
inconsistent with any other provisions, (iii) prior to the Rights Distribution
Date, to change or supplement the provisions of the Rights Agreement which DEI
deems necessary or desirable and (iv) on or after the Rights Distribution Date,
in any manner which DEI may deem necessary or desirable and which will not
adversely affect the interests of the holders of the Rights Certificates.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire DEI without
conditioning the offer on the Rights being redeemed or a substantial number of
Rights being acquired. However, the Rights generally should not interfere with
any merger or other business combination approved by the Board.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director of DEI will not
be personally liable to DEI or its stockholders for monetary damages for breach
of fiduciary duty as a director. If the Delaware Law is amended after the
approval by the stockholders of the Certificate of Incorporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of DEI shall be eliminated or
limited to the fullest extent permitted by the Delaware Law, as so amended from
time to time.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty.
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Accordingly, the Certificate of Incorporation will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation provides that DEI will, to the full
extent authorized or permitted by the laws of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
rights than such law permitted the corporation to provide prior to such
amendment), (a) indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of the Company, or
by reason of the fact that such director or officer is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, and (b) advance expenses incurred by any such
officer or director in defending any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Company. In addition, the Certificate of Incorporation
provides that DEI may provide additional indemnification to such persons or
other persons, as provided in its bylaws, by agreement or otherwise, which is
greater or different than that provided in the Certificate of Incorporation.
The Bylaws provide that each person who was or is made a party to or is
threatened to be made a party or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer, employee or agent of DEI or is or
was serving at the request of DEI, as a director, officer, employee or agent of
another corporation or a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans maintained or sponsored
by DEI, whether the basis of such Proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by DEI to the fullest extent authorized by Delaware Law as the
same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits DEI to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification will continue as to a person who
has ceased to be a director, officer, employee or agent and will inure to the
benefit of his or her heirs, executors and administrators; however, except as
described in the following paragraph with
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respect to Proceedings to enforce rights to indemnification, DEI will indemnify
any such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the Board.
Pursuant to the Bylaws, if a claim described in the preceding paragraph is
not paid in full by DEI within sixty days after a written claim has been
received by DEI, the claimant may at any time (or twenty days in the case of
expenses incurred before the final disposition of a proceeding) thereafter bring
suit against DEI to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. The Bylaws provide that it will be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to DEI) that the claimant has
not met the standards of conduct which make it permissible under Delaware Law
for DEI to indemnify the claimant for the amount claimed, but the burden of
proving such defense will be on DEI. Neither the failure of DEI (including the
Board, independent legal counsel or stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by DEI
(including the Board, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, will be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
The Bylaws provide that the right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in the Certificate of Incorporation will not be exclusive of any other
right which any person may have or may in the future acquire under any statute,
provision of the Certificate of Incorporation, the Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise. The Bylaws permit DEI to
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of DEI or any person serving at the request of DEI, as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by DEI, against any
expense, liability or loss, whether or not DEI would have the power to indemnify
such person against such expense, liability or loss under Delaware Law. DEI
intends to obtain directors' and officers' liability insurance providing
coverage to its directors and officers.
The Bylaws provide that the right to indemnification conferred therein is
a contract right and includes the right to be paid by DEI the expenses incurred
in defending any such Proceeding in advance of its final disposition, except
that if Delaware Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a Proceeding, will be made
only upon delivery to DEI of an undertaking by or on behalf of such director or
officer, to repay all amounts so advanced if it is ultimately determined
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that such director or officer is not entitled to be indemnified under the
Certificate of Incorporation or otherwise.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement," which term includes any amendments or
supplements thereto) under the Exchange Act with respect to the shares of DEI
Common Stock being received by Dover stockholders in the Distribution. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement are
not necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by such
reference. For additional information, reference is made to the Registration
Statement and the exhibits thereto, which are on file at the offices of the
Commission and may be inspected and copied as set forth below.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected without charge and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Northwest Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, 13th floor, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
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DOVER ELEVATORS, INC AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements as of March 31, 1998, March 31, 1997
(unaudited); and December 31, 1997, December 31, 1996 and December 31, 1995
(audited); unless otherwise indicated:
Management's responsibility for financial statements F-1
Report of independent accountants F-2
Consolidated statements of earnings F-3
Consolidated statements of retained earnings & accumulated comprehensive Income F-4
Consolidated balance sheets at March 31, 1998 (unaudited); December 31, 1997 and December
31, 1996 (audited) F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-15
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION:
Pro forma statement of financial position as of March 31, 1998 (unaudited) F-17
Pro forma statement of earnings for the three months ended March 31, 1998 (unaudited) F-18
Pro forma statement of earnings for the year ended December 31, 1997 (unaudited) F-19
Notes to pro forma financial information (unaudited) F-20
INDEX TO EXHIBITS
Financial Statement Schedule as of December 31, 1997
Schedule II - Valuation and qualifying accounts F-21
Other Exhibits:
Schedule of Property F-22
(27) Financial Data Schedule (EDGAR filing only) F-23
</TABLE>
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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the consolidated
financial statements and related notes appearing on pages F-3 to F-15. These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and of necessity included some amounts
that are based on management's best estimates and judgments.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are based on established
policies and procedures prescribed by the Company. All employees are to maintain
the highest ethical standards and its business practices throughout the world
are to be conducted in a manner which is above reproach.
The consolidated financial statements for the years ended December 31, 1997,
1996, and 1995 have been audited by Coopers & Lybrand, L.L.P. independent
accountants, who were responsible for conducting their audits in accordance with
generally accepted auditing standards. Their report is included herein.
Nigel Davis Paul Nickel
June 19, 1998 June 19, 1998
F-1
<PAGE> 70
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Dover Elevators, Inc:
We have audited the accompanying consolidated financial statements and the
financial statement schedule of Dover Elevators, Inc. and subsidiaries as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements, and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dover Elevators,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1998,
except for Note 2
for which date is
June 19, 1998
F-2
<PAGE> 71
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
For the three months
ended March 31, For the years ended December 31,
----------------------- -------------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 218,575 $ 202,085 $ 852,871 $ 795,907 $ 751,596
Cost of sales 154,564 144,662 613,735 579,745 568,363
-----------------------------------------------------------------
Gross profit 64,011 57,423 239,136 216,162 183,233
Selling & administrative expenses 39,297 35,008 148,481 135,533 135,048
-----------------------------------------------------------------
Operating profit 24,714 22,415 90,655 80,629 48,185
-----------------------------------------------------------------
Other deductions (income):
Interest Expense 87 173 715 287 484
Interest Income (134) (193) (731) (664) (582)
Foreign exchange 420 161 165 (12) 159
All other, net (412) (476) 415 (1,299) 15,622
-----------------------------------------------------------------
Total (39) (335) 564 (1,688) 15,683
-----------------------------------------------------------------
Earnings before taxes on income 24,753 22,750 90,091 82,317 32,502
Federal & other taxes on income 8,839 8,587 33,994 31,316 11,190
-----------------------------------------------------------------
Net earnings $ 15,912 $ 14,163 $ 56,097 $ 51,001 $ 21,312
=================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 72
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
For the three months
ended March 31, For the years ended December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $196,500 $156,585 $156,585 $167,038 $151,572
Net Earnings 15,912 14,163 56,097 51,001 21,312
----------------------------------------------------------
212,412 170,748 212,682 218,039 172,884
Dividends paid -- -- 16,182 61,454 5,846
----------------------------------------------------------
Balance at end of year $212,412 $170,748 $196,500 $156,585 $167,038
==========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
CONSOLIDATED STATEMENTS OF ACCUMULATED COMPREHENSIVE EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
For the three months
ended March 31, For the years ended December 31,
-------------------- ---------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings $ 15,912 $ 14,163 $ 56,097 $ 51,001 $ 21,312
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 51 (1,009) (1,956) 452 1,412
----------------------------------------------------------
Other comprehensive earnings 51 (1,009) (1,956) 452 1,412
----------------------------------------------------------
Comprehensive earnings $ 15,963 $ 13,154 $ 54,141 $ 51,453 $ 22,724
==========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 73
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31, December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash & cash equivalents $ 28,353 $ 21,670 $ 22,549
Receivables, net of allowance for doubtful accounts 200,567 202,533 181,005
Inventories 68,556 66,366 53,587
Deferred taxes & prepaid expenses 7,735 8,442 7,466
-------------------------------------
Total current assets 305,211 299,011 264,607
-------------------------------------
Property, plant & equipment (at cost)
Land 1,817 1,805 1,854
Buildings 6,899 6,863 6,413
Machinery and equipment 131,441 124,046 112,358
-------------------------------------
140,157 132,714 120,625
Accumulated depreciation 85,522 84,478 83,722
-------------------------------------
Net property, plant & equipment 54,635 48,236 36,903
-------------------------------------
Intangible assets, net of amortization 33,340 30,700 34,871
Other intangible assets 3,009 3,009 2,900
Deferred taxes, charges & other assets 10,955 10,973 11,096
-------------------------------------
$ 407,150 $ 391,929 $ 350,377
=====================================
LIABILITIES:
Current Liabilities:
Accounts payable $ 29,231 $ 35,758 $ 31,896
Accrued compensation & employee benefits 24,241 29,514 28,845
Accrued insurance 76,565 74,393 74,290
Other accrued expenses 51,926 50,004 40,183
-------------------------------------
Total current liabilities 181,963 189,669 175,214
-------------------------------------
Due to (from) Dover Corporation 7,113 (1,342) 14,996
Deferred compensation 13,517 15,008 9,532
STOCKHOLDER'S EQUITY:
Common stock 200 200 200
Additional paid-in capital 2,425 2,425 2,425
Accumulated other comprehensive earnings (10,480) (10,531) (8,575)
Retained earnings 212,412 196,500 156,585
-------------------------------------
204,557 188,594 150,635
-------------------------------------
$ 407,150 $ 391,929 $ 350,377
=====================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 74
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
For the three months
ended March 31, For the years ended December 31,
--------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 15,912 $ 14,163 $ 56,097 $ 51,001 $ 21,312
------------------------------------------------------------
Adjustment to reconcile net earnings to net cash from
continuing operating activities:
Depreciation and amortization 3,482 3,260 14,384 12,421 13,331
Provision for losses on accounts receivable (19) (369) 3,251 4,713 4,624
Net increase (decrease) in LIFO reserve -- -- (226) (205) 111
Deferred income taxes 1,866 1,829 (144) (859) (8,455)
Loss (gain) on sale of property and equipment (39) (15) (445) (51) (24)
Increase (decrease) in deferred compensation (2,526) 2,288 5,479 3,475 (562)
Other, net (959) 297 (987) (963) 6,229
Changes in assets and liabilities
(excluding effects of acquisitions and dispositions):
Decrease (increase) in accounts receivable 1,986 7,517 (25,884) (18,008) (19,349)
Decrease (increase) in inventories excluding LIFO reserve (2,188) (9,871) (13,278) (7,942) (13,077)
Decrease (increase) in prepaid expenses 707 1,661 (1,050) (589) (4,955)
Decrease (increase) in other assets 17 (2,739) 124 (3,304) (1,535)
Increase (decrease) in accounts payable (6,527) (3,782) 5,250 8,626 2,066
Increase (decrease) in accrued expenses (1,952) (4,534) 10,773 6,350 33,199
Increase (decrease) in federal and other taxes on income (1,865) (1,720) 177 832 4,060
------------------------------------------------------------
Total adjustments (8,017) (6,178) (2,576) 4,496 15,663
------------------------------------------------------------
Net cash from operating activities 7,895 7,985 53,521 55,497 36,975
------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from sale of property and equipment (70) 128 1,319 226 839
Additions to property, plant and equipment (8,860) (3,204) (21,941) (9,987) (9,251)
Acquisitions net of cash acquired (785) -- -- -- --
------------------------------------------------------------
Net cash used in investing activities (9,715) (3,076) (20,622) (9,761) (8,412)
------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) due to Dover Corporation 8,452 (7,926) (16,338) 20,611 (16,904)
Cash dividends to Dover Corporation -- -- (16,182) (61,454) (5,846)
------------------------------------------------------------
Net cash from (used in) financing activities 8,452 (7,926) (32,520) (40,843) (22,750)
------------------------------------------------------------
Effect of exchange rates on cash 51 (1,009) (1,258) 401 694
------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,683 (4,026) (879) 5,294 6,507
Cash and cash equivalents at beginning of year 21,670 22,549 22,549 17,255 10,748
------------------------------------------------------------
Cash and cash equivalents at end of year $ 28,353 $ 18,523 $ 21,670 $ 22,549 $ 17,255
============================================================
SUPPLEMENTAL INFORMATION, CASH PAID DURING THE PERIOD FOR:
Income Taxes $ 6,975 $ 6,976 $ 39,024 $ 35,449 $ 25,193
Interest 87 177 711 287 484
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
Dover Elevators, Inc. and subsidiaries (the "Company) includes the accounts of
Dover Elevator International, Inc. and subsidiaries which represent the elevator
operations of Dover Corporation ("Dover") to be spun-off as described in Note 2.
The Company which is a wholly owned subsidiary of Dover Corporation is a leading
manufacturer and installer of elevator systems, and a leading provider of
elevator services in the United States and Canada. The Company is a leading
manufacturer and installer of hydraulic elevator systems in the United States
and Canada. The Company also is a major manufacturer and installer of geared and
gearless traction elevator systems for passenger and freight use in the United
States and Canada. In addition to providing contract maintenance to a
significant portion of the Company's units manufactured and installed, the
Company also provides contract maintenance to elevators, escalators, and other
types of vertical transportation manufactured by others.
SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies that affect the more significant elements of the
Company's financial statements are described briefly below:
A. Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany
accounts and transactions, and include the results of operations of
purchased businesses from the dates of acquisition.
In conformity with the Financial Accounting Standards Board Statement No.
52, "Foreign Currency Translation," the accounts of foreign subsidiaries
have been translated into U.S. dollars as follows: assets and liabilities
have been translated at year-end rates, profit and loss accounts have been
translated at average rates for the year, and the difference has been
reflected in the equity section of the balance sheet as cumulative
translation adjustments. An analysis of the changes during the three
months ended March 31, 1998 and 1997 (unaudited) and for the years 1997,
1996 and 1995 in the cumulative translation adjustments shown on the
balance sheets follows:
Accumulated other comprehensive earnings, foreign currency translation
adjustments. (in thousands)
<TABLE>
<CAPTION>
Unaudited
For the three months
ended March 31, For the years ended December 31,
--------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Beginning balance $(10,531) $ (8,575) $ (8,575) $ (9,027) $(10,439)
Current-period change 51 (1,009) (1,956) 452 1,412
------------------------------------------------------------
Ending balance $(10,480) $ (9,584) $(10,531) $ (8,575) $ (9,027)
============================================================
</TABLE>
B. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE> 76
C. Inventories:
Approximately 22% of net inventory is stated at cost, determined on the
last-in, first-out (LIFO) basis, which is less than market value.
The remaining inventory principally represents the sum of actual
production and erection costs incurred to date on uncompleted elevator
installation contracts plus a percentage of estimated profit (where
applicable) reduced by progress billings. The net amounts so reflected in
the balance sheets are not considered material.
D. Property, Plant and Equipment and Depreciation:
Property, plant and equipment includes the cost of land, buildings,
equipment and significant improvements of existing plant and equipment.
Expenditures for maintenance, repairs and minor renewals are expensed as
incurred.
When property or equipment is sold or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts
and the gain or loss realized on disposition is reflected in earnings.
Plant and equipment is generally depreciated based upon accelerated
methods, utilizing estimated useful property lives, for both accounting
and tax purposes.
Depreciation expense for the three month periods ended March 31, 1998 and
1997 (unaudited) was $2,578,000 and $2,010,000, respectively.
Depreciation expense in 1997 was $9,426,000 compared with $7,416,000 in
1996 and $7,678,000 in 1995.
E. Intangible Assets:
Intangible assets subject to amortization include goodwill purchased after
1970, and the cost of certain patents, drawings, trademarks, work force,
customer lists, service contracts and covenants not to compete. Goodwill
is being amortized on a straight-line basis over a period, generally, of
40 years; the remaining amortization is based on estimated useful lives
which range from 3 to 20 years. The Company evaluates its amortization
policies regularly to determine whether later events and circumstances
warrant revised estimates of useful lives. The Company periodically
evaluates the recoverability of goodwill and other long-lived assets
including their relation to the operating performance and future
undiscounted net cash flows of the related business. In accordance with
SFAS 121, impairment losses are recognized when warranted.
Other intangible assets represent principally goodwill attributable to
businesses purchased prior to 1970. These intangibles are also regularly
evaluated and in the opinion of management have not diminished in value,
and accordingly have not been amortized.
Goodwill, net of amortization, aggregated $16,955,000 at March 31, 1998
(unaudited), $17,089,000 at December 31, 1997 and $18,121,000 at December
31, 1996.
Amortization of intangibles for the three months periods ended March 31,
1998 and 1997 (unaudited) was $905,000 and $1,250,000 respectively.
Amortization of intangibles in 1997 was $4,958,000, compared with
$5,005,000 in 1996 and $5,653,000 in 1995.
F. Revenue Recognition:
Revenue is generally recognized as products are shipped or services
rendered, however, substantially all of the Company's income from elevator
installation contracts is recorded on the percentage-of-completion method.
Under this method contract revenue is recognized as costs are accrued
using estimated gross profit percentages.
F-8
<PAGE> 77
G. Income Taxes:
The provision for income taxes includes Federal, state, local and foreign
taxes.
Tax credits, primarily for research and experimentation, are recognized as
a reduction of the provision for income taxes in the year in which they
are available for tax purposes, and aggregated $162,000 for the three
months ended March 31, 1998 (unaudited), $63,000 for the three months
ended March 31, 1997 (unaudited), $583,000 for 1997, $149,000 for 1996 and
$329,000 for 1995. Research and experimentation expenditures charged to
earnings amounted to $2,148,000 for the three months ended March 31, 1998
(unaudited), $2,106,000 for the three months ended March 31, 1997
(unaudited); $7,645,000 in 1997, $8,418,000 in 1996 and $9,777,000 in
1995.
Generally, no provision is made for U.S. income taxes on unremitted
earnings of foreign subsidiaries since any U.S. taxes payable would be
offset by foreign tax credits.
All of the Company's U.S. operations are included in Dover Corporation's
U.S. federal consolidated income tax return. Dover's consolidated income
tax provision has been allocated to the Company as if the Company filed
separate income tax returns. No liability for potential future federal
income tax assessments relating to prior years is included in the
Company's financial statements.
H. Cash Flows:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments, including highly liquid debt instruments
purchased with an original maturity of three months or less, to be cash
equivalents.
I. Self Insurance:
The Company is generally self-insured for losses and liabilities related
primarily to workers' compensation, health and welfare claims, business
interruption resulting from certain events and comprehensive general,
product and vehicle liability. Losses are accrued based upon the Company's
estimates of the aggregate liability for claims incurred using certain
actuarial assumptions followed in the insurance industry and based on
Company experience.
2. BASIS OF PRESENTATION
On May 7, 1998 Dover Corporation announced a plan to spin-off its worldwide
elevator business as of the date of the spin, to Dover Corporation's
stockholders. The spin-off would result in the worldwide elevator business
operating as a stand-alone publicly traded company. Dover Elevator, Inc. was
formed in July of 1998 to be the holding company for Dover Elevator
International, Inc. and subsidiaries as of the spin date. The financial data
shown is for Dover Elevator International, Inc. and subsidiaries and does not
include the results of European Elevator operations sold by Dover Corporation in
June 1997. The spin-off is subject to the receipt of a ruling from the Internal
Revenue Service that the transaction will be tax free to Dover Corporation's
stockholders. The accompanying consolidated financial statements have been
prepared as if Dover Corporation's worldwide elevator business as of the date of
the spin had operated as an independent stand alone entity for all periods
presented, except the Company generally has not had borrowings other than
amounts due to Dover Corporation and there was no allocation of Dover
Corporation's consolidated borrowings and related interest expense. Had Dover
Corporation allocated interest based on a roll back calculation of the
$175,000,000 pro forma debt, (unaudited) the interest would have been $2,563,000
for the three months ended March 31, 1998 and $10,504,000, $12,319,000 and
$14,168,000 for 1997, 1996 and 1995 respectively. Such consolidated financial
statements include substantially all the assets, liabilities, revenues and
expenses of certain divisions and subsidiaries of Dover Corporation which
comprise Dover Corporation's worldwide elevator business. The results herein
include corporate overhead charges that were allocated based on management
assumptions. Management believes the allocations to be reasonable. Because the
consolidated financial statements do not include an allocation of Dover
Corporation's borrowings and related interest expense and amounts due to Dover
Corporation are principally non-interest bearing, the consolidated financial
statements may not necessarily present the Company's financial position and
results of operations as if the Company was a stand alone entity.
F-9
<PAGE> 78
3. ACQUISITIONS AND DISPOSITIONS:
On March 1, 1998 the Company acquired the assets of Gemini Elevator Corporation
of New York City. This company is engaged in the elevator modernization, repair
and maintenance of medium to high rise buildings in lower Manhattan.
The Company made no significant acquisitions during the period 1995-1997.
4. ACCOUNTS RECEIVABLE:
Accounts receivable include retainage which has been billed, but which is not
due pursuant to retainage provisions in construction contracts until completion
of performance and acceptance by the customer. This retainage aggregated
$35,896,000 at March 31,1998 (unaudited), $37,445,000 at December 31, 1997, and
$27,730,000 at December 31, 1996. Substantially all retained balances are
collectible within one year.
5. INVENTORIES:
Inventories, by components, are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
------- -----------------------
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw Materials $32,262 $31,311 $23,937
Work in process 37,567 36,460 32,701
Finished goods 4,495 4,363 2,942
---------------------------------------
Total 74,324 72,134 59,580
Less Lifo Reserve 5,768 5,768 5,993
---------------------------------------
$68,556 $66,366 $53,587
- --------------------------------------------------------------------------------
</TABLE>
6. DEBT:
The Company has no debt except to Dover Corporation.
7. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL:
Capital stock represents 200 shares of authorized and issued common stock of
Dover Elevator International Inc.
<TABLE>
<CAPTION>
(IN THOUSANDS)
Common Stock Additional
$1 Par Value Paid-in Capital
------------------------------
<S> <C> <C>
Balance at December 31, 1995 $ 200 $2,425
------------------------------
Balance at December 31, 1996 200 2,425
------------------------------
Balance at December 31, 1997 $ 200 $2,425
==============================
</TABLE>
Certain employees of the Company participate in Dover Corporation Stock Option
Plan. Dover Corporation applies APB Opinion 25 and related Interpretations in
accounting for stock options; accordingly, no compensation cost has been
recognized. Had compensation cost been determined based upon the fair value of
the stock options at grant date consistent with the method in SFAS Statement
123, the Company's 1997 pro forma net income would be $55,844,000.
The fair value of each option grant was estimated on the date of grant using a
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.06 percent; dividend yield of 1.1
F-10
<PAGE> 79
percent; expected life of 6 years; and volatility of 16.65 percent. Additional
adjustments are made for assumed cancellations and expectations that shares
acquired through exercise of options are held during employment.
8. EMPLOYEE BENEFIT PLANS:
The Company participates in Dover Corporation's defined benefit and defined
contribution pension plans covering substantially all employees of the Company
and its domestic and foreign subsidiaries. Plan benefits are generally based on
years of service and employee compensation. Dover Corporation's funding policy
is consistent with the funding requirements of ERISA and applicable foreign law.
Separate actuarial valuations are performed annually as if the Company was a
stand-alone entity.
The financial statements and related disclosures reflect Statement of Financial
Accounting Standard No. 87 "Employers' Accounting for Pensions", for U.S.
defined benefit pension plans; foreign defined benefit pension plans are not
considered material. Pension cost and related disclosures for U.S. funded
defined benefit plans for 1997, 1996 and 1995 include the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Actual return on plan assets $ 10,481 $ 2,156 $ 9,655
Less deferred (gain) loss (6,248) 1,856 (5,836)
----------------------------------
Net return 4,233 4,012 3,819
Net amortization 110 320 (136)
Deduct:
Benefits earned during year (2,136) (2,224) (2,224)
Interest accrued on projected benefit obligation (3,025) (3,112) (2,973)
----------------------------------
Net pension (expense) credit $ (818) $ (1,004) $ (1,514)
==================================
</TABLE>
The funded status and resulting accrued pension cost of U.S. defined benefit
plans for the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
FUNDED PLANS
1997 1996
-------- --------
<S> <C> <C>
Plan assets at fair value $ 49,377 $ 41,526
---------------------
Actuarial present value of benefit obligation:
Vested 33,489 37,366
Nonvested 2,349 2,069
---------------------
Accumulated benefit obligation 35,838 39,435
Effect of projected future salary increases 8,330 7,566
---------------------
Projected benefit obligation 44,168 47,001
---------------------
Plan assets in excess of projected benefit obligation 5,209 (5,475)
Unrecognized net (gain) loss (8,303) 3,693
Unrecognized FAS 87 transition (gain) (3,885) (4,297)
Unrecognized prior service cost 1,936 1,854
---------------------
Accrued pension cost at December 31 $ (5,043) $ (4,225)
=====================
</TABLE>
The assumptions used in determining the above were as follows: a weighted
average discount rate of 7%, an average wage increase of 5% and an expected
long-term rate of return on plan assets of 10%.
Approximately 78% (76% in 1996) of defined benefit plan assets were invested in
equity securities with the remainder in fixed income and short term investments.
The Company also provides, through nonqualified plans, supplemental pension
payments in excess of qualified plan limits imposed by Federal tax law. These
plans cover officers and certain key employees and serve to restore the combined
pension amount to original benefit levels. The plans are unfunded apart from the
general assets of the Company. The pension benefit obligation and pension
expense under these plans follow:
F-11
<PAGE> 80
<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Pension benefit obligation $627 $369 $1,175
Pension expense 307 47 199
</TABLE>
For measurement purposes a discount rate of 8% was used together with an average
wage increase of 6%.
Pension cost for all plans was $20,358,000 for 1997, $21,083,000 for 1996 and
$21,426,000 for 1995.
In addition to the pension plans described above, there are two separate health
care plans for retirees which provide medical coverage and/or life insurance.
Both of these plan benefits have been frozen and are not funded. No new retires
are covered by these plans. The financial statements and related disclosures
reflect Statement of Financial Accounting Standards No. 106 "Employers
Accounting for Post-retirement Benefits Other Than Pensions," for these plans.
The following table details the amounts recognized in the Company's Consolidated
Balance Sheet at December 31 of each year:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1996
---------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 1,175 $ 1,186
Fully eligible active plan participants 37 24
Unamortized gain (loss) (4) (9)
Accrued postretirement benefit cost
---------------------
Included in accrued liabilities $ 1,208 $ 1,201
=====================
</TABLE>
Net postretirement benefit cost for 1997, 1996 and 1995 included the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Service cost $ 1 $ -- $ --
Interest cost 14 12 78
Gain on settlement -- -- --
Amortization gain -- -- --
------------------------------
Net postretirement benefit costs $ 15 $ 12 $ 78
==============================
</TABLE>
For measurement purposes a discount rate of 7% was used for the plan liability
and rates from 5% to 15% annual rate of increase in the per capita cost covered
benefit (i.e., health care cost trend rates) was assumed for 1999; the rates
were assumed to decrease gradually to 7% by the year 2000 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by
$114,000 and the net postretirement benefit cost for 1997 by approximately
$7,000.
F-12
<PAGE> 81
9. TAXES ON INCOME:
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
allocated as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from Continuing operations $33,994 $31,316 $11,190
---------------------------------
$33,994 $31,316 $11,190
=================================
</TABLE>
Income taxes have been based on the following components of earnings before
taxes on income:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $88,099 $78,620 $41,362
Foreign 1,992 3,697 (8,860)
---------------------------------
$90,091 $82,317 $32,502
=================================
</TABLE>
Income tax expense (benefit) is made up of the following components:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $33,779 $31,003 $19,047
State and Local 3,818 3,038 1,355
Foreign 1,506 1,717 3,293
---------------------------------
Total Current 39,103 35,758 23,695
---------------------------------
Deferred:
U.S. Federal (4,930) (4,533) (4,981)
State and Local (367) (151) (345)
Foreign 188 242 (7,179)
---------------------------------
Total Deferred (5,109) (4,442) (12,505)
---------------------------------
Total Expense $33,994 $31,316 $11,190
=================================
</TABLE>
The reason for the difference between the effective rate and the U.S. Federal
Income statutory rate of 35% follow:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S Federal income tax rate 35.0% 35.0% 35.0%
State and Local taxes, net of Federal
income tax benefits 2.5% 2.3% 2.0%
R&E credits (0.6%) (0.2%) (1.0%)
FSC benefit (0.8%) (0.3%) (0.4%)
Foreign Tax rate 1.2% 0.7% (3.4%)
Non tax deductible items 0.6% 0.5% 1.3%
Miscellaneous items (0.2%) 0.0% 0.9%
---------------------------------
Effective rate 37.7% 38.0% 34.4%
---------------------------------
</TABLE>
F-13
<PAGE> 82
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 of each
year are:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued Insurance $ 23,828 $ 23,967
Accrued compensation, principally postretirement
benefits, and compensated absences 6,349 5,136
Accrued expenses 2,688 990
Accounts receivable, principally due to allowance
for doubtful accounts 2,115 2,155
Plant and equipment, principally due to
differences in depreciation 3,355 489
Intangible assets, principally due to different tax
and financial reporting bases 1,273 337
Other -- 1,039
---------------------
Total gross deferred tax assets 39,608 34,113
---------------------
DEFERRED TAX LIABILITIES:
Accounts receivable, principally due to retainage and
accrual acceptance on elevator contracts (26,274) (25,905)
Other (37) (20)
---------------------
Total gross deferred tax liabilities (26,311) (25,925)
---------------------
Net deferred tax asset 13,297 8,188
=====================
Net current deferred asset 4,544 4,454
=====================
Net non-current deferred asset $ 8,753 $ 3,734
=====================
</TABLE>
10. RENTAL AND LEASE INFORMATION:
The Company leases certain facilities and equipment under operating leases, many
of which contain renewal options. Total rental expense, net of insignificant
sublease rental income, on all operating leases was $16,310,000, $15,492,000 and
$14,661,000 for 1997, 1996 and 1995, respectively. Contingent rentals under the
operating leases were not significant.
Minimum future rental commitments under operating leases having noncancelable
lease terms in excess of one year aggregate $41 million as of December 31, 1997
and are payable as follows (in millions): 1999 - $9.3; 2000 - $8.2; 2001 - $5.9,
2002 - $4.6; 2003 - $3.2; and after 2004 - $10.1.
11. CONTINGENCIES:
The Company is involved in ongoing remedial activities in certain locations,
relating to environmental clean up in cooperation with regulatory agencies, and
appropriate reserves have been established. In each instance the extent of the
Company's liability is anticipated to be immaterial.
The Company is also party to a number of other legal proceedings incidental to
its business. Management and legal counsel periodically review the probable
outcome of such proceedings, the costs and expenses reasonably expected to be
incurred, the availability and extent of insurance coverage and established
reserves. While it is not possible at this time to predict the outcome of these
legal actions, in the opinion of management, based on these reviews, the
disposition of the lawsuits and the other matters mentioned above will not have
a material effect on financial position, results of operations or cash flows.
F-14
<PAGE> 83
12. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company reports that the carrying amount of cash and cash equivalents, trade
receivables, accounts payable, and accrued expenses approximates fair value due
to the short maturity of these instruments.
13. SEGMENT INFORMATION:
The Company operates in a single line of business, encompassing the
manufacturing, installation and service of elevators.
INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
(in thousands)
Revenues(1) Long-lived assets
For the years ended December 31, 1997 1997 1996
------------------------------------------
<S> <C> <C> <C>
United States $746,733 $ 77,191 $ 69,172
Canada 59,637 5,203 11,740
China 17,570 -- --
Other Foreign 28,931 1,769 1,123
------------------------------------------
$852,871 $ 84,163 $ 82,035
==========================================
</TABLE>
(1) Revenues are attributed to countries based on location of customer.
Geographic revenue amounts were unavailable for prior periods on a comparable
basis, and it was impractible to accumulate such information.
Export sales of domestic operations were $10 million for the three months ended
March 31, 1998 (unaudited), $9 million for the three months ended March 31, 1997
(unaudited); $44 million in 1997, $41 million in 1996, and $36 million in 1995.
F-15
<PAGE> 84
PRO FORMA FINANCIAL INFORMATION
The following presents unaudited pro forma financial information of the Company
as adjusted to give effect to the Elevator Spin (the "Distribution") as of the
beginning of the earliest period presented for statement of earnings purposes
and as of the end of the period presented for balance sheet purposes. The
unaudited pro forma financial information reflects the assumption by the Company
of $175 million in debt to unrelated third parties as part of the distribution,
at which time Dover Corporation will be released as on obligor (see note A);
however, these financing arrangements are not finalized and may change. The $175
million represents the current estimate of management; the actual amount to be
borrowed by the Company (and the amount of the distribution) will be determined
based on the Company's financial position at the distribution date. The
following data is presented for illustrative purpose only and is not necessarily
indicative of the financial position or results of operations of the Company
which would have occurred had the Elevator Spin actually been consummated as of
such date, nor is this information indicative of the future financial position
or results of operations of the Company. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included elsewhere.
F-16
<PAGE> 85
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
PRO FORMA BALANCE SHEET (UNAUDITED)*
AT MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------- --------- ---------
<S> <C> <C> <C>
Assets:
Current Assets:
Cash & cash equivalents $ 28,353 $ (25,000) (A) $ 3,353
Receivables, net of allowance for doubtful accounts 200,567 -- 200,567
Inventories 68,556 -- 68,556
Prepaid expenses 7,735 -- 7,735
----------------------- ---------
Total current assets 305,211 (25,000) 280,211
----------------------- ---------
Property, plant & equipment (at cost) 140,157 -- 140,157
Accumulated depreciation 85,522 -- 85,522
----------------------- ---------
Net property, plant & equipment 54,635 -- 54,635
----------------------- ---------
Intangible assets, net of amortization 33,340 -- 33,340
Other intangible assets 3,009 -- 3,009
Deferred charges & other assets 10,955 -- 10,955
----------------------- ---------
$ 407,150 $ (25,000) $ 382,150
======================= =========
Liabilities:
Current Liabilities:
Notes payable $ -- $ -- $ --
Accounts payable 29,231 -- 29,231
Accrued compensation & employee benefits 24,241 -- 24,241
Accrued insurance 76,565 -- 76,565
Other accrued expenses 51,926 -- 51,926
----------------------- ---------
Total current liabilities 181,963 -- 181,963
----------------------- ---------
Due to Dover Corporation 7,113 7,113
Long-term debt 175,000 (B) 175,000
Deferred compensation 13,517 -- 13,517
Stockholder's equity:
Common stock 200 246 (C) 446
Additional paid-in capital 2,425 (246) (C) 2,179
Accumulated other comprehensive earnings (10,480) -- (10,480)
Retained earnings 212,412 (200,000) (C) 12,412
----------------------- ---------
204,557 (200,000) 4,557
----------------------- ---------
$ 407,150 $ (25,000) $ 382,150
======================= =========
</TABLE>
* As if Spin-off had happened at 3/31/98.
Actual spin-date balance sheet will differ.
F-17
<PAGE> 86
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
PRO-FORMA STATEMENT OF EARNINGS (UNAUDITED)*
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 218,575 $ -- $ 218,575
Cost of sales 154,564 -- 154,564
----------------------- ---------
Gross profit 64,011 -- 64,011
Selling & administrative expenses 39,297 858 (D) 40,155
----------------------- ---------
Operating profit 24,714 (858) 23,856
----------------------- ---------
Other deductions (income):
Net Interest (47) 3,377 (B) 3,330
Foreign exchange 420 -- 420
All other, net (412) -- (412)
----------------------- ---------
Total (39) 3,377 3,338
----------------------- ---------
Earnings before taxes on income 24,753 (4,235) 20,518
Federal & other taxes on income 8,840 (1,647) (E) 7,193
----------------------- ---------
Net earnings $ 15,913 $ (2,588) $ 13,325
======================= =========
Basic earnings per common share $ 0.30
Basic weighted average shares outstanding (F) 44,555
Diluted earnings per common share $ 0.30
Diluted weighted average shares outstanding (F) 44,625
</TABLE>
* As if Spin-off had happened at 1/1/97.
F-18
<PAGE> 87
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
PRO-FORMA STATEMENT OF EARNINGS (UNAUDITED)*
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 852,871 $ -- $ 852,871
Cost of sales 613,735 -- 613,735
--------- --------- ---------
Gross profit 239,136 -- 239,136
Selling & administrative expenses 148,481 3,063 (D) 151,544
--------- --------- ---------
Operating profit 90,655 (3,063) 87,592
--------- --------- ---------
Other deductions (income):
Net Interest (16) 12,600 (B) 12,584
Foreign exchange 165 -- 165
All other, net 415 -- 415
--------- --------- ---------
Total 564 12,600 13,164
--------- --------- ---------
Earnings before taxes on earnings 90,091 (15,663) 74,428
Federal & other taxes on earnings 33,994 (6,093) (E) 27,901
--------- --------- ---------
Net earnings $ 56,097 $ (9,570) $ 46,527
========= ========= =========
Basic earnings per common share $ 1.04
Basic weighted average shares outstanding (F) 44,636
Diluted earnings per common share $ 1.04
Diluted weighted average shares outstanding (F) 44,695
</TABLE>
* As if Spin-off had happened at 1/1/97.
F-19
<PAGE> 88
DOVER ELEVATORS, INC. AND SUBSIDIARES
(A WHOLLY OWNED SUBSIDIARY OF DOVER CORPORATION)
PRO FORMA NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. The unaudited pro forma financial information reflects the assumption
by the Company of $175,000,000 of new borrowings at current interest
rates (7.2%), resulting in pro forma interest expense; distribution of
excess cash and the capitalization of the Company as of the time of the
spin-off. The Company intends, and expects to have the ability, to
finance its debt on a long-term basis; however, these financing
arrangements are not finalized. Any such borrowings which the Company
does not finance on a long-term basis will continue to be classified as
current.
B. To reflect the $175,000,000 of new borrowings and related interest expense
of $3,377,000 for the three months ended March 31, 1998 and $12,600,000
for the year ended December 31, 1997.
C. To reflect the proposed capitalization of the Company as a result of the
spin-off. The distribution of 1 share of Company stock for every five
shares of Dover Corporation Stock results in a pro forma number of shares
equal to approximately 44,597,500 shares based on the number of
outstanding Dover Corporation Shares at March 31, 1998. The par value is
stated as $.01 per share resulting in $246,000 being reclassified from
additional paid-in capital to common stock. The adjustment to retained
earnings is comprised of the distribution to Dover Corporation concurrent
with the spin-off (Note A).
D. Represents the additional estimated costs expected to be incurred by the
Company on a prospective basis, including the incremental cost associated
with the Company's status as an independent public company such as audit
fees, directors and officers insurance, annual meetings, printing fees,
etc. A portion of these costs has been included in the historical
financial statements.
E. Records the estimated income tax effect on the pro forma adjustments
described in notes B and D using the Company's combined Federal and State
rate of 38.9%.
F. Pro forma earnings per share is determined based on the number of common
shares and common share equivalents of Dover Corporation based on the
distribution of one share of the Company for every five shares of Dover
Corporation in connection with the spin-off.
The increase in the average number of shares used to compute diluted
earnings per share reflects incremental Dover Elevator, Inc. shares
pursuant to Dover Corporation stock options currently outstanding and
exercisable. The Company intends to implement its own stock option plan,
the details of which have not been finalized. No such options have been
granted, however when granted a different effect on dilution may result.
F-20
<PAGE> 89
SCHEDULE II
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Dover Corporation)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Cost and Deductions Close of
Year Expense (1) Year
---- ------- --- ----
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for Doubtful Accounts $6,862 $3,915 $3,088 $7,689
Year Ended December 31, 1996
Allowance for Doubtful Accounts $5,424 $4,712 $3,274 $6,862
Year Ended December 31, 1995
Allowance for Doubtful Accounts $3,051 $4,624 $2,251 $5,424
</TABLE>
Notes:
(1) Represents uncollectible accounts written off and reduction of prior years'
over-provision less recoveries of accounts previously written off.
<TABLE>
<CAPTION>
Charged,
Balance at (Credited) to Balance at
Beginning of Cost and Acq. by Close of
Year Expense Merger Year
---- ------- ------ ----
(in thousands)
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Lifo Reserve $5,994 $ (226) $ -- $5,768
Year Ended December 31, 1996
Lifo Reserve $6,199 $ (205) $ -- $5,994
Year Ended December 31, 1995
Lifo Reserve $6,088 $ 111 $ -- $6,199
</TABLE>
F-21
<PAGE> 90
DOVER ELEVATORS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Dover Corporation)
Schedule of Property
<TABLE>
<CAPTION>
Number and Nature of Facilities Square Footage (000'S)
------------------------------- ----------------------
Ware- Sales/
Mfg. house Service Owned Leased
---- ----- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Elevator 5 40 200 312 2,015
<CAPTION>
Locations Leased Facilities
------------------------------- -----------------------
North Expiration dates (Years)
American Europe Other Minimum Maximum
-------- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C>
Elevator 193 7 19 1 61
</TABLE>
F-22
